Bitcoin research expands on design space for smart contracts
BitVM paper shows how Bitcoin can anchor off-chain smart contracts, but with caveats
Africa Studio/Shutterstock modified by Blockworks
The most popular smart contract solutions in crypto are based on Ethereum, which provides a decentralized Turing-complete virtual machine.
Bitcoin’s primary use case is as a store of value — digital gold — and, to a lesser extent, for payments, exemplified by the Lightning Network.
But new research shows how Taproot, Bitcoin’s 2021 scripting upgrade, can dramatically increase the theoretical capabilities of the chain, potentially making it far more useful, even with no additional changes.
A paper published by Robin Linus, whose non-profit ZeroSync recently completed a key component of a future zero-knowledge light client for Bitcoin, describes a so-called “BitVM” — which can be read as “Bitcoin Virtual Machine.”
It’s essential to note that, unlike the Ethereum Virtual Machine (EVM), BitVM doesn’t execute computations on-chain but rather verifies them, similar to optimistic rollups.
As might be expected, Bitcoiners have been all a-twitter on the platform formerly known as…let’s just call it X.
“This is probably the most exciting discovery in the history of bitcoin script,” said Super Testnet, a pseudonymous software developer who reviewed the paper.
Eric Wall said he’s “cautiously excited, waiting for what the real-world experiments will yield.”
The key innovation is that Bitcoin “is able to be the trusted third party for an arbitrary [Turing] complete computation despite the fact bitcoin script is not able to actually execute it,” according to the helpful explainer from software engineer Gregor Pogačnik.
Despite the theoretical implications, Pogačnik doesn’t believe Ethereum-like smart contracts are feasible.
“I believe this is quite cumbersome and likely not even the primary design goal,” he said.
What’s novel is that it could, and all without requiring any changes to Bitcoin’s core software — no forks required.
An early practical application of the technology could be to decentralize the oracles for Discreet Log Contracts (DLCs), according to Bob Bodily, CEO Bioniq, an ordinals marketplace.
DLCs are a type of smart contract for Bitcoin that allows two parties to create bets or derivatives without requiring a trusted third party.
BitVM could enhance the functionality, security, and versatility of DLC oracles by providing mechanisms for on-chain verification of oracle data, making them fully trustless.
Not a panacea
There are limitations. BitVM is limited to two specific participants — a prover and a verifier — although there may be workarounds.
By contrast, Ethereum’s smart contracts can involve multiple parties and can be executed by any user, making Ethereum more versatile for multi-party applications.
Off-chain computation could lead to increased latency and complexity too.
Imagine you wanted to have the Bitcoin network enforce the rules of a chess game, for instance. If a given move requires an on-chain transaction (e.g., to resolve a dispute over its legality), then the players become subject to Bitcoin network’s 10-minute average block confirmation time.
You can forget about blitz or rapid games, but such a system might be suitable for correspondence chess, where moves can be exchanged over days and chess engine use is de rigueur.
So, while BitVM introduces an innovative approach to bring Turing-complete contracts to Bitcoin, practical limitations may prove to undermine its utility.
Even Blockstream CEO Adam Back was unimpressed, analogizing BitVM to 7-year-old research from Greg Maxwell during his tenure as Blockstream’s technology chief.
Linus responded that Back may have missed a few key differences that set BitVM apart.
There also remains some debate over whether BitVM solves the problem of trustless bitcoin (BTC) bridging for sidechains. Bioniq’s Bodily and others have doubts, but further research will make that clear.
Ethereum remains a more comprehensive platform for general-purpose smart contract development and execution. However, BitVM’s approach could be valuable for specific use cases or for those who prioritize Bitcoin’s security and decentralization properties.
A Telegram group set up today anyone interested in BitVM has already attracted several hundred members. One commenter fairly succinctly summed up the importance of the concept:
“Doesn’t require any change to bitcoin, but lots of work to make useful things with it.”
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