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5 Projects Enabling Smart Contract Development on Bitcoin

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Smart contracts are popularized by the Ethereum (ETH) network, which offers Turing-complete smart contracts that enable the development of decentralized products and services. However, what not everyone is aware of is that smart contracts also exist on Bitcoin (BTC).

Read on to learn more about bitcoin smart contracts and the various projects that are stacking smart contract functionality on top of the bitcoin network.

Smart Contracts on Bitcoin: What is possible with Script?

A smart contract is an encrypted agreement between two or more parties that is automatically executed when predefined criteria are met.

For example, a Bitcoin smart contract can specify that a BTC payment should be sent from one person to another once a pleasant task is completed.

The Bitcoin network supports different types of smart contracts via Script, the scripting language it uses.

Script allows users to create different criteria for using their BTC. Additionally, scripts can also tie specific amounts of BTC to specific Bitcoin transactions, although users must be able to comply with these standards before spending the BTC tied to that script.

Examples of Bitcoin Smart Contracts

In the ten+ years that Script has been used in the Bitcoin protocol, it has proven to be a useful scripting language, supporting a wide range of Bitcoin smart contracts such as: B. the simpler pay-to-public-key hash (P2PKH). to more complex ones like multi-signature scripts, pay-to-script hash (P2SH) and time locked transactions.

Let’s take a look at the most common types of scripts used by Bitcoin.

Pay-to-Public Key Hash (P2PKH)

A P2PKH is a simple and popular script that allows users to send BTC to a Bitcoin address. It is the most basic form of conducting a transaction on the Bitcoin network.

Time locked transactions

A time-locked bitcoin transaction is a type of smart contract that controls the issuance of bitcoin until after a certain period of time. Time locks are very popular and used in many Bitcoin smart contracts.

For example, a time-bound script may dictate that three signatures are required to spend a certain amount of bitcoin before a certain period of time, after which only one signature is required. Time locked transactions are excellent as they help prevent the loss of funds.

Multi-Signature Script

Unlike P2PKH scripts, which require one signature, a multi-signature or multisig script can require multiple signatures owned by multiple users. Multi-signature scripts work by creating an order where N public keys are registered in the script and a number M is required to log out to unlock the funds.

This means that the amount of bitcoin locked for this type of script cannot be spent unless M signatures are issued and each of them must match one of the N public key conditions. This concept is known as M-of-N multisignature. In this case, N refers to the total number of public keys listed and N is the minimum number of signatures required to validate the transaction.

Pay-to-Script Hash (P2SH)

Pay-to-Script Hash (P2SH) is a standard that allows the creation of complex scripts. The P2SH script does not work independently. Instead, it contains the P2WSH script created after the SegWit upgrade. The two scripts work together to allow bitcoin to be sent to any script’s hash.

Bitcoin Smart Contract Layers: What is possible in addition to Bitcoin

Due to the limitations of Bitcoin’s scripting language, Bitcoin developers have been working on new layers on top of the Bitcoin blockchain to enable more complex smart contract development for Bitcoin-based applications.

Some of the most notable tiers for smart contracts built on Bitcoin include: rootstock, Fluid, stack, lightningand RBG. Let’s take a quick look at each of the five projects.

rootstock

Rootstock (RSK) is a smart contract platform that includes a Turing-complete virtual machine to connect to the Bitcoin blockchain.

The Turing-complete smart contracts provided by RSK are a concept first proposed by computer scientist Nick Szabo in 1993. And since RSK works as a bitcoin sidechain, it allows developers to build decentralized applications secured by the bitcoin network without being protected by bitcoin’s scripting language.

Bitcoin DeFi applications are already running on RSK, powered by RSK Smart Bitcoin (rBTC). rBTC is tied 1:1 to BTC and is created by sending BTC to a multisig address managed by RSK PowPeg (2-way Peg protocol).

liquid network

That Liquid Network was launched in 2018 by a major blockchain technology company block stream. Although relatively moderately used since its inception, it has been able to provide transactions catering to the needs of brokers, exchanges, financial institutions and market makers.

As a bitcoin sidechain, the Liquid Network is designed for business needs and not necessarily for the average bitcoin user. The Liquid Network also uses Liquid Bitcoin (L-BTC) as an asset.

As a bitcoin smart contract layer, it gives users the ability to provide assets in the form of tokens like stablecoins. Additionally, Bitcoin NFTs can also be issued on the Liquid Network.

stack

Stacks is a Layer 1 blockchain connected to Bitcoin through its consensus mechanism known as Proof-of-Transfer (PoX). It uses the economic power, security and stability of Bitcoin to bring smart contracts to Bitcoin.

For apps built on top of stacks, since they are linked to the bitcoin blockchain, the bitcoin layer always acts as the last layer while the smart contract builds on top of the stacks chain.

Similar to other layers, Stacks addresses the problem of the utility and scalability of the Bitcoin network while pushing for the development of a decentralized digital economy secured by Bitcoin.

lightning

The Lightning Network (LN) was first proposed by Joseph Poon and Thaddeus Dryja in 2015. It is a second-layer technology that uses payment channels to increase the capacity of the Bitcoin network to conduct transactions efficiently.

LN relies on multisig transactional smart contracts, known as Hashed Time-Locked Contracts (HTLCs), to enable lightning-fast Bitcoin transitions with almost no fees.

The Lightning Network was designed to remove transactions from the main (off-chain) blockchain network, thereby helping to reduce transaction fees and relieve the bitcoin blockchain.

RGB

RGB is a collection of protocols that provides smart contracts for Bitcoin and the Lightning Network. It is client-side and its smart contract system runs on layers two and three of the Bitcoin ecosystem.

Unlike other existing Bitcoin Smart Contracts, RGB does not require the generation of a token. Instead, it supports the separation concept of Smart Contract Issuer, State Evolution and State Owners. As a smart contract system, RGB uses blockchain as the government obligation layer and bitcoin script as the ownership control system. The evolution of its smart contract is governed by the off-chain scheme.

While the Bitcoin ecosystem doesn’t have nearly as many decentralized applications as leading smart contract chains like Ethereum, a growing number of Bitcoin developers are devoting their time and energy to building a decentralized economy on the world’s most secure blockchain.
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– The growing Defi market for Bitcoin: what already brings returns?
– Physical Must-Haves in a Digital World: 4 Essentials for Bitcoiners

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