Bitcoin is the oldest cryptocurrency and the one that pioneered the idea of using a distributed blockchain as a ledger.
Early Bitcoin pioneers discussed the idea of smart contracts and decentralized applications, but Bitcoin launched with a very limited scripting system, so it wasn't until Ethereum came along, with its Turing-complete programmability, that the decentralized platform and smart contract revolution truly started.
Bitcoin is currently making waves with the release of a new whitepaper on BitVM, a computational model designed for expressing turing-complete Bitcoin contracts. Now, we may finally see developers able to bring the smart contract world to Bitcoin with BitVM.
In this post, we are going to explain everything you need to know about BitVM, including its workings, pros and cons, and the community’s expressions towards it.
What Is BitVM?#
As per the newly released whitepaper by Robin Linus, BitVM is a novel computing paradigm designed to bring functionality similar to that of the Ethereum Virtual Machine (EVM) to Bitcoin without altering the network's consensus rules.
It uses a system similar to optimistic rollups in Ethereum, where computations are verified rather than executed on Bitcoin. It has lots of use cases and potential applications ranging from games like chess and poker to bridging BTC to other chains, all while maintaining a minimal on-chain footprint.
BitVM achieves smart contract functionality through the use of logic gates (allowing any computable function to be represented) and Bit Value Commitments, which allow the user to extend the execution runtime of the virtual machine by splitting it across more than one transaction.
BitVM offers a way to express Turing-complete smart contracts on Bitcoin. This means that it’s set to transform the Bitcoin network by enabling it to handle any computational task, effectively making it as versatile as any Turing-complete system. This means Bitcoin could now theoretically support a variety of complex applications, similar to Ethereum, all without needing changes to its fundamental rules.
In the early days, the choice to make Bitcoin non-turing-complete was deliberate, to make it harder for an attacker to execute DoS (Denial-of-Service) attacks. Today, such attacks would be much more difficult to launch simply because of the cost of miner fees, so the potential benefits of having a Turing-complete system with which to create dApps outweigh the possibility of an attack.
How Does BitVM Work?#
BitVM’s working principle is similar to that of optimistic rollups, i.e., based on fraud proofs and a challenge-response protocol. It uses simple cryptographic tools—hashlocks, timelocks, and taproot trees—to facilitate advanced computations. Hashlocks and timelocks are security mechanisms to unlock transactions conditionally, whereas taproot trees are ways to organize Bitcoin transactions.
BitVM uses a prover/verifier system, and since a lot of the communication and work takes place off-chain, the impact on the Bitcoin blockchain is minimal. The prover commits to the program bit-by-bit. The verifier uses challenges to catch and disprove any false claims, and then the prover and verifier jointly sign the transactions. These signatures can then be used later to resolve any dispute. If it turns out that the prover made a false claim, they'll lose their deposit, and the transaction won't go through.
To some, this is an appealing feature because it keeps the Bitcoin blockchain clear. Others, however, are concerned that the off-chain communication could create weaknesses in the system while also adding unnecessary complexity.
The Pros and Cons of BitVM#
BitVM has a lot of potential to empower developers on the Bitcoin blockchain.
Introducing Turing-completeness with BitBV is a big step for Bitcoin, giving it the ability to run many kinds of computations without making the blockchain too heavy. It's designed to handle a lot of work without slowing down the Bitcoin network because the heavy lifting is done off-chain. The system only uses a small part of the blockchain, so it keeps things running smoothly.
There's also a smart system in place that checks transactions and makes sure no one tries to cheat, with a special deposit feature that stops bad actors in their tracks. Plus, the best part is that all of this can happen without having to change the main rules of how Bitcoin works, so there's no drama or big changes needed to get it started.
BitVM's approach, while innovative, isn't without its challenges. The system demands significant resources off-chain, with the prover and verifier both shouldering heavy computational work. This complexity isn't just in the computations; programming within BitVM is also complex, potentially slowing its acceptance among developers.
The bridging of trustless systems remains a hurdle yet to be overcome, presenting an unresolved element in the BitVM framework. Moreover, BitVM is primarily a two-party system, which may not suit scenarios that require multi-party smart contracts. Much of BitVM's framework is still theoretical, with many ideas in the pipeline awaiting practical application and evidence of effectiveness.
Lastly, adopting BitVM means ramping up bandwidth to manage the extra data and signatures it brings into play, adding another layer of demand on resources.
The BitVM system can be deployed and used as a soft fork, with no need to upgrade the consensus rules. This makes it easier to launch BitVM, despite the system being controversial. Soft forks are backwards compatible, so those who choose not to adopt the change on their nodes will still be able to verify normal transactions; they just wouldn't be able to participate in the verification.
Changes to Bitcoin are often met with resistance. For example, the launch of Ordinals, which brought NFT-like functionality to Bitcoin, was also controversial. The feature brought a spike in activity to the Bitcoin blockchain, congesting the network and increasing fees for those who wanted to send standard transactions.
Bitcoin enthusiast Eric Wall expressed the concept of BitVM as conceptually stunning yet practically flawed. He described it as both “mindblowing” and ultimately a “technological dead end”.
Bitcoin Core contributor Adam Back urged caution after reviewing the BitVM white paper, noting
for people getting (over) excited, this is cool but effectively a generalization of a two-party game - it says right in the abstract - so it's a bit like Greg Maxwell's 2016 ZKP contingent payments implemented example.
Neptune Mutual & BitVM#
One of the most interesting things about the cryptocurrency industry is that it supports and enables innovation. BitVM may be a controversial upgrade for Bitcoin, but the developers have the freedom to try it, and users can adopt it if they wish.
We, at Neptune Mutual, are excited to see how the idea plays out, because innovation on any chain is good for the crypto industry as a whole.
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