Bitcoin Integration

BY KEYHUNTER 11.04.2024
Bitcoin Integration

The Bitcoin integration on the Internet Computer makes it possible for the first time to create Bitcoin smart contracts, that is, smart contracts in the form of canisters running on the Internet Computer that make use of real bitcoin. This integration is made possible through two key components.

The first component is chain-key signatures, which enables every canister to obtain ECDSA public keys and get signatures with respect to these keys in a secure manner. Since Bitcoin addresses are tied to ECDSA public keys, having ECDSA public keys on a canister means that the canister can derive its own Bitcoin addresses. Given that the canister can request signatures for any of its public keys using the IC ECDSA interface, a canister can create Bitcoin transactions with valid signatures that move bitcoins from any of its Bitcoin addresses to any other address.

The second component is the integration with Bitcoin at the network level. The Internet Computer replicas have the capability to instantiate a so-called Bitcoin adapter, a process external to the replica process. In a first step, the Bitcoin adapter collects information about nodes in the Bitcoin peer-to-peer network and, once sufficiently many Bitcoin nodes are discovered, it connects to 5 randomly chosen Bitcoin nodes. Since each replica in the subnet performs this operation, the entire subnet has many, mostly distinct connections to the Bitcoin network. The Bitcoin adapter uses the standard Bitcoin peer-to-peer protocol to get information about the Bitcoin blockchain. Each Bitcoin adapter keeps track of the full Bitcoin block header chain.

At the same time, the Bitcoin adapter communicates with the replica process to learn about the current Bitcoin state inside the replica. If the Bitcoin adapter learns that a Bitcoin block has not been made available to the replica yet by comparing the block header hashes provided by the replica against its locally available block header chain, the Bitcoin adapter requests the next missing block from the connected Bitcoin nodes and forwards it to the replica upon receipt.

Inside the replica, Bitcoin blocks received at the Networking layer are packed into IC blocks and processed in the Consensus and Message Routing layers and finally made available to the Bitcoin canister in the Execution layer. The Bitcoin canister is a canister running in a system subnet whose purpose is to provide Bitcoin-related functionality to other canisters. In particular, it keeps information about the Bitcoin blockchain state and makes this information accessible to other canisters, such as the balance and unspent transaction outputs (UTXOs) for any address. Additionally, the fees of the most recent Bitcoin transactions that were put into blocks can be requested from the Bitcoin canister as well.

The Bitcoin canister also offers the last piece of crucial functionality: It provides an endpoint for canisters to send Bitcoin transactions, which are made available on the Networking layer where they are forwarded to the Bitcoin adapter. The Bitcoin adapter in turn advertises the transactions to its connected Bitcoin peers and transfers the transaction upon request. Since each replica in the subnet performs this step, every transaction can be dispersed quickly in the Bitcoin network.

The IC management canister interface provides access to all Bitcoin integration endpoints. Their use is illustrated in the following sample flow:

Bitcoin Integration

In this figure, a canister first requests the balance and then the UTXOs of a Bitcoin address. Next, it calls the fee endpoint to get recent fees. Lastly, the canister builds a Bitcoin transaction using some of the UTXOs as inputs. For each input, the ECDSA API is called to obtain the required signatures. Finally, the transaction is submitted.

The concept of Bitcoin and blockchain integration is a revolutionary idea that has the potential to change the way value is exchanged and recorded globally. Bitcoin, the first and most popular cryptocurrency, operates on a decentralized blockchain system, offering a peer-to-peer electronic cash system. Blockchain, on the other hand, is a distributed ledger technology that allows for secure, transparent, and tamper-proof recording of data. Together, they offer an intriguing prospect for various industries and sectors.

Understanding the Basics

At its core, Bitcoin blockchain integration is about utilizing the blockchain technology that underpins Bitcoin to provide new opportunities and solutions for businesses and individuals. The key features of Bitcoin’s blockchain include decentralization, immutability, transparency, and the ability to create smart contracts.

  • Decentralization: Bitcoin’s blockchain operates without the need for central authorities or intermediaries. Every participant in the network has access to the same ledger, and transactions are verified and secured through cryptography and consensus mechanisms.
  • Immutability: Once data is recorded on the blockchain, it becomes extremely difficult to alter or manipulate it. This immutability enhances security and trust, making it ideal for record-keeping and audit trails.
  • Transparency: The Bitcoin blockchain is a public ledger, meaning anyone can view and verify transactions, ensuring greater transparency and accountability.
  • Smart Contracts: Smart contracts are self-executing contracts that can be programmed to automatically trigger actions based on predefined rules and conditions. They enable trustless exchanges and automate various processes.

GitHub

Literature and Research Related to Bitcoin Integration:

These sources provide an overview of the potential benefits, applications, and challenges of integrating Bitcoin and blockchain technology into various industries. They highlight the transformative nature of blockchain across sectors, including finance, energy, healthcare, law, education, and governance.

Additionally, here are some key research papers that discuss blockchain technology and its impact on industries:

These research papers offer in-depth analyses and insights into the potential of blockchain technology across various industries, providing a foundation for further exploration and development.

Useful information for enthusiasts:

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