Wrapped BTC is a token that represents Bitcoin (BTC) on a different blockchain. In early 2021, Interlay will introduce Polkadot’s first trustless wrapped Bitcoin - PolkaBTC - marking a critical step towards a truly interoperable ecosystem.
Interlay has previously released a detailed technical specification and a working PoC implementation of wrapped Bitcoin, and after the successful pilot project, they have expedited efforts to complete the BTC Parachain in Q1 2021 - funded by a follow-up Web3 Foundation grant. A first Alpha testnet is scheduled for November 2020, a feature-ready Beta in January 2021. Sign up here to get early-access and test PolkaBTC in action.
Once deployed, users will be able to mint 1:1 Bitcoin-backed assets onto Polkadot, as PolkaBTC, and use these across a wide range of applications, including decentralized exchanges, stablecoins, and lending protocols. Under the hood, the BTC-Parachain implements XCLAIM, the only cross-chain framework that is financially trustless, permissionless, and censorship-resistant - and is backed by top-tier research.
What Makes Polkadot's Wrapped BTC Unique?
What makes the BTC-Parachain unique is the strict dedication to being trustless and open:
- Trustless. The bridge has no central authority. Right from the start, the BTC-Parachain will be run by a decentralized network of individuals, community members, and companies.
- Open. In the spirit of permissionless systems like Bitcoin, anyone can participate in operating the bridge: contrary to other approaches, you do not need permission or any additional token to become a maintainer and start earning fees.
As a holder of PolkaBTC, you have the following guarantee: You can always redeem PolkaBTC for BTC, or be reimbursed in the collateral currency at a beneficial rate. In the case that a vault misbehaves, you will be reimbursed from the Vault’s collateral and will make a very profitable trade between BTC and DOT. At launch, collateral will be put down in DOT. In the mid/long run, this may be extended to stablecoins or token-sets to improve stability.
Summarizing, to trust the bridge, you only need to:
- Trust that Bitcoin is secure. Meaning: trust that Bitcoin blocks are final after X confirmations. The bridge will recommend a minimum of 6 confirmations, though users and apps are encouraged to set higher thresholds.
- Trust that Polkadot is secure. This assumption is made by all applications running on top of Polkadot.
Read on to get a better understanding of the BTC-Parachain design and security guarantees.
The Interlay team is building a customized Substrate environment for PolkaBTC, optimized to verify Bitcoin payments. The BTC Parachain includes a Bitcoin cross-chain SPV client (BTC-Relay), integrations with secure price oracles and XCMP, as well as support for hardware wallets. In addition, Interlay is also building client software for Vaults, Staked Relayers (who make sure BTC-Relay is up to date), as well as an easy-to-use web interface.
A first Alpha testnet is scheduled for November 2020 and a feature-ready Beta testnet will be launched in January 2021 . Once the audit of the code base is completed in February 2021 and parachains are enabled on Polkadot and Kusama, the BTC Parachain will go live: first on Kusama, then on Polkadot mainnet.
Sign up to get early access to PolkaBTC and be the first to test the first truly decentralized cross-chain bridge: https://forms.gle/JrNBD6Pe1F5QAg4z8
The Interlay team has started working with teams building on Polkadot to enable early access to PolkaBTC:
- Acala and Interlay are exploring different collateral use cases between Acala’s aUSD stablecoin and PolkaBTC,
- Laminar Laminar is exploring collaboration with Interlay to provide cross-chain liquidity to Polkadot ecosystem,
- Plasm Network is looking to offer PolkBTC to its highly scalable DApps,
- Equilibrium is planning to offer PolkaBTC on cross-chain DeFi money markets,
- Edgeware is looking to offer support for PolkaBTC in its WASM smart contracts,
- Moonbeam (developed by PureStake) is planning to use PolkaBTC with its Ethereum compatible smart contract platform,
- Polkaswap is to support trading PolkaBTC on an AMM-powered decentralized exchange,
- Chorus One will explore how to make PolkaBTC available to the Cosmos SDK ecosystem via a Cosmos-Substrate IBC bridge.
PolkaBTC makes use of so-called cryptocurrency-backed assets: BTC is locked on Bitcoin and unlocked on Polkadot in form of 1:1 backed-assets - PolkaBTC. PolkaBTC can be used just like any native asset within the Polkadot ecosystem. Meaning: PolkaBTC can be easily transferred to other Parachains using XCMP / SPREE.
