tBTC, Nomic, wBTC, Cosmos — projects with the same goal but different approaches
The idea of using Bitcoin for real payments (not only for price speculations) without using its enormous blockchain isn’t new. In the modern world high commissions and long transactions can’t compete with the traditional bank transactions. As Bitcoin always have been the base cryptocurrency and most investors trust only Bitcoin. But time passed and a lot of new currencies appeared in the crypto world, like Ethereum, that showed the convenience of smart contracts, that Bitcoin chain lacks.
Let’s have a brief look on these projects. I’ll making things simple and easy to understand, but of course usually it is not that simple as it sounds.
Actually Cosmos is project of side-chains as it has a Cosmos SDK (software development kit), that allows developers to create their own side-chains (Zone).
As soon as this side-chain connects to the Cosmos HUB via Interblockchain Communication (IBC), it gets the opportunity to interact with other side-chains connected to IBC.
This allows to solve the crucial blockchain scalability problem and overcome the problem of cross-chain communications. As Cosmos uses a Tendermint consensus algorithm (algorithm with a high Byzantine fault tolerance, BFT), the most obvious way to use such system are cross-chain decentralized exchanges (DEx). You can check the current participants list here.
Nomic is a new blockchain which runs in parallel to the Bitcoin blockchain, allowing decentralized financial primitives which use BTC as their native asset. Nomic side-chain also uses a Tendermint consensus, in which 2/3 of validators should ‘vote’ for each block. Validators get rewards for voting, and if the vote ‘incorrectly’, they are disenfranchised (deprived of the right to vote). This system seems quite reliable despite the fact that many people have doubt about validators’ possible collusions, which probability, in my opinion is really low. Nomic uses nBTC token which is backed as 1-to-1 by the real BTC stored in the system reserves.
Today such technology is really need in the Ethereum ecosystem, as with the ongoing DeFi fever Ether-based projects accumulate more and more money around them.
The typical example of such system is wBTC (wrapped Bitcoin). wBTC is the first ETH-based token backed by BTC as 1-to-1. Making things simple, you deposit your Bitcoin and get the equivalent amount of wBTC. Now you can transfer these tokens, trade on different decentralized exchanges, pledge into DeFi projects for rewards or even try your luck in crypto-casinos — anything you want.
So, familiar Ethereum tokens, metamask and all this instead of slow Bitcoin, looks nice and fancy, right? Not exactly. The main problem for me (and not only me I believe) is the necessity of passing KYC before swapping BTC, that decrease privacy dramatically. On the other hand, you can get tokens from somewhere and do whatever you want with it without passing KYC until you want to swap it back to BTC.
Also you need to trust network validators that processes your transactions using multi-signing, which also decreases your privacy as in multi-signing process everyone can see which keys were used. This can be a problem for users that prefers to stay anonymous, but not all of us really needs this anonymity that much.
The chosen signers use a threshold ECDSA protocol to generate a Bitcoin wallet without any single signer having access to the corresponding private key,and bond an amount of the host chain’s native token (ETH for Ethereum) that ensures their behavior in the system remains honest, at risk of losing their bond in case of dishonesty or undercollateralization. Instead of multi-signing process, where several counterparties have the key used for signing, tBTC uses threshold signatures, where each signer has the same open key, and a unique piece of a secret key. So that validator should check only one signature to tell if transaction is correct or not. The process described as the following:
- Upon successful funding, the funder will own and new Deposit and will be able to create new TBTC.
- To start the funding process, a funder places a small bond, and requests creation of a new keep to custody BTC.
- If a new keep is successfully formed, the Keep contracts notify the Deposit of the signing group’s public key. If keep setup fails, the funding process is aborted and the Keep system punishes the faulting parties.
- Once a keep is formed, the funder transfers BTC to the keep’s pay to witness public key hash (p2wpkh) address. This BTC becomes the underlying collateral for the new Deposit.
- The funder proves deposit via a stateless SPV proof of inclusion in the Bitcoin blockchain. If the funder fails to make this transfer in a timely manner, the funding process is aborted and the funder’s keep bond is forfeit.
- Once BTC collateralization has been proven, the Deposit becomes active. Then the funder may withdraw TBTC, up to the amount of BTC collateral (less the reserved TBTC). The funding process can only result in an active Deposit or an abort state.
It sounds really difficult when you read it for the first time, but actually everything is simple. In my opinion it will be better to adopt the tBTC site for newcomers and create a simple step-by-step instruction so that any user can easily understand and perform this procedure.
Also one more thing to mention — if you send more BTC then tBTC that you selected you can just lose your money, in case of mass-adoption, such cases will not be rare for sure. There should be a huge alert sign about this somewhere in order to inform user about it.
Cutting the story, tBTC is more advanced, more anonymous and more decentralized analogue of wBTC, it has everything it needs to push all competitors. And we have a unique opportunity to become one of the first to be involved in the network testing, node keeping and getting rewards.
The most important thing for all of these projects — initial users and projects that will use wrapped bitcoins for their purposes. As any crypto-user we know that everything is changing very fast and a rapid start of a new project with the appropriate promotion allows attracting enough users. On the other hand, such systems are really complicated and need to be tested properly, especially on a security issues, as they store and control users’ finances. Today users feel much more safe in any centralized project like classic banking than in decentralized, but it should be the opposite — this is one of the reasons cryptocurrencies were created. For sure in the centralized project there are a lot of fraud, but your bank will usually block the suspicious transaction and help you to get your money back. As in crypto systems such approach is not possible, the system must be as secure as possible itself.
As a result, in crypto world we’ve got two large groups of projects — either it is a fast-delivered raw project with low security, that has enormous number of security issues that leads to high risks of losing user’s money or a large never-ending project with endless development and testing that usually leads to total failure because of trends changing. But Keep managed to keep the perfect balance, creating a large and growing community, keeping most of user involved in testing and keeping an eye on projects news and updates. This is very important for any project — to keep continuous testing on the one hand and maintain the interest in your project on the other. If Keep manages to continue community development in this way, it has all chances to take a leading position on the market.
Despite the different approach and cross-chain vision, all these projects communicate with each other, making joint conferences, sharing opinions, news and their vision on technologies. As I wrote in the beginning, they’ve all got different approaches, but the goal is the same, and this cross-project communication is a really good sign.
When I start writing this article, my idea was to compare projects in details, but then I understood that this doesn’t make much sense — each project has chosen its way and in case the security level will be the same, the project with the most user-friendly interface, lowest entry threshold and with the largest user and projects community will lead the race. What is also worse mentioning is that the system needs not only to be friendly for users, but also for developers — a well-documented SDK and manuals are the key points for the win.
I’m really looking forward to a burst of such technologies like Keep Network as it can create an invaluable help for decentralized finance market, that it desperately needs.