What is BitVM?

Bitcoin is the oldest and, by far, the most successful cryptocurrency. While it is true that Bitcoin revolutionized the peer-to-peer payments system, it has significant limitations concerning scalability and the ability to execute complex and turing-complete smart contracts. This limitation has raised many concerns within the blockchain community, and as Bitcoin’s user base expands, the imperative for scalability becomes more pressing.

During the early days of Bitcoin, early pioneers discussed the need for a blockchain that could handle smart contracts and host decentralized applications. However, the motivation behind the creation of Bitcoin was different — a secure, independent, and third-party-free means of holding value and transacting across borders. Blockchain, the underlying technology backing Bitcoin, has so much potential beyond a payment system, and it wasn’t until Ethereum came with its turing-complete programmability that the full potential of blockchain started materializing.

Fast-forward to the fourth quarter of 2023, a white paper published by Robin Linus brought a glimmer of hope to the Bitcoin community. He proposed a new computing paradigm called BitVM, which can bring smart contract capability and turing completeness to Bitcoin. This would create a world where anything could run on Bitcoin, from games to complex contracts. As this groundbreaking technology unfolds, it is important to grasp the possibilities and opportunities for the community. This article delves into what BitVM is, how it works, and the essential considerations to be aware of.

What is BitVM?

Source: Trust Machines

According to the newly released whitepaper by Robin Linus, BitVM, which stands for Bitcoin Virtual Machine, is a computational engine that aims to scale Bitcoin by enabling turing-complete smart contracts on the blockchain network. This will bring a functionality similar to the Ethereum Virtual Machine (EVM) to Bitcoin without interfering with the network’s consensus rules.

BitVM wasn’t the first attempt to expand the use cases of Bitcoin. Because Bitcoin was initially designed for simpler tasks like the transaction of assets on the blockchain, there have been several attempts to build more functionality on the network. Some layer-2 solutions like the Lightning Network and the Liquid Network are some of these improvements. BitVM has emerged as one of the most recent attempts to scale the Bitcoin network, with even greater prospects of changing the narrative.

As earlier hinted, BitVM doesn’t require changes to Bitcoin’s existing consensus rules. It leverages building blocks like timelocks, hashlocks, and large taproot trees to create a machine that can handle complex contracts and computations. By this, BitVm can transform the Bitcoin network by enabling it to handle any computational problems and making it as powerful as any other turing-complete system.

What are Turing Complete Smart Contracts?

Turing completeness refers to the ability of a system to solve any computational task provided it has enough resources and time. A Turing-complete smart contract can run the logic of any computer request. Turing completeness is an important conversation in the blockchain community because it allows blockchain networks to be very powerful and versatile.

The core design of Bitcoin’s smart contracts is simple and non-Turing complete. This is because they were not built to handle tokenization and dApps development. Therefore, the introduction of BitVM into Bitcoin is a trailblazing development that pushes the boundaries of what Bitcoin can do.

How BitVM Differs From EVM

Although BitVM aims to bring Turing complete smart contracts to Bitcoin, it is not identical to Ethereum Virtual Machine (EVM) smart contracts. Smart contract blockchains like Ethereum and Solana have their respective virtual machines fully integrated into their blockchains. However, BitVM is an add-on to the Bitcoin blockchain that allows users to opt for it only when needed.

BitVM mimics other Turing-complete smart contract chains, and this brings some limitations to the extent of its functionality. For instance, an EVM product requires that the Ethereum blockchain is safe to ensure the contract’s security. On the other hand, a BitVM product requires trust in Bitcoin’s security as well as in the participants’ honesty. Participants in BitVM must submit fraud proofs within the challenge period, significantly impacting how BitVM products deal with system failures.

Another striking difference between EVM and BitVM is their chain interactions. Because Bitcoin was not built with complex smart contract capabilities, most of BitVM’s computations are off-chain to avoid overloading the main chain. However, all of EVM’s computations happen on-chain. It is because of these significant differences that some Bitcoin community members posited that BitVM is not a full virtual machine.

How Does BitVM Work?

BitVM is essentially a layer-2 solution built on top of the Bitcoin blockchain. It is similar to Ethereum’s L2 solutions, especially Optimistic Rollups. Like optimistic rollups, BitVM leverages fraud proofs and a challenge-response protocol. It uses basic cryptographic tools like timelocks, hashlocks, and taproot trees to facilitate advanced computations. Bitcoin’s taproot upgrade allows parties to exchange large amounts of data off-chain and return output to the Bitcoin blockchain. Similarly, timelocks and hashlocks are security mechanisms that unlock Bitcoin transactions conditionally.

To perform complex computation through BitVM, a “prover” initiates a program and then collaborates with a “verifier” to confirm its validity. The prover-verifier communication takes place off-chain, remarkably minimizing the impact of the transactions on the Bitcoin blockchain. This two-party system relies on a contract protocol on Bitcoin’s blockchain in which a series of transactions define the relationship between the prover and the verifier.

The prover commits to the program bit-by-bit, challenging the verifier to disapprove any false claims in his program. After necessary audits and confirmation that the program does what the prover claims, the prover and verifier jointly sign the transaction. If the prover acts maliciously or proposes something incorrectly, the verifier can challenge it, and the transaction will not succeed.

