On September 7, 2021, Bitcoin received legal tender status in El Salvador, and soon after the so-called "Bitcoin Law" was passed, many Salvadorans have already opened Bitcoin wallets, however, according to a recent study conducted by the José Simeón Cañas Central American University, in 2023 only 12% of the local population engages in cryptocurrency transactions.
Many other organizations and institutions have attempted the same, but issues such as high fees, wallet issues, and relatively slow transaction settlement times are well documented. Some solutions have been tried to provide speed and efficiency, but more work needs to be done to make Bitcoin-based payments a reality.
This is where the Internet Computer blockchain comes in with Chain Key Bitcoin (ckBTC), an alternative mechanism for holding and transferring Bitcoin with fast settlement times and very low fees.
This article explains how ckBTC can revolutionize Bitcoin-based payments by leveraging the power of the Internet Computer, the blockchain.
Technology used for ckBTC: Native Bitcoin Integration
The Internet Computer is integrated with the Bitcoin network at the protocol level, meaning that the former can fetch blocks directly from the latter and process transactions within those blocks natively. This capability enables the Internet Computer to maintain the entire set of Bitcoin unspent transaction outputs (UTXOs) on-chain. Container contracts can then run queries against this set and find and create new Bitcoin addresses, etc.
This direct native integration allows Internet computers to trustlessly connect and interact with the Bitcoin network without the need for fragile chain bridges or centralized third parties.
What is ckBTC?
ckBTC is a token on the Internet Computer that is backed 1:1 by Bitcoin. In other words, 1 ckBTC can always be redeemed for 1 BTC and vice versa. Thanks to the native integration explained above, ckBTC is a safer alternative to “wrapped” tokens (a digital certificate that represents a token from another blockchain).
The ckBTC token has significant advantages over other Bitcoin-pegged tokens in terms of speed and transfer costs. Transfers with ckBTC are completed within 1-2 seconds, which is much faster than transfers on the Bitcoin blockchain itself. ckBTC The cost of transferring is only 0.0000001 ckBTC, orders of magnitude lower than Bitcoin fees.
ckBTC on a technical level
The Internet Computer has a unique feature that allows each smart contract running on the blockchain to have its own ECDSA key, which enables signing any data under one of its public ECDSA keys in a secure and decentralized manner.
This feature is based on a novel threshold ECDSA algorithm, where multiple nodes on the Internet Computer work together to create a signature without any node having access to the private key.
Since public ECDSA keys can be encoded into Bitcoin addresses, this threshold ECDSA functionality effectively enables Internet Computer dapps (such as ckBTC) to have their own Bitcoin addresses and thus hold Bitcoin funds, and furthermore, since valid signatures of these keys can be generated, the dapps can also spend their Bitcoin.
ckBTC Minter
This mechanism is incomplete without being able to understand the state of the Bitcoin blockchain and submit transactions to the Bitcoin network. The Internet Computer solves both of these challenges. A subset of the Internet Computer nodes connect directly to the Bitcoin network, syncing the Bitcoin blockchain state and transmitting transactions from the Internet Computer to connected Bitcoin nodes.
ckBTC minters use these two features to:
Hold Bitcoin Safely
Learn about updates to the Bitcoin blockchain, and
Issue a Bitcoin transaction after processing a valid command from a ckBTC holder to withdraw Bitcoin
The operations of ckBTC minters (which track redemptions) and the ckBTC ledger (which tracks ckBTC balance updates) are publicly visible, for example, ckBTC transactions can be accessed on a dedicated page on an internet computer dashboard, meaning that ckBTC offers similar transparency compared to Bitcoin.
The Network Nervous System (NNS), the decentralized autonomous organization (DAO) that manages the Internet Computer itself, controls ckBTC functionality, and any changes must go through a public NNS proposal and must gain enough support to be approved and implemented.
ckBTC Advantages and Use Cases
As we can see, ckBTC tokens are more secure and versatile than wrapped tokens due to the protocol-level integration between the Internet Computer blockchain and the Bitcoin network, which lays the foundation for secure and relatively low-cost transactions and fast settlement times since no blockchain bridges or third-party intermediaries are involved when sending/receiving Bitcoin between the two networks.
Additionally, all ckBTC activity is verifiable on-chain, meaning that ckBTC transactions are subject to Know Your Transaction (KYT) checks to ensure that no tainted bitcoins enter internet computers.
Some examples of how to use ckBTC:
Token Swap
Decentralized Exchanges
Point of Sale Applications and Services
Crowdfunding Application
Electronic business platform
Explore dapps and services that are already leveraging the power of ckBTC:
More Resources
High-level overview of ckBTC:
internetcomputer.org/ckbtc
View ckBTC transactions on the real-time dashboard:
dashboard.internetcomputer.org/bitcoin
ckBTC source code:
github.com /dfinity/ic/tree/master/rs/bitcoin/ckbtc
Technical details about ckBTC:
wiki.internetcomputer.org/wiki/Chain-key_Bitcoin
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