Polygon Ventures: Analysis of BTC’s ecological potential

Author: Polygon Ventures, Translation: Golden Finance xiaozou

Bitcoin accelerates its evolution. Digital gold is just the prologue. The hardest asset created by human civilization is to extend its huge arm to smart contracts.

1. Underutilized potential

Due to lack of programmability, coupled with low transaction throughput, slow speed and fees High, Bitcoin is largely classified as a store of value. Most of the Bitcoin held by more than 300 million users lies dormant, sitting in wallets unused.

The reason for the lack of programmability is that its scripting language is not Turing complete, and the core development team sets strict limits on the types of operations that can be performed. limit. This inflexibility gives it security, but at the cost of very slow innovation.

Although Bitcoin can be used as collateral or bring income as a store of value such as real estate, gold, and stocks, it is still largely unused Full use. Previous attempts at Bitcoin lending have invariably left a poor impression on users, who had to hand over custody of their Bitcoins to overleveraged entities that later went bankrupt.

Trying to send Bitcoin to the EVM chain to replicate DeFi lending is also not very successful, because the two environments are completely different, and the bridge needs to provide a reliable exchange for this kind of exchange. letter area.

Bridges lock Bitcoin and create a representation on the EVM chain. This introduces reliance on a centralized entity or a set of multi-signature validators, with lower security guarantees. The most popular bridge representation is WBTC, which has a market cap of only $10 billion, less than 1% of BTC.

So why is there renewed interest in programmable Bitcoin? There are three catalysts that have attracted people's attention, namely Ordinals, BitVM and Babylon.

2, Ordinals

While ETF inflows have brought financial attention, Ordinals have also attracted a lot of developer attention to the Bitcoin ecosystem. Ordinals and BRC-20 tokens “inscribe” data onto the Bitcoin ledger, but require a social consensus layer to convert this specific data encoding.

Ordinals makes Bitcoin NFT the runner-up in terms of transaction volume, second only to Ethereum. This success raises a key question: can we create a trustless EVM paradigm on Bitcoin that is secured by Bitcoin L1 rather than supported by the social layer?

Then this seems impossible due to underlying limitations. Sidechains are the only alternative and utilize Bitcoin miners to secure new chains embedded in an EVM environment. However, this type of security also depends on a set of external coordinators.

3,BitVM

A member of the ZeroSync team came up with A way to implement validator logic on Bitcoin Script without changing the protocol or doing a soft fork. BitVM uses an optimistic prover-verifier model to express Turing-complete smart contracts.

Computations are performed off-chain and the results are settled on the Bitcoin chain, much like the modular rollup ecosystem. Any watcher can verify the execution results, and if fraud is discovered, they have the right to punish the prover by slashing funds.

This became the catalyst for L2s to take off on Bitcoin. BTC L2 teams such as B² Network are using BitVM to build rollups with different proof mechanisms and virtual machines. Citrea designed a zero-knowledge verification circuit that can run directly on Bitcoin scripts.

Rollups on Bitcoin utilize modular technology to greatly improve scalability and efficiency. This advancement not only attracts those who are proficient in EVM tool development, but also attracts millions of users who crave this kind of user experience.

BitVM also introduces bridges with minimal trust to bridge Bitcoin to the POS chain. Citrea aggregates light client proofs from other chains that can be verified natively on Bitcoin. This reduces the trust required, ensuring integrity as long as there is one validator who can remain honest.

4,Babylon

Babylon raises when L2s is busy expanding A revolution in capital efficiency in the Bitcoin ecosystem. Simply put, Babylon is the EigenLayer of Bitcoin.

EigenLayer is a re-staking protocol that allows ETH stakers to extend verification services to POS chains, Bridges, and sequencers and earn revenue. It ensures integrity through an automatic slashing mechanism in the base chain smart contract - a feature not possible on Bitcoin.

So the Babylon team came up with an ingenious solution. Bitcoins are locked in a multi-sig, allowing holders to stake and withdraw their funds after waiting for a period of time. If any attack is observed and the protocol leaks the vault key, an automatic slashing mechanism will be initiated.

By staking their own Bitcoins, users can provide verification services for PoS chains, data availability layers, oracles, AVS, etc. This has led to a model that can generate substantial returns without sacrificing self-custody.

POS chains and other verification services can use BTC’s economic security to bootstrap their protocols and build security layers.

Portal is securing a Bitcoin bridge, Nubit is using Bitcoin as a data availability layer, and Avail plans to use a quorum backed by BTC.

LSTs expand liquidity by creating freely tradable representations of such locked pledges on the POS chain. Babylon partners with Ankr Staking to re-stake these tokens to earn more, Create a stablecoin backed by BTC, and more.

5. Conclusion

In short, Bitcoin has indeed made progress in two aspects:

-Handling vertical scaling of programmability for L2s that can support millions of transactions.

- Act as reliable collateral in a wide range of applications to improve capital efficiency.

It really fits that sentence: "Bitcoin is an island with no connection to the broader web3 ecosystem."

We are about to see a new world of Bitcoin applications that will be seamlessly integrated with EVM, opening up endless possibilities.