• Bitcoin Settlement — Corrected Model
  • The Core Correction
  • Merge-Mining Model
    • How Merge-Mining Works
    • Key Insight
  • Settlement Mechanisms (Corrected)
    • 1. Merge-Mined Proof of Work (Primary)
    • 2. OP_RETURN Anchoring (Optional, KAP-140)
    • 3. Lightning Payments (For Postage/Subscriptions)
    • 4. Hedlbit Claims (Work Proof)
    • 5. Treasury Multisig (Fund Security)
    • 6. CoinJoin Privacy (Optional)
  • What “Settled on Bitcoin” Actually Means
  • The Key Distinction
  • Why This Matters

§Bitcoin Settlement — Corrected Model

§The Core Correction

I was wrong before. Kapnet is NOT “anchored to the Bitcoin blockchain” in the sense of OP_RETURN commitments of state roots. That’s one option (KAP-140), not the default.

The actual relationship is merge-mining: Kapnet’s proof-of-work operates at a lower difficulty than Bitcoin, and the two are merge-mined. Kapnet blocks are NOT Bitcoin blocks. They’re separate, lighter-weight blocks that are mined alongside Bitcoin blocks.

§Merge-Mining Model

BITCOIN BLOCK (difficulty: high)
├── Coinbase transaction
│   └── Contains hash of Kapnet block (MM commitment)
├── Bitcoin transactions
└── Proof-of-work: SHA-256, high difficulty

KAPNET BLOCK (difficulty: low)
├── TXXM submissions
├── Braid state transitions
├── Knot commitments
└── Proof-of-work: SHA-256, low difficulty
    └── Merge-mined with Bitcoin block

§How Merge-Mining Works

1. Bitcoin miner constructs block template
2. Kapnet block hash is embedded in Bitcoin coinbase
3. Miner finds nonce that satisfies Bitcoin difficulty
4. The same work proves both Bitcoin block AND Kapnet block
5. Kapnet block is valid because it’s referenced in a valid Bitcoin block

§Key Insight

• Kapnet difficulty << Bitcoin difficulty
• Kapnet blocks are NOT on the Bitcoin blockchain
• Kapnet blocks are PROVEN by Bitcoin blocks (via merge-mining)
• No OP_RETURN needed for basic operation
• OP_RETURN (KAP-140) is optional for stronger anchoring

§Settlement Mechanisms (Corrected)

§1. Merge-Mined Proof of Work (Primary)

Kapnet block: 850,000
  Difficulty: 2^64 (example)
  Hash: sha256:abc123...
  Merge-mined with Bitcoin block: 850,012
  Bitcoin coinbase contains: sha256:abc123... (Kapnet block hash)
  
Settlement: Kapnet block is valid because it's referenced in a valid Bitcoin block.
No on-chain cost for Kapnet itself. The Bitcoin miner's work proves both.

§2. OP_RETURN Anchoring (Optional, KAP-140)

For stronger guarantees, Kapnet state root can be committed via OP_RETURN:
  Bitcoin tx: ... OP_RETURN <sha256:knot_state_root>
  Cost: ~1,000-5,000 sats per anchor
  Frequency: Every N knots or on demand
  This is OPTIONAL, not required for basic operation.

§3. Lightning Payments (For Postage/Subscriptions)

User submits TXXM:
  1. Kapnet generates BOLT-11 invoice (via lnd)
  2. User pays via Lightning
  3. lnd confirms payment
  4. TXXM accepted to braid
  
This is NOT settlement of the protocol state. This is payment for services.
The protocol state is settled via merge-mining.

§4. Hedlbit Claims (Work Proof)

User performs work (validation, storage, mining):
  1. Work proof submitted as TXXM
  2. Validators attest work is valid
  3. Hedlbit credited to user's npub
  4. Hedlbit can be spent on: postage, storage, governance weight
  
Hedlbit is NOT a token on Bitcoin. It's an accounting unit in the Kapnet state tree.
Earned via work (proof of work at Kapnet difficulty).
Spent within the Kapnet ecosystem.

§5. Treasury Multisig (Fund Security)

Pluronymous treasury:
  Cold storage: 2-of-3 multisig on Bitcoin
  Hot wallet: Lightning + on-chain
  
Routine sweep (≤ 1M sats): Key A + Key B sign
Large move (> 1M sats): Key A + Key B + Key C sign
Emergency: Any 2 of 3

This secures the Bitcoin funds. Not the Kapnet state.

§6. CoinJoin Privacy (Optional)

Before distributing funds:
  Treasury UTXO → Whirlpool CoinJoin → mixed UTXO → recipients
  
This is for privacy of Bitcoin payments. Not for Kapnet state.

§What “Settled on Bitcoin” Actually Means

1. Protocol state: Settled via merge-mining (Kapnet blocks proven by Bitcoin blocks)
2. Payments: Settled via Lightning (instant) or on-chain (slow)
3. Treasury: Secured via Bitcoin multisig
4. Privacy: Via CoinJoin (optional)
5. Optional anchoring: OP_RETURN for stronger guarantees (KAP-140)

§The Key Distinction

§Why This Matters

The merge-mining model means:

• Kapnet does NOT compete with Bitcoin for block space
• Kapnet does NOT require Bitcoin consensus changes
• Kapnet inherits Bitcoin’s security (via merge-mining)
• Kapnet can operate at much lower difficulty (faster blocks)
• Kapnet state is separate from Bitcoin state (not on-chain)

This is the correct model. My earlier description of “anchored to the blockchain” was imprecise. The protocol is merge-mined, not anchored.