All You Need to Know About ckBTC
Wrapped tokens enable compatibility between different blockchains by allowing one token to be exchanged for another through a smart contract.
ckBTC is the wrapped form of Bitcoin on the Internet Computer blockchain. Despite still being in development, ckBTC is gaining recognition.
Wrapped tokens, like ckBTC, allow the use of cryptocurrencies from one blockchain on a different blockchain. This is necessary because blockchains are separate systems that cannot easily communicate with each other. It is similar to how different countries have their own currencies; you cannot use euros at a store in the United States. Wrapped tokens enable compatibility between different blockchains by allowing one token to be exchanged for another through a smart contract.
What is ckBTC?
ckBTC is a creation from a proposal by the DFINITY platform. The Internet Computer (IC) utilizes smart contracts called canisters which can hold real Bitcoin on the Bitcoin blockchain using Threshold ECDSA Signatures and Direct Integration with Bitcoin. This approach allows users to trust only the IC and the BTC networks without intermediaries. However, as the canisters hold actual Bitcoin, they also inherit the slow and expensive transaction times associated with Bitcoin.
ckBTC is a wrapped Bitcoin created through a smart canister contract that builds on the direct integration with the Bitcoin blockchain. This means that ckBTC is a native token on the Internet Computer, allowing for fast and low-cost transactions while being backed by real Bitcoin on the Bitcoin blockchain. The planned fee for ckBTC transactions is 0.0000001 ckBTC, the equivalent of 10 satoshis.
Users can use the "ckBTC minter" canister smart contract to deposit real Bitcoin to their deposit address and receive an equal amount of ckBTC minus fees. Similarly, users can return ckBTC tokens to the canister to receive an equal amount of real Bitcoin at a specified Bitcoin address, minus fees. ckBTC follows the ICRC-1 token standard and is owned by the Network Nervous System (NNS), meaning that upgrades to the canisters can only be made with approval from the NNS, and there is no individual party in control of the canisters.
ckBTC is transparent, allowing users to see the amount of Bitcoin held by the ckBTC minter and all the Bitcoin UTXOs it holds. The supply of ckBTC tokens can also be viewed, ensuring that all ckBTC is always backed by BTC.
The goal of ckBTC
The integration of Bitcoin into the Internet Computer allows users to store and transfer Bitcoin. Still, these transactions can be slow and expensive due to their reliance on the Bitcoin blockchain. To improve the speed and cost of these transactions, we are working on creating a wrapped Bitcoin ledger that runs on the Internet Computer. This ledger will enable users to
- Trade real Bitcoin for wrapped Bitcoin(ckBTC) directly on the Internet Computer chain
- Transfer wrapped Bitcoin quickly and inexpensively using the Internet Computer chain
- Convert wrapped Bitcoin back into real Bitcoin.
One major advantage of this ledger is that it does not require the involvement of any trusted third parties, as it provides its custodial services. Additionally, the high efficiency of the Internet Computer means that transfers will be fast and incur minimal fees.
While this is just one example of a ledger canister, we welcome the community to create their ledgers with similar or different goals. We have decided to develop this ledger ourselves for two reasons: first, we want to have this functionality available as soon as possible so that developers can begin building wrapped Bitcoin smart contracts after the Bitcoin integration is launched; second, we want to offer our ledger as a well-tested sample project to demonstrate the capabilities of the Bitcoin integration and inspire the development of other ledger canisters.
When will ckBTC be released?
ckBTC is a cryptocurrency currently being developed with a planned release in early 2023. In the meantime, a simple illustration of how it works is available on the testnet, and a test version of ckBTC called ckTESTBTC has been made available on the mainnet.
This test version allows developers to test integrate with ckBTC and users to help test the code. To use ckTESTBTC, users can send testnet Bitcoin to their deposit address and then use ckTESTBTC to transact. The Bitfinity wallet by Infinityswap already supports ICRC-1 tokens and can be set up to use ckTESTBTC.
To redeem ckTESTBTC for testnet Bitcoin, users can follow the steps in the "ckBTC to Bitcoin" section of the README. Additionally, a dashboard shows the status of ckTESTBTC, including ongoing operations and UTXOs controlled by the minter. This dashboard can be used to confirm that all ckTESTBTC is backed by testnet