Alkimiya Launches Blockchain Protocol to Hedge Bitcoin Transaction Fees

Alkimiya Launches Innovative Blockchain Protocol

Alkimiya, a newly launched blockchain protocol, has introduced a groundbreaking tool that enables users to hedge against the unpredictable transaction fee rates associated with Bitcoin (BTC). However, one of the significant challenges might be persuading staunch Bitcoin enthusiasts—often referred to as “maximalists” or “maxis”—to adopt this new protocol, particularly since it is built on the Ethereum blockchain.

The platform is described as a “blockspace markets protocol” and aims to attract a variety of users, including traders, mining pools, and blockchain foundations. Alkimiya’s founder and CEO, Leo Zhang, noted in an email interview with CoinDesk, “While we recognize that Bitcoin maxis may initially hesitate to use an Ethereum-based solution, our primary focus is on creating the most robust and efficient marketplace for trading Bitcoin transaction fees.”

The necessity for a solution like Alkimiya’s is underscored by recent events: in April, the initiation of Casey Rodarmor’s Runes protocol, which allows for the minting of fungible tokens on the Bitcoin network, caused transaction fees to surge dramatically from $4.80 to $125 per transaction. Alkimiya highlighted this issue, stating, “Bitcoin mining companies, facing high operating costs, are increasingly seeking hedging instruments to protect against fee volatility.”

Founded in 2021, Alkimiya has garnered support from a variety of investors, including Dragonfly, Castle Island Ventures, 1KX, GMR, Coinbase Ventures, Circle Ventures, Tribe Capital, and Robot Ventures. The project successfully raised $7.2 million in funding in January 2023 and subsequently launched on a test network in April.

Bitcoin, which has been in existence since 2009 as a peer-to-peer payments network, boasts a loyal user base that is often skeptical of solutions not built “natively” on its original blockchain. It is noteworthy, however, that Bitcoin lacks the programmability offered by Ethereum, which was established in 2015 by a group of developers, including Vitalik Buterin, who had prior experience with Bitcoin.

Like many decentralized applications and protocols developed on Ethereum, Alkimiya’s architecture necessitates some level of programming knowledge.

How Does Alkimiya Operate?

According to the project’s documentation, “Alkimiya users can enter Buy and Sell positions for any pool. These Buy and Sell positions are represented by NFTs (ERC-1155) called Long and Short shares. Long shares from the same pool share the same tokenId and are fungible, whereas Long shares from different pools have distinct tokenIds and are non-fungible. The same principle applies to Short shares.”

The ERC-1155 standard facilitates a “smart-contract interface capable of representing and controlling an array of fungible and non-fungible token types,” as defined on the Ethereum Foundation’s website. Zhang emphasized the importance of innovation, stating that the project is “actively monitoring” the progression of Ethereum-compatible layer-2 solutions built on the Bitcoin blockchain, along with UTXO-based approaches.

A UTXO, which stands for “unspent transaction output,” is a fundamental aspect of Bitcoin’s architecture, distinguishing it significantly from Ethereum’s account-based model. Presently, many Bitcoin layer-2 solutions remain under development, particularly those aimed at achieving compatibility with Ethereum.

Zhang further explained, “Given that we cannot currently develop on Bitcoin, building on Ethereum represents the most decentralized approach available, which aligns with our commitment to decentralization and avoiding a centralized framework.” The ultimate goal of Alkimiya is to create “seamless integration pathways that make it easy for Bitcoin users to access and utilize our platform without the hassle of managing multiple wallets or interfaces.”