Bitcoin Smart Contracts Are Coming to Internet Computer DeFi Projects
Sonic, InfinitySwap, and ICPSwap are preparing to leverage the Internet Computer blockchain’s direct integration with Bitcoin.
The mining of Bitcoin’s “Genesis Block” on January 3, 2009 is one of the biggest technological events in recent history. Bitcoin, now the world’s largest cryptocurrency, demonstrated the first use case for the immutable, transparent, and tamper-proof ledger technology called blockchain, laying the foundation for the development of today’s crypto industry.
Smart contracts were later introduced by Ethereum, with blockchain networks becoming full-fledged financial ecosystems that facilitate complex transactions in a trustless way. But if Bitcoin were to also have advanced smart contracts, developers would finally be able to build a variety of dapps and DeFi projects that can natively use BTC, unlocking immense value and bringing the adoption of crypto and DeFi further into the mainstream.
In a major step toward that reality, the Internet Computer blockchain will soon launch a direct integration with the Bitcoin network by the end of Q1 — and next-generation DeFi projects like Sonic, InfinitySwap, and ICPSwap are preparing to leverage the upgrade.
Trustless Bitcoin Integration: No Bridge
Rather than “bridging” BTC into the Internet Computer, the integration implements Chain Key cryptography to establish a secure, direct interface with the Bitcoin ledger, making it “trustless” rather than reliant on an intermediary. This enables developers to build canister smart contracts that communicate with the Bitcoin network. Users maintain their private keys, and all signatures are created using a multi-party protocol. A Bitcoin Adapter connects to the Bitcoin mainnet to retrieve blocks and send outgoing transactions. Canister smart contracts on the Internet Computer effectively become Bitcoin wallets, with the ability to receive, hold, and send BTC.
“Dapps on the Bitcoin-integrated Internet Computer network will have a much better user experience because of Chain Key technology,” says InfinitySwap CEO Max Chamberlin. “On InfinitySwap, for example, you’ll be able to transfer your BTC directly to another Bitcoin address to enter a liquidity pool. On other chains the process has more steps, involves centralized bridges, and you also need to hold the base-layer coin. Here, all you need is BTC to participate.”
ICPSwap plans to integrate BTC as the base currency for trading.
“The Internet Computer can help the Bitcoin network achieve directly interoperable scalability and attract more Bitcoin developers to create DeFi applications for Bitcoin,” says the ICPSwap team. “Through the Chain Key cryptography, the Internet Computer can quickly and inexpensively maintain and process the data generated by the large number of DeFi applications using Bitcoin.”
A New DeFi Hub
Smart contracts using the Bitcoin network will bring a paradigm shift, allowing Bitcoin’s liquidity to flow into a new hub for DeFi applications. Bitcoin-based lending and borrowing protocols as well as AMM DEXs involving BTC are set to become a reality.
“On ICPSwap, it will soon be possible to use $BTC as part of the liquidity of the asset and as the underlying asset to create pairs like $ICP/$BTC and $ICS/$BTC,” says the ICPSwap team. “The successful integration with Bitcoin will significantly facilitate the growth of ICPSwap asset liquidity and increase user participation.”
“Bringing BTC liquidity into the Internet Computer can allow the Bitcoin ecosystem and IC projects to tap into a new wave of use cases and multi-chain asset interactions,” adds Sonic COO Nicholas Poggi. “Everything from BTC smart contracts on IC canisters powering complex DeFi operations like lending, to creating a wrapped version of BTC on the IC and having it seamlessly interoperate with other IC tokens and assets from other Terabethia-bridged chains (e.g. Ethereum) on an AMM like Sonic.”
There are also plans to introduce an Internet Computer-native form of wrapped Bitcoin based on the direct integration, through a canister governed by the NNS. A ledger-based implementation would enable users to obtain a new form of “wrapped” BTC without requiring additional trust assumptions. Because the Internet Computer makes DeFi with zero gas fees possible, this new asset would be usable on the network without any of Bitcoin’s limitations — high on-chain fees, low scalability, low capacity, etc. — substantially reducing transaction costs and finality.
“The most immediate benefits DEXs can get from the Internet Computer are faster transaction speeds and extremely low fees,” notes Poggi. “That, combined with the Internet Computer’s future native integrations to other chains like Ethereum, can generate a really interesting scenario where DEXs on the IC become a natural L2-like DEX solution for tokens on other networks.”
Bitcoin’s Network Effects
There is also great potential for developers to create Bitcoin-based GameFi and SocialFi dapps on the Internet Computer. They will be uniquely positioned to benefit from Bitcoin’s standing as the world’s most trusted cryptocurrency as well as the Internet Computer’s unmatched scalability, fueling the increased adoption of decentralized networks.
Bitcoin is the world’s largest crypto asset by value and contributes to over 40% of the total cryptocurrency market cap. This monumental value and trust makes Bitcoin’s direct integration with the most powerful general-purpose blockchain a high-impact prospect for the industry, setting the stage for an immense range of new possibilities.
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