ckBTC: A Decentralized Mechanism for Efficient Bitcoin Transfers
On September 7, 2021, Bitcoin obtained the status of legal tender within El Salvador. Shortly after the adoption of the so-called ‘Bitcoin law’, many Salvadorans had already opened Bitcoin wallets. However, as per a recent study done by the José Simeón Cañas Central American University, in 2023 just 12% of the local population engaged in cryptocurrency transactions in 2023.
Many other organizations and institutions have tried the same, however issues like high fees, problems with wallets and relatively slow transaction settlement times are well documented. Some solutions that provide speed and efficiency have been tried, but much more is required to make Bitcoin-based payments a reality. That’s where the Internet Computer blockchain comes in with Chain-key Bitcoin (ckBTC), an alternative mechanism to hold and transfer Bitcoin with fast settlement times and very low fees.
This article describes how ckBTC could revolutionize Bitcoin-based payments utilizing the capabilities of the Internet Computer blockchain.
The tech used for ckBTC : Native Bitcoin integration
The Internet Computer is integrated with the Bitcoin network at the protocol level, meaning that the former can obtain blocks directly from the latter and natively process the transactions within those blocks. This ability enables the Internet Computer to maintain the entire Bitcoin Unspent Transaction Output (UTXO) set on-chain. Subsequently, canister contracts can run queries against that set and find out & create new Bitcoin addresses, etc.
Such a direct-native- integration allows the Internet Computer to have a trustless connection and interaction with the Bitcoin network without the need for vulnerable bridges or centralized third parties.
What is ckBTC?
ckBTC is a token on the Internet Computer backed 1:1 by Bitcoin. In other words, 1 ckBTC can always be redeemed for 1 BTC and vice versa. Because of the native integration explained above, ckBTC is a substantially more secure alternative to ‘wrapped’ tokens (a sort of digital voucher representing a token from another blockchain.)
ckBTC tokens have remarkable advantages over other Bitcoin-pegged tokens in terms of speed and transfer cost. A transfer of ckBTC is finalized within 1–2 seconds, which is significantly faster compared to transfers on the Bitcoin blockchain itself. The cost of a ckBTC transfer is only 0.0000001 ckBTC, which is orders of magnitude lower than the Bitcoin fees.
ckBTC at a technical level
The Internet Computer has a unique feature that allows each smart contract running on the blockchain to have its own ECDSA keys. This enables the signing of any data under one of its public ECDSA keys in a secure and decentralized manner. This functionality is based on a novel threshold-ECDSA algorithm where multiple nodes on the Internet Computer jointly create signatures, without any node ever having access to the private keys. Since public ECDSA keys can be encoded into Bitcoin addresses, this threshold-ECDSA functionality effectively enables Internet Computer dapps -such as ckBTC- to have their own Bitcoin addresses, and therefore hold Bitcoin funds. Moreover, as valid signatures for those keys can be generated, dapps can also spend their bitcoins.
ckBTC minter
The mechanism is incomplete without the ability to learn about the state of the Bitcoin blockchain and to submit transactions to the Bitcoin network. The Internet Computer addresses both of these challenges. A subset of the Internet Computer nodes is connected directly to the Bitcoin network, syncing the Bitcoin blockchain state and transmitting transactions from the Internet Computer to the connected Bitcoin nodes.
The ckBTC minter makes use of both features to:
- securely hold bitcoin
- learn about updates to the Bitcoin blockchain, and
- issue Bitcoin transactions after processing valid commands from ckBTC holders to withdraw Bitcoin.
The actions of the ckBTC minter (tracking conversions) and the ckBTC ledger (tracking updates to ckBTC balances) are publicly visible. For example, ckBTC transactions are accessible on a dedicated page on the Internet Computer dashboard. That is, ckBTC offers a similar level of transparency compared to Bitcoin.
The Network Nervous System (NNS), the decentralized autonomous organization (DAO) that governs the Internet Computer itself, controls the ckBTC functionality. Any changes must go through a public NNS proposal and must garner sufficient support to be approved and implemented.
ckBTC advantages and use cases
As we have seen, the ckBTC token is more secure and versatile than wrapped tokens due to the protocol-level integration between the Internet Computer blockchain and the Bitcoin network. Since there is no involvement of blockchain bridges or third-party intermediaries in sending/receiving Bitcoin between the two networks, this establishes the foundations for secure and relatively low-cost transactions with fast settlement times. Also, all ckBTC activity is verifiable on-chain, meaning that ckBTC transactions go through know-your-transaction (KYT) checks to ensure that no tainted bitcoin enters the Internet Computer.
Some examples of how ckBTC can be used :
- token swaps
- decentralized exchanges
- point of sale applications and services
- crowdfunding applications
- eCommerce platforms
Explore dapps and services already utilizing the power of ckBTC:
Further Resources:
A high-level overview of ckBTC: https://internetcomputer.org/ckbtc
View ckBTC transactions on the live dashboard: https://dashboard.internetcomputer.org/bitcoin
ckBTC source code: https://github.com/dfinity/ic/tree/master/rs/bitcoin/ckbtc/
Technical details about ckBTC: https://wiki.internetcomputer.org/wiki/Chain-key_Bitcoin
