Bitcoin staking

Bitcoin itself uses proof of work and has no staking. The idea, popularised by the Babylon protocol launched in 2024, is to let BTC holders lend their bitcoin's economic weight to other chains. Users lock coins in a self-custodial Bitcoin script with a timelock and delegate to a finality provider that helps secure a proof-of-stake network. In return they earn rewards, usually paid in that network's tokens.

The clever part is slashing without smart contracts. Finality providers sign with extractable one-time signatures: if one signs two conflicting blocks, its private key can be derived from the signatures, allowing a pre-signed transaction to burn part of the staked BTC. That gives proof-of-stake chains a penalty mechanism backed by bitcoin rather than their own, often volatile, token.

Rewards are paid in other tokens whose value can fall, slashing can destroy part of the principal, and funds are locked for the staking period. The term is also used loosely in marketing for custodial products that lend BTC out or wrap it, which carry very different risks from self-custodial staking.