What is a puzzle grid?

September 15 What is a puzzle grid?

Since its introduction, Bitcoin has promised to revolutionize the way our money works by offering programmability. However, delving into its technical underpinnings can be daunting, especially for those new to the cryptocurrency space. Today we will try to demystify the Enigma Network, a pioneering solution to Bitcoin's scalability issues.

Enigma Network: Settlement layer for Bitcoin

At its core, the Enigma network acts as a “settlement layer” between Bitcoin’s primary blockchain and its secondary layers. It connects the Bitcoin main chain (L1) and layer 2 solutions such as the Lightning Network or RGB (L2). Enigma's primary function is to aggregate transactions, allowing simultaneous execution on both L1 and L2. This layer offloads important data, relieving pressure on both primary and secondary chains. The only problem is that everything will work using Check Template Verify (CTV), which should be implemented in Bitcoin under a future soft fork.

In a traditional Bitcoin transaction setup, one sends a transaction to be mined within a block. Using the Enigma network approach, multiple actions can be performed in parallel, as multiple transactions are represented by a single linking transaction. Keep in mind that you need to make three transactions. You can calculate the SHA256 hash of all these transactions and embed this hash within an underlying transaction that uses CTV at its core.

This anchor acts as an on-chain reference and certificate for the three transactions, but the details of each transaction are not kept on-chain. This ensures that transactions are confirmed without cluttering the main blockchain. CTV, specifically through BIP-119, introduces the concept of pre-transactions. This means that instead of only being able to transact with already confirmed UTXOs, users can now sign and execute transaction intents ahead of time.

Think of this as bundling multiple nested transactions within a single hash – an anchor – thus reducing space on the chain and increasing efficiency. With CTV, transaction aggregation is possible, meaning multiple transactions can be represented and verified using a single anchor, significantly reducing the burden on the Bitcoin blockchain. We covered CTV recently, in our article about the Bitcoin soft forks that the community is currently discussing.

What kind of advantages can anchor transactions provide?

One of the main advantages is non-interactive channels or quick channels that do not need to be mutually established. It can remain dormant (or “cold”) until you decide to reveal it. This flexibility allows users to recreate channels without requiring new transactions, which is a useful feature for privacy and efficiency.

Another advantage is improved confidence reduction. In the traditional Bitcoin ecosystem, a certain degree of trust is needed, especially in scenarios where private keys are likely to be exposed. However, with basic transactions, the risks are mitigated as only hashed references are used. The goal is to enhance security and remove barriers of trust. For example, certain tasks such as state-chain-based private key swaps, creating vaults, or handling inheritances can now be performed without having to delete private keys, ensuring safety and preventing loss of funds.

Another big benefit that the Enigma Network can provide is significantly reducing the on-chain footprint. Since each anchor represents multiple transactions, on-chain activity will be greatly reduced. This not only saves space but also reduces transaction costs. Users are free to create as many transaction intents as needed without disrupting the network.

The entire Bitcoin community benefits from this system. Every transaction and UTXO on the blockchain becomes a shared asset. Instead of individual ownership, each transaction acts as an anchor for the economic activity embedded within retail. Using these techniques can significantly reduce on-chain transactions, as the real activity is essentially “hidden” within hashes of the underlying transaction.

Integrating CTV into the Enigma core transaction network has the potential to redefine Bitcoin's transaction landscape. It provides a simpler, more efficient, and more comprehensive transaction mechanism, making Bitcoin more scalable and easy to use. By leveraging the power of CTV, the Enigma Network will pave the way for a more advanced Bitcoin ecosystem.

Advanced UTXO variants of the Enigma Network

The Enigma Network offers a new, deterministic approach to cross-chain transactions, featuring automatic UTXO aggregation and asynchronous payments. As collaboration within the network increases, so do the scalability and privacy features. This modern framework encourages users to move from thinking about individual transactions to conceptualizing broader tasks.

Here is a brief summary of the new UTXO variants proposed within the Enigma network:

• ATXO (Anchor UTXO) – ATXOs represent the underlying UTXOs committed to the blockchain. They act as anchors, holding references to off-chain transactions.
• LTXO (Lightning UTXO) – LTXO refers to bitcoins stored in Lightning channels, facilitating faster off-chain transactions.
• STXO (UTXO Settlement) – STXOs embody normal transaction tasks, such as channel operations or standard payments. Instead of being directly committed to the blockchain, STXOs are held by ATXOs. It is unique in that it can only serve as input to create a Partially Signed Bitcoin Transaction (PSBT) targeting ATXO. It is important to note that mishandling or losing STXOs may result in money losses.
• VTXO (Virtual UTXO) – VTXOs are ephemeral UTXOs with privacy features similar to electronic cash. They provide enhanced transaction privacy and are exchanged between users without the need for a Mempool, ensuring a private, non-interactive transaction experience.

