How long will it take for the adoption of tBTC, which is good for Ethereum?
The tBTC project is very interesting. At the beginning, when the founder Matt Luongo wanted to buy a house, he could not use Bitcoin as collateral for a loan, so the original idea came up. Currently, there are many Bitcoin-anchored tokens based on Ethereum, including Wrapped Bitcoin (WBTC), imBTC, Synthetix's sBTC, etc. Compared with other projects, tBTC can be said to be favored. tBTC not only received 12 million US dollars in investment from a16z, Polychain Capital, etc. in 2018, but also has been recognized by the vast majority of people in the Bitcoin community. It should be able to integrate with MakerDAO, Compound and other platforms soon after supporting the main network. tBTC uses ETH as collateral, and if tBTC succeeds on DiFi, it will stimulate a lot of demand for Ethereum. This translation mainly reviews the content of tBTC and Keep, and explores the impact of minimal trust on adoption.
The following is the original translation
The Thesis team behind the tBTC project announced earlier this month that they had raised $7.7 million in a token sale. TBTC is a project that aims to create a trust-minimized bridge that allows the transfer of Bitcoin to the Ethereum network. The project was launched in August 2019 and the testnet has been delivered. The mainnet is expected to launch in the next few months.
A question immediately comes to mind: what token is Thesis selling and why is it needed? In fact, tBTC will be the first project to utilize the new “Keep” technology, also built by Thesis. The Keep system includes a native token.
Bitcoin on Ethereum
Bitcoin on Ethereum
If successful, the tBTC project will make Bitcoin a standard ERC-20 token on Ethereum. This will enable Bitcoin holders to participate in the emerging decentralized finance ecosystem. For example, tBTC tokens (yes, tokens are denoted with a lowercase “t”) can be added as collateral in MakerDAO. This would allow Bitcoin holders to take out Dai-denominated loans.
Tokenized BTC already exists on the Ethereum network, most notably WBTC. The biggest difference in tBTC is the level of trust involved in third parties. While WBTC is secured by a federation of trusted signers, TBTC is designed to minimize the need for trust. The following is a brief introduction to TBTC's implementation of trust-minimized bridges:
"How does TBTC implement trust-minimized bridges? It can be through a system called "bonded, multi-federated peg". In this system, anyone can become a "signer" and participate in securing deposits on the Bitcoin network and Mint tBTC on Ethereum. Each deposit requires a set of signers to participate, and these signers are randomly selected. The key point is that the signers need to stake each deposit with ETH on the Ethereum network. The smart contract system can seize the secured collateral in case of
secondary title
Keep
The Keep system allows smart contract users to store private keys off-chain with third parties or "providers". The user can then request the provider to publish a message signed with the on-chain key for use in the smart contract. To achieve this with minimal trust, Keep takes full advantage of advanced cryptography and token-based incentives.
In terms of encryption, Keep utilizes a secure multi-party computation scheme called Shamir's key sharing. In short, providers form groups, and each group stores a portion of the private key, but none of the complete private key. The security of the key cannot be compromised by compromising any one or more of the shares. Although no single provider has the full key, they can still collaborate to publish signed messages back to the smart contract as long as they cooperate up to a certain threshold.
While this encryption scheme enables providers to work together, it doesn't give them any incentive, nor stop them from colluding maliciously. To solve these problems, Keep introduced native tokens. Using the contract Keep can pay the service fee to the provider through this token, thus generating incentives. To participate as a provider, a certain amount of this must also be staked, making sybil attacks expensive. These two uses are expected to make the token value directly proportional to the demand for network services.
secondary title
minimize trust
By combining advanced cryptography, tokenized incentive design, and decentralized randomness generation, Keep hopes to provide a powerful new prototype for the ecosystem. In TBTC, secure off-chain private keys will be used to sign Bitcoin transactions, thereby locking BTC, which is then tokenized on Ethereum. Being the first use case for Keep is great, but there are many other places where the Keep protocol needs to be used if it can prove its worth.
Here is an example. Since Keep can store private keys that can be used to encrypt and decrypt files, it should be possible to build a marketplace for digital goods where on-chain payments trigger the decryption of files stored off-chain. This would act like a fully decentralized digital rights management service, allowing content creators to automatically sell video or audio files, with no counterparty risk to either party to the transaction. Many more useful applications can be imagined along these lines.
For now, though, Keep still needs to debut as the technical foundation for TBTC. This is not a small use case! I believe both the Bitcoin and Ethereum networks make logical trade-offs to serve different purposes, and a trust-minimizing bridge between them would be of great benefit to both networks. I'm really looking forward to seeing TBTC go to mainnet.
Nonetheless, my expectations for the adoption of TBTC in the short to medium term remain low. As mentioned earlier, there is already a bitcoin custodial version of WBTC on Ethereum. It's been around for a while, but adoption has been relatively low. At the time of writing, the total number of WBTC in circulation is less than 1,000.
Arguably, the main reason why WBTC's adoption has been hindered is the associated trust assumption. Now that TBTC greatly reduces trust reliance on any third parties, perhaps we can expect more adoption?
There will be more adoption in the long run. In the short term, though, trust minimization of TBTC will also delay its adoption. In order to achieve trust minimization, Thesis has to build quite complex technology. All signs point to them doing a good job, but new technology always comes with risks. My guess is that BTC holders will be hesitant to put their funds at risk until the system proves itself. Ironically, it will take time for them to trust this new trust-minimizing system.