The prover and verifier deposit before starting the challenge-response protocol. This ensures that only accurate assertions and verified data are included in Bitcoin’s immutable ledger. If the prover acts maliciously, they lose their deposit. Similarly, if the verifier is unresponsive or verifies wrongly, they can also lose their deposit. There is an economic incentive to keep the system honest and efficient, as any party that commits fraud will lose their deposits to the other party.

Why BitVM?

The proponent of BitVM, Robin Linus, said that the primary purpose of BitVM is to be used as a scaling solution for Bitcoin. Interestingly, the power of BitVM can introduce more environments that allow for even more functionalities. Here are some of the ways BitVM can be useful to the Bitcoin blockchain:

1) Decentralized Finance (DeFi): BitVM can allow developers to build various decentralized applications (dApps) for DeFi. These applications can be centered on fulfilling financial use cases like derivatives platforms, prediction market protocols, and decentralized exchanges.

2) Data verification: BitVM can also be used to verify data, which can be helpful for players in research companies and the data analytics field.

3) Automated payments: For the automation of payments for products and services, BitVM can be useful. This technology allows freelancers, merchants, and remote workers to be paid through automated Bitcoin payment solutions.

4) Gaming: Imagine a world where anything could run on the Bitcoin blockchain, including games. Gaming developers can leverage the power of BitVM-enabled smart contracts to build decentralized applications for games like poker and chess.

5) Cross-chain interoperability: Another advantage of BitVM is its ability to bridge Bitcoin to other blockchains. For example, a sidechain connected to the Bitcoin blockchain could use EVM. This implies that through BitVM, users may have access to functionalities and products as if they were using EVM itself.

Opportunities and Limitations

The introduction of BitVM came with opportunities and limitations. As BitVM has the potential to empower developers working on the Bitcoin blockchain, it is necessary to highlight the opportunities and risks involved in using It.

Opportunities

1) No “soft fork” needed: One big advantage of BitVM is that it allows for a layer-2 computation on Bitcoin without changing the network’s consensus rules or slowing down the blockchain. Complex computations and prover-verifier communications will happen off-chain before being validated on the mainnet. This preserves the uniqueness of the Bitcoin blockchain while taking off excessive load from the mainnet.

2) Bridging sidechains to Bitcoin: BitVM can allow for cross-chain interoperability and potentially enable trustless bridges with fewer intermediaries and lesser centralization. This minimizes the risks of censorship, fraud, and manipulation.

3) Reduced gas fees: Average Bitcoin transaction fees sometimes surge exorbitantly. BitVM can reduce this by ensuring excessive data and corresponding computations are kept off-chain.

4) Enhanced security: The inherent fool-proof challenge-response protocol acts as an effective mechanism for keeping malicious actors away. Because BitVM focuses on transactions between two parties, security is consolidated. This differs from EVM, which may involve multiple parties, increasing the likelihood of security threats.

Limitations

1) Computational demands: There is significant computational demand on the users of BitVM. This is because of the need for off-chain computations and the inherent complexity of BitVM’s code.

2) Complexity of the two-party structure: Because BitVM only has provisions for two-party transactions, this may limit the types of protocols that can run on the machine, as some applications require multi-party interactions.

3) Limited use cases of the smart contracts: Since BitVM is still in its infancy stage, there are limitations to the real-world application of its smart contracts. For instance, BitVM may not support oracles currently, which is usually needed in use cases like weather forecasts and crypto market data.

Community Reactions to BitVM

Changes to Bitcoin are often met with resistance, and BitVM is no exception. Although some blockchain enthusiasts share a positive outlook on the novel technology, many gave reasons why the innovation may be controversial. For instance, realizing the striking difference between BitVM and other fully-fledged smart contract blockchains like Ethereum, a Bitcoin community member observed that it is not a “full virtual machine.”

Source: @muneeb on X

Eric Wall, a Bitcoin enthusiast, through a Twitter post, maintained that although the concept of BitVM is conceptually stunning, it is practically flawed. According to him, BitVM is both “mind-blowing” and a “technological dead end.” Adam Back, a Bitcoin core contributor, was also not positive about BitVM, implying that the technology is backward.

Source: @ercwl on X

A white paper reviewer, Super Testnet, called BitVM “probably the most exciting discovery in the history of Bitcoin script.” The technology adds new possibilities to Bitcoin without any forks or consensus changes. To further consolidate the use case of BitVM, some active players in the field, like Dylan LeClair and Sam Parker, suggested that it would work well with the Lightning Network to enable functionality with more dApps.

Conclusion

Although BitVM is still in its infancy, it stands strong as a formidable addition to Bitcoin’s scaling solutions. With the increasing demand for turing-complete smart contracts on Bitcoin, BitVM promises to tackle Bitcoin’s scalability challenges. Although the technology faces limitations like high computational demands and limited use cases, the opportunities offered by BitVM can’t be ignored. As developers are still working to overcome BitVM’s limitations, it continues to stand strong as a solution with the capability of scaling Bitcoin and improving its ability to support more complex transactions.