October 13 Is BitVM the next evolution of smart contracts on Bitcoin?
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BitVM is a computer model that allows you to run complex contracts on Bitcoin without changing their basic rules. Let's take a look at what it is and how it could revolutionize the way we use Bitcoin.
What is PTFM?
For many years, Bitcoin has been the digital gold standard for cryptocurrencies. But one thing it fell behind in was its ability to handle complex, Turing-integrated smart contracts. BitVM was created by Robin Linus, who also created BitVM ZeroSyncwhich is an implementation of Stark Proofs for Bitcoin.
BitVM, short for “Bitcoin Virtual Machine,” can be envisioned as a secure and isolated environment integrated into the Bitcoin ecosystem. In this virtual space, you are free to run any algorithmic program or execute any smart contract. However, here's the interesting part: Instead of performing these calculations directly on the Bitcoin blockchain, which can be expensive and slow, BitVM just authenticates them. It's like a virtual testing lab that allows you to simulate the behavior of the program and confirm its results, all without imposing any load or changes to the actual Bitcoin network.
By acting as a middle layer, BitVM enhances efficiency and reduces the computational burden on the Bitcoin blockchain. This is especially useful for operations that require complex calculations or smart contracts, because it enables off-chain validation before any irreversible actions are taken. This system thus helps maintain the integrity of the blockchain while providing a platform for more complex but secure operations.
Both BitVM and Ethereum's EVM (Ethereum Virtual Machine) provide smart contract functionality, but they differ in their approach and capabilities. Ethereum's EVM system is more versatile in supporting multiparty contracts and offers a wide range of computational tasks directly on the blockchain, but this can lead to high costs and blockchain chaos.
BitVM, on the other hand, mainly focuses on binary contracts and performs most of its computational work off-chain. This results in a minimal footprint on the Bitcoin blockchain and reduced transaction costs. However, the current design of BitVM limits its applicability in complex, multi-party settings, which is an area where Ethereum's EVM excels.
How does BitVM work?
BitVM runs on a simple yet powerful architecture that includes two main actors: Prover and Verifier. The prover is the party that initiates a calculation or claim, essentially saying, “This is software, and this is what I guarantee it will do or produce.” On the other hand, the verification body is responsible for verifying the validity of this claim. This two-round system allows for a level of checks and balances, ensuring that computational results are accurate and trustworthy.
BitVM's brilliance lies in its handling of computational workloads. Unlike traditional blockchain operations, which place significant computational burdens on-chain, BitVM does most of its complex computations off-chain. This significantly reduces the amount of data that must be stored directly on the Bitcoin blockchain, enhancing efficiency and lowering costs. This off-chain methodology also provides greater speed and flexibility, as developers or users can run complex programs or simulations without worrying about overwhelming the blockchain.
However, BitVM uses on-chain verification when needed, especially in cases of disputes. If a validator questions the legitimacy of a prover’s claim, the system will then point to the Bitcoin blockchain’s immutable, decentralized ledger to resolve the issue. This is achieved through what is known as “fraud evidence”.
If the prover's claim turns out to be false, the verifier can submit summary evidence of the fraud to the blockchain, thus exposing the dishonesty. This not only resolves the conflict but also maintains the overall integrity of the system. By incorporating both off-chain computation and on-chain verification, BitVM strikes a balance that provides computational efficiency and strong security.
Optimistic Rollups are a layer 2 scaling solution for blockchains that enables more efficient computation and data storage by performing most operations off-chain while maintaining the same level of security as on-chain transactions. The basic idea is to assume that all coefficients are correct (“optimistic”) unless proven otherwise. Only in the event of a dispute, the relevant data and accounts are published and verified on the main blockchain. This significantly reduces the amount of data that needs to be stored on-chain, thus freeing up space and lowering transaction fees.
In BitVM, optimistic clusters can be particularly useful. Remember that BitVM essentially works with two parties: the prover and the verifier. Most of the computational work is done off-chain, which reduces the amount of data that must be stored on the Bitcoin blockchain. When initiating a transaction, BitVM can use optimistic buckets to aggregate multiple off-chain transactions into a single on-chain transaction, further reducing the blockchain footprint.
Furthermore, in the event of a dispute, BitVM's use of fraud proofs aligns well with the “challenge response” system inherent in optimistic pools. If an investigator makes a false claim, the investigator can quickly uncover dishonesty by providing clear evidence of fraud. This evidence of fraud will then be examined within the optimistic framework, and if validated, the dishonest party will be punished.
What new capabilities does BitVM bring to Bitcoin?
One of the most important advantages of BitVM is its ability to facilitate more expressive and complex contracts. Traditional Bitcoin contracts have been largely limited to primitive processes, such as digital signatures and time locks. BitVM is revolutionizing this field by offering a wide range of new possibilities for creating contracts.
Now, users can not only create contracts for financial transactions, but they can also create them for more complex decentralized applications (DApps) such as chess, Go, or poker games, or any type of DApp that currently exists within Web3. Furthermore, the BitVM architecture makes it possible to develop truly decentralized prediction markets, enhancing the scope and functionality of what can be achieved through Bitcoin smart contracts.
Another impressive feature of BitVM is its minimal footprint on the Bitcoin blockchain. By design, BitVM does most of its computational work off-chain, thus reducing the amount of data that must be stored directly on the blockchain.
This has two main benefits. First, it enhances the overall efficiency of the network as fewer resources are needed to verify transactions. Second, it prevents the blockchain from being cluttered with unnecessary data, keeping its operation streamlined and making it easier to manage and scale. This off-chain process is especially valuable in an era where blockchain inflation is a concern, keeping the Bitcoin network healthy and fast.
Finally, BitVM includes strong anti-fraud safeguards to ensure the integrity of transactions. Using a fraud-proof system coupled with a challenge response protocol, BitVM ensures that all transactions are honest and transparent. If someone attempts to cheat or make false claims, the system's verification software can quickly detect and expose the dishonest party by submitting concise evidence of fraud to the blockchain. This not only acts as a strong deterrent against fraudulent activities, but also enhances trust in the system, making BitVM a secure and reliable platform for a wide range of applications.
Nothing is perfect, what are the limitations of BitVM?
While BitVM offers a range of advantages, it is important to recognize its limitations as well. One of the most notable limitations is the design's focus on bipartisan settings. This means that the system is not currently equipped to handle multi-party transactions or contracts, which limits its applicability in scenarios that require more complex interactions between multiple participants.
As the world of decentralized finance (DeFi) continues to evolve toward more complex ecosystems involving multiple parties, this limitation may hinder BitVM's ability to keep up with emerging needs and expectations.
Another limitation is that both parties are required to perform significant off-chain computations. While off-chain calculations contribute to BitVM's minimal impact on the blockchain, they also place a computational burden on the individual parties involved. Users must have the computational resources necessary to handle these tasks, and this may be prohibitive for those using less powerful hardware or those who wish to participate in many BitVM contracts simultaneously.
Despite these limitations, it should be noted that the technology is still in the very early stages of development, and as of now, it is just a blank sheet of paper. As they mature, solutions will likely be found to address these challenges. Future versions of BitVM will likely include more advanced features that allow for multi-party setups.
Concepts such as linking multiple bi-directional channels to form a network — similar to Bitcoin's Lightning Network — are already being considered as ways to expand the system's capabilities. By adapting and evolving, BitVM has the ability to overcome its current limitations and continue to provide an increasingly versatile and efficient platform for Bitcoin-based transactions and contracts.