One of the key characteristics of the Enigma Network is its focus on collaborative payments. Instead of isolated transactions, users can collaborate with channel partners for bulk payments, which may result in a small fee for merging transactions.

Furthermore, while only ATXOs are directly committed on-chain, STXOs and VTXOs can be freely traded between users without Mempool participation. If users decide to revert their LTXOs, STXOs or VTXOs to standard UTXOs, these will be reflected as having been taken out of the associated ATXO pool. Subsequent transactions with ATXO will reintegrate it into the network.

At its core, the Enigma Network provides an efficient, multi-layered transaction ecosystem, enhancing scalability and privacy through innovative UTXO variants.

Potential positive impact on scalability

Transactions need to interact with the main chain only when visibility or writing is mandatory. This reduces the burden of storing data on L1. Meanwhile, L2 (Lightning) channel opening and closing transactions can be deleted once they become redundant, beyond their need to be integrated into the blockchain. This simplifies Bitcoin's main chain, and reduces demand on precious block space.

Enigma's introduction of 'payment aggregators' is a game changer. Users can pool their funds and share the costs of transaction fees. These complexes can merge in cooperative endeavors and subsequently separate. This new feature reshapes Bitcoin transaction processing, reducing costs for all pool members.

In the Enigma network, payment aggregators act as a collaborative mechanism where several individuals jointly manage a single ATXO. Each pool participant maintains a stake in the shared UTXO. True novelty appears when two individuals, each belonging to separate payment pools, transact: their two pools can temporarily merge into a single unified ATXO. This combination is not permanent; It is possible that subsequent transactions could lead the pools to diverge again, reflecting the intermittent nature of cooperation.

The flexibility inherent in these dynamic mergers and demergers leads to transaction complexity and versatility. Furthermore, within the payment pool, participants have the advantage of sharing transaction costs, ensuring that no single member is charged exorbitant fees. This shared cost structure keeps the complex economically competitive. Interestingly, internal transactions and modifications within these complexes remain obscure, preserving privacy by making internal UTXO redistributions externally undetectable.

When a payment accumulator is created, it can have many inputs but will result in a single ATXO output. If only internal modifications are made during on-chain updates, the resulting transaction will return the original, updated ATXO, devoid of any outputs. However, if there is a breakdown in cooperation or the introduction of new members, the underlying transaction will show additional entries and ATXOs are expelled.

Enigma is also a pioneer in “transaction pooling” and decentralized mining pools (dpools). Decentralized mining pools, or dpools, represent a groundbreaking shift in the mining landscape by offering a decentralized approach to mining operations. Unlike traditional mining pools, where a central entity oversees operations, dpool pools are democratic in nature.

It operates without a central authority governing the funds, and all operations are handled directly through blocks, eliminating dependencies on communication channels such as DNS. This design ensures that once the dpool die is set with the opening mined block, it remains resistant to external domination or control. One notable advantage of dpools is the fair distribution of pooled fees across multiple blocks, ensuring a consistent reward for miners regardless of individual block fee variations.

Within the dpool framework, innovative features emerge, including “squeeze”. This mechanism enables simplified cross-chain transactions by consolidating multiple payments to a single recipient into a single transaction. For example, if Alice and Carol both intend to pay Bob, their transactions can be compressed, merging their UTXOs into a single UTXO addressed to Bob.

The magic intensifies when participants like Alice, Bob and Carol become members of individual pay groups. Through the dpool function, their separate pools can converge into a unified entity, allowing transactions to be efficiently consolidated directly at the underlying layer of the network. This not only optimizes space but also increases the number of transactions accommodated per block.

With the growing popularity of protocols such as Ordinals, Stamps, and BRC-20, transaction fees recently rose by 500% and have remained high for several months. This rise stresses the system and upsets the economic balance. Enigma's solution is UTXO assembly. Users can split transaction costs within the pool, significantly reducing individual fees. Miners enjoy higher overall fees from these bulk transactions, while loggers can schedule the processing of their data during less busy times, promoting consistent operations. Copywriters, who act as backup buyers of block space, can modify their systems to only conduct transactions when fees are most economical.

The Enigma Network is emerging as a game-changing innovation, with the potential to redefine Bitcoin's scalability and improve the efficiency of the accelerating network. At its core, Enigma offers a new approach to transactions, with an emphasis on multi-threaded actions, underlying transactions, and the strategic use of different UTXO variables. This design allows for significant reductions in on-chain activity, thus relieving congestion on the Bitcoin blockchain.

The seamless integration between Enigma's core transactions and the accelerator network (or another potential second layer) blurs the lines between Bitcoin's core layer and secondary scaling solutions. In doing so, Enigma paves the way for a more comprehensive ecosystem where atomic actions can span across both layers, increasing efficiency and scalability.