Vaults: Permissionless & Collateralized Intermediaries
An important component of the BTC-Parachain are Vaults. Vaults are non-trusted and collateralized intermediaries which ensure BTC remains locked on Bitcoin while PolkaBTC exists. Any user can become a Vault by providing DOT collateral to secure BTC. This means: as a user, you can freely choose any Vault you like or be your own Vault. You don’t have to trust anyone else if you want to be extra cautious.
The correct behavior of Vaults is enforced by the BTC-Parachain. Specifically, Vaults must prove correct behavior to BTC-Relay - a Bitcoin SPV client implemented directly on top of Polkadot. If a Vault tries to steal BTC, this will be detected by the BTC-Parachain: the Vault will lose its collateral and users will be reimbursed (at a beneficial rate).
Staked Relayers: Maintaining Safety and Liveness
Staked Relayers monitor both Bitcoin and the BTC-Parachain, and ensure that BTC-Relay stays up to date with the Bitcoin mainchain (submit Bitcoin block headers to the BTC-Parachain). Should a major attack be launched on Bitcoin or the BTC-Parachain, Staked Relayers can vote to halt the bridge until the issue is resolved. Note: BTC-Relay is self healing and automatically detects and recovers from Bitcoin forks.
Users: Issue, Trade, and Redeem PolkaBTC.
To mint your own PolkaBTC, you only require (i) BTC and (i) some small amount of DOT to pay for fees:
- Issue (Mint): Create PolkaBTC on the BTC-Parachain by locking BTC with Vaults. To claim your PolkaBTC, you can submit the BTC payment proof by yourself, or simply use Interlay’s monitoring service to do this automatically.
- Trade: You can transfer PolkaBTC to other users or applications on any other Parachain within the Polkadot ecosystem.
- Redeem: To redeem PolkaBTC for the equivalent amount of BTC, you burn PolkaBTC tokens on the BTC-Parachain. A Vault (of your choosing or automatically assigned by the bridge) will then send BTC to your Bitcoin address. If a Vault tries to misbehave, its collateral is slashed. As a user, you can decide to retry with another Vault, or be reimbursed in DOT - including a bonus to account for the inconvenience.
PolkaBTC can remain on Polkadot indefinitely (no expiry date) and can be redeemed for BTC at any point in time. To use PolkaBTC on Polkadot, you don’t even need a Bitcoin wallet - until you decide to redeem PolkaBTC for native Bitcoin.
Learn more about Polkadot by visiting their Twitter, Reddit, Riot Chat, or Telegram. Technical education can be found on the Polkadot Wiki. Join their ongoing series of webinars on Polkadot’s Crowdcast. Lastly, we encourage you to apply to the Polkadot Ambassador Program to get more deeply involved in the community through technical development and community growth of Polkadot globally.
Interlay envisions a future where permissioned and permissionless blockchains, regardless of design and purpose, can seamlessly connect and interact. From trustless loans to decentralized derivatives and exchanges, users should access their preferred digital currency and financial product on any blockchain platform.
Interlay is building cross-chain infrastructure and DeFi products, backed by top-tier research:
- PolkaBTC, the official trustless Bitcoin-Polkadot bridge, in collaboration with Parity Technologies, funded by the Web3 Foundation. As the main BTC gateway, PolkaBTC will help bootstrap Polkadot’s young DeFi ecosystem. Launch is scheduled for Q1 2021.
- XOpts, the first trustless and non-custodial platform for cross-chain BTC options. Our vision for XOpts is to become the equivalent of Uniswap for options and other derivative products. XOpts also functions as a decentralized exchange for BTC (physical settlement of options), enabling cross-chain trading against stablecoins and DeFi tokens -- without price oracles or wrapped BTC. Launch to Ethereum planned for Q1 2021, expansion to Polkadot et al. later in 2021.
Founded by Imperial College London PhDs, Interlay’s team of researchers, engineers, and ex-lawyers brings together expertise in blockchain interoperability, security, crypto-economics, as well as derivatives and financial regulations.
- PolkaBTC website: https://polkabtc.io/
- BTC Parachain code: https://github.com/interlay/BTC-Parachain
- BTC Relay specification: https://interlay.gitlab.io/polkabtc-spec/btcrelay-spec/index.html
- XCLAIM peer-reviewed paper: https://eprint.iacr.org/2018/643.pdf Interlay: https://www.interlay.io/