Internet Computer (ICP) Is Bringing Smart Contracts to Bitcoin

Developing Around Bitcoin as Digital Gold

Dfinity, the foundation that developed the Internet Computer, recognizes that bitcoin is digital gold while Ethereum, which introduced smart contracts, is the global settlement layer. The Internet Computer was conceived as the scalable smart contract platform that will bring it all together. For me, this recognition that bitcoin is digital gold is important. Bitcoin is the most ubiquitous form of money (value, capital) in the crypto sector.

Any smart contract platform must include bitcoin if it wants to be competitive with other chains. It stands to reason that the platform that has the best integration with bitcoin will outcompete the rest. Right now, that is Ethereum because of its first-mover advantage. However, I would argue that Ethereum has a capital advantage, not a technical one. In fact, Ethereum is susceptible to attacks that could drive holders of WBTC to move their bitcoin elsewhere.

Implementation Matters: Not Your Keys, Not Your Bitcoin

With the latest $320 million-dollar hack on Wormhole, one wonders whether or not wrapping tokens is the best approach to using bitcoin on other blockchains. Wrapped bitcoin must first be “bridged” to the destination chain. These intermediary bridges or wrapping authorities then become honeypots for hackers. It doesn’t matter if Ethereum has the first-mover advantage if people’s money is being stolen. A lack of security is the biggest disadvantage a network can have. It can be fatal.

This is why I am impressed with the implementation path chosen by the Internet Computer development team. The easy thing to do would have been to implement yet another Ethereum Virtual Machine like Binance Smart Chain, or Crypto.org’s Cronos, or even Rootstock’s Bitcoin sidechain. But they chose to do the difficult work of implementing a system wherein the user keeps the keys. Albeit this means that bitcoin smart contracts (“canisters”) on the Internet Computer are only as fast as bitcoin transactions (~10 minutes or less on average). However, if bitcoiners appreciate anything, it is keeping control of their keys. I don’t see speed being an issue for users of these systems. If bitcoiners want speed, they have the lightning network.

How Does the Internet Computer Handle Bitcoin?

The actual implementation of how a smart contract platform handles bitcoin is very important. With wrapped bitcoin (WBTC), actual BTC is held in a multisig wallet, and WBTC is issued at a 1:1 rate against it on the corresponding blockchain. That may be Ethereum’s WBTC, or Binance’s BTCB. The user must trust that the entities holding the keys to the multisig wallet will not collude with one another and run off with the bitcoin.

The Internet Computer has developed a novel system that interfaces directly with the Bitcoin blockchain. It allows developers to build canister smart contracts that can run code that speaks directly to the Bitcoin blockchain. Canisters can hold bitcoin, read bitcoin transactions (UTXOs), and send bitcoin transactions. The difference is that users can retain access to their private keys while using bitcoin on the Internet Computer. So if someone builds a DeFi dapp that allows users to lend their bitcoin to other users, they are able to lock real bitcoin into a transparent smart contract in a trust-minimized way.

If you must wrap bitcoin, a version of wrapped bitcoin is planned for the Internet Computer that involves a ledger-based implementation. It won’t be wrapped like WBTC, but similar to tBTC/renBTC while being more secure. Nevertheless, I’m particularly impressed by the blockchain’s novel approach to incorporating plain BTC, and how it differs from every other network that wraps it.

Can Internet Computer Smart Contracts Be Trusted?

I’ve been using the term “trust-minimized” throughout this article. The aspect of trust here is that the smart contracts that control and govern the sending/receiving of bitcoin will not be hacked. As stated within the Dfinity documentation, the interaction between the Internet Computer and Bitcoin happens in a trustless manner. This is true, but I would maintain that there is still a level of trust required (although minimized) within the Internet Computer as a whole, and the canisters that are handling bitcoin.

The Internet Computer gets some trust points for open-sourcing its entire system. Like Ethereum smart contracts, the code that runs canister smart contracts on the Internet Computer can be audited and validated by third parties. This also means that hackers can read the code and potentially exploit any bugs, but this is simply the nature of software. It is not hard to imagine a world where we collectively attain a high degree of confidence in the security of smart contracts that handle our money.

Bitcoin Canisters Launch Date

According to the Dfinity roadmap, the launch of the bitcoin integration is set for the end of Q1 2022. Developers wishing to test out the Bitcoin integration can do so right now via the developer preview.

Programmers and app builders can already build smart contracts (canisters) that receive, hold, and send bitcoin on a local development testnet. The developer preview is a great first step, as it allows coders and tinkerers to find bugs and start building dapps for the ecosystem. Grants are also available for developers who are looking to get funding for their Internet Computer projects.

It may seem like the Internet Computer is in its early days, but one thing I can appreciate is that time was spent building something new and useful for bitcoin.