How ckBTC Solves the Dilemma of Blockchain Bridges
Chain-Key Bitcoin(ckBTC) on the Internet Computer is part of a native integration with the Bitcoin network at the protocol level. This means that transactions occur directly between the two networks without any intermediary bridges, eliminating the vulnerabilities associated with bridge hacks.
Vulnerabilities of Cross-Chain Bridges
In the past few years, the blockchain space has witnessed a surge in security incidents, particularly targeting cross-chain bridges. In the blockchain space, networks facilitate easy communication of smart contracts operating inside the same chain but not outside of that chain. That’s where bridges come in — they help connect different blockchain networks so that value and information can move from one to another. However, these bridges have become a prime target for hackers because of their easy-to-compromise architecture.
Global Web3 Security Report suggests that in 2022, nearly $1.89 billion was lost due to 12 incidents involving these bridges. To paint a bigger picture, the entire year saw 167 security issues leading to a total loss of $3.6 billion, and more than half of this amount was lost through bridge incidents alone.
The study points out that hackers found ways to exploit weaknesses such as private key management, loopholes in smart contract codes, and the centralized storage for user funds.
Does this imply that such protocols facilitating value transfer between chains should be avoided at all? Not necessarily. The cross-chain value transfer and communication between different chains is essentially the next phase toward unlocking expansion in the Web3 space.
Internet Computer’s Chain Key Bitcoin (ckBTC) extends the capabilities of the world’s most secure network, Bitcoin, without relying on cross-chain bridges.
Bitcoin Layer 2 Functionality
The Bitcoin blockchain has all the properties of being the most durable layer for exchanging value between users. However, it is generally accepted that the Bitcoin blockchain lacks a programmable layer as complex as other blockchains, for example, Ethereum, and the Bitcoin network does not offer the capability to support complex smart contracts and build decentralized applications. Bitcoin’s emphasis on security and decentralization is a fundamental aspect of its design.
Chain Key Bitcoin(ckBTC) is a token that leverages the native integration with the Bitcoin blockchain at the protocol level without the interference of intermediaries, custodians, or bridges. ckBTC acts as the native token on the Internet Computer that represents and is cryptographically secured 1:1 by real bitcoin.
So, what does protocol-level integration mean? Internet Computer enables direct communication with the Bitcoin blockchain through a Bitcoin node running on an Internet Computer subnet.
In the context of Bitcoin integration on ICP, canisters (highly capable smart contracts) have the ability to perform actions such as send, receive, and hold Bitcoins natively. With this integration, ICP activates programming capabilities for Bitcoin, extending its properties to build decentralized applications on the most secure and proven cryptographic infrastructure.
Let’s look at some of the benefits and value creation that Bitcoin integration offers with ckBTC.
1–2 Second Finality
Finality in blockchain refers to the time it takes for a transaction to be added to the blockchain and be considered immutable. In other words, it is the time for a transaction to be permanently recorded on the blockchain and cannot be reversed. For Bitcoin, the industry-standard for transaction finality is reached after six blocks. So you have to wait roughly 6 blocks to reach the confirmation of your transaction. Considering that the average time per block is 10 minutes, it translates into a waiting time of 60 minutes.
ckBTC can achieve a near-instant transaction finality with transaction confirmation within 1–2 seconds. This level of rapid finality can increase throughput and efficiency, facilitating more scalability for blockchain applications.
Negligible Transaction Fees
The transaction fees for ckBTC on the ICP are designed to be minimal. It is set at 0.0000001 ckBTC, which is equivalent to less than a cent or 10 satoshis. Users only need to pay the transaction fees of the Bitcoin network when converting Bitcoins to ckBTC or vice versa.
The negligible transaction fees enable users to benefit from fast and low-cost transactions, thereby enhancing the overall user experience. Additionally, the low transaction fees facilitate the usage of bitcoin for microtransactions or small payments.
Trustless
Bitcoin integration uses a cryptographic technique to enable each smart contract canister to generate its own public key. These smart contracts can directly interact with the Bitcoin blockchain and send, receive, as well as hold Bitcoins. With ckBTC, canister smart contracts are responsible for minting and redeeming tokens instead of a centralized third-party or a bridging solution. The conversion of ckBTC back to BTC and vice versa is controlled at the Internet Computer protocol-level. It is accessible to all ICP decentralized applications (dapps), ensuring that no central authority has the power to restrict or censor these conversions. Furthermore, all transactions are transparent and can be verified through a real-time dashboard, offering users and developers immediate insight into the flow of assets and the integrity of the conversion process.
So, every ckBTC corresponds to exactly one BTC held in a Bitcoin blockchain address that’s controlled by canister smart contracts on the IC. This model ensures that the process is completely trustless and managed by automated software programs (smart contracts).
Unlocks Bitcoin-Based Web 3
By making Bitcoin programmable, ckBTC facilitates Bitcoin holders to participate in the DeFi ecosystem, thereby activating the world’s largest crypto economy. It offers a secure and scalable environment to use bitcoin in DeFi applications, including lending, borrowing, asset management, decentralized exchanges, and more.
With the integration, BTC transcends its traditional role, venturing into DeFi applications where it could serve as collateral for loans or a stake in yield farming. These innovations are not just for niche communities; they pave the way for BTC to enter the mainstream, potentially revolutionizing retail payments with its adoption for daily transactions and enabling microtransactions with BTC. In addition to DeFi applications, the Bitcoin integration will also unlock doors for using BTC in a myriad of different applications across GameFi, SocialFi, and NFTs.
By creating a direct link between the Bitcoin network and the Internet Computer, ckBTC gets rid of the need for bridges, reducing the risks tied to them. This approach not only tackles security concerns but also launches Bitcoin into a world of better adaptability and user experiences. This subsequently changes the narrative of Bitcoin from just being a digital vault of value to becoming an active player in Web 3
