Bitcoin is the world’s biggest cryptocurrency, yet it lacks support for smart contracts. By directly integrating with the Bitcoin network, the Internet Computer can unlock this liquidity while extending the functionality of smart contracts, supporting new DeFi implementations and dapp scenarios.<\/p>\n
The ICP community\u2019s recent approval of a motion proposal to begin the Bitcoin integration update will make it possible for smart contracts on the Internet Computer to send and receive bitcoin (BTC).<\/p>\n
So\u2026 why does this matter?<\/p>\n
It means that BTC transactions made between Internet Computer smart contracts, which the protocol calls \u201ccanisters,\u201d will occur on the Bitcoin blockchain. This isn\u2019t wrapped bitcoin (WBTC), the conversion to an ERC20 token that can be used on Ethereum \u2014 it\u2019s real BTC transactions taking place directly on the Bitcoin network.<\/p>\n
More importantly, because these canisters can hold Bitcoin addresses, the transactions can be made without the need to trust a third party.<\/p>\n
Using bitcoin in smart contracts currently requires users to transfer it to Ethereum \u2014 or one of the so-called \u201cEthereum killer\u201d smart contract blockchains like Avalanche, Cardano, and Binance Smart Chain \u2014 using wrapped bitcoin. Cross-chain protocols do the same for a variety of cryptocurrencies.<\/p>\n
That\u2019s a problem, because it requires users to do something antithetical to the basic idea of trustless blockchain technology: rely on trusted intermediaries called bridges.<\/p>\n
Currently, there are two options for making a bitcoin transaction via smart contract. The first is to sell it on an exchange for ether or another ERC-20 token, make the transaction, and then sell those tokens for bitcoin. The other increasingly popular alternative is to rely on a bridge, or \u201ccross-chain\u201d protocol, that wraps bitcoin, or any other token you want to use on a different blockchain.<\/p>\n
Bridge protocols are essentially custodians that say, \u201cSend your bitcoin to us, and we\u2019ll loan you some wrapped bitcoin for use on Ethereum,\u201d or on another blockchain that uses the Ethereum Virtual Machine to run smart contracts. When users want to cash out, they then re-exchange the wrapped bitcoin in return for their real bitcoin.<\/p>\n
All of this wrapping relies on trusted intermediaries \u2014 which means it can go horribly wrong.<\/p>\n
For example, see the recent Poly Network hack in August. The bridge protocol for bitcoin and other ERC-20 tokens was attacked by a hacker who was able to drain $612 million in various tokens it was holding in trust for users, forcing it to shut down its cryptocurrency bridges. Though the hacker was nice enough to return it all, the hack is thought to be the single largest theft of cryptocurrency ever.<\/p>\n
Unfortunately, cross-chain bridges are inherently vulnerable. Ahead of the Poly Network hack, the bridge protocols ChainSwap and AnySwap were hacked, with several millions of dollars in tokens stolen. This September, pNetwork was robbed of roughly $12 million in bitcoin wrapped as pBTC.<\/p>\n
The Internet Computer bypasses bridges for bitcoin entirely. Its transactions take place on the Bitcoin blockchain \u2014 neither the data nor the token leaves it.<\/p>\n
\u201cYou can write smart contract logic on the Internet Computer that will actually move bitcoin on the Bitcoin network,\u201d Dfinity founder and chief scientist Dominic Williams said in a video discussing the update, calling the feature \u201cextraordinarily exciting.\u201d<\/p>\n
Dfinity sees the Internet Computer as the third great innovation in blockchain.<\/p>\n
\u201cFirst, Bitcoin introduced traditional cryptocurrency, which plays the role of digital gold in 2009. Second, Ethereum added smart contracts so that digital gold could be used in decentralized financial systems,\u201d explained Williams, referring to DeFi.<\/p>\n
\u201cNow the Internet Computer introduces an infinite blockchain with the speed, capacity, and usability required to reimagine everything on-chain,\u201d he added, noting that canister smart contracts can serve HTTP requests and interactive content. \u201cIt\u2019s a blockchain that provides seamless and limitless capacity for hosted smart contracts. It creates the world\u2019s first web-speed, web-serving, public blockchain network, which can grow capacity with demand.\u201d<\/p>\n
Because the network can scale indefinitely and run at web speed, it can host any number of canister smart contracts \u2014 and therefore any amount of data \u2014 fully on-chain. \u201cMoreover, it can run them concurrently,\u201d Williams noted, \u201cwhich means that it can process any amount of computation. This means that you can create dapps that scale.\u201d<\/p>\n
The impact for DeFi dapps would be far-reaching. With the Bitcoin integration, Williams said, \u201cI believe we\u2019ll see some extraordinary applications of the combination emerging very quickly.\u201d<\/p>\n
While there are a lot of benefits to integrating Bitcoin \u2014 the protocol\u2019s base code is stable and its massive liquidity makes it valuable \u2014 the Internet Computer won\u2019t stop there. A proposed Ethereum integration is also on its feature roadmap.<\/p>\n
Don\u2019t read much into the decision to start with Bitcoin, said Lomesh Dutta, Dfinity\u2019s VP of growth. The biggest reason to hold off on integrating Ethereum is that Ethereum developers are working toward switching to a more scalable proof-of-stake governance system.<\/p>\n
Integrating with Ethereum is very important, Williams said, as it means Ethereum smart contracts will be able to work with smart contracts on the Internet Computer and vice versa.<\/p>\n
The Internet Computer is also 100% hardware-hosted, designed specifically so it cannot run on virtual hosted nodes.<\/p>\n
\u201cThere\u2019s no such thing as a real dapp outside the Internet Computer,\u201d he argued, noting that the front ends of most dapps are hosted in the cloud, typically by Amazon Web Services. This means that there is an AWS account with someone\u2019s name on it, which in turn means that there is someone you have to trust.<\/p>\n
\u201cThat, to me, is pretty bad,\u201d Williams said.<\/p>\n
According to Thomas Locher, Dfinity senior researcher and an author of the Bitcoin integration proposal, there is one thing to be aware of with Internet Computer smart contracts. Some canisters are created and operated by a controller who is able to rewrite the smart contract\u2019s logic, changing the contract after it is created, which can\u2019t be done with Ethereum smart contracts or autonomous, immutable canister smart contracts on the Internet Computer.<\/p>\n
In practice, before users send their funds, they would have to confirm whether the canister is autonomous or a controller that they can trust.<\/p>\n
The solution, Locher noted, is to verify that \u201cthere is no controller. Because once you remove that controller, it [the autonomous canister smart contract] is very similar to an Ethereum smart contract.\u201d<\/p>\n
Ultimately, Williams sees the Internet Computer producing what he calls \u201cblockchain singularity.\u201d Integrating with Bitcoin is a big step toward that vision.<\/p>\n
\u201cLet\u2019s rebuild everything using smart contracts on the Internet Computer,\u201d Williams said, \u201cwhich runs on a public network, tamper-proof and unstoppable.\u201d<\/p>\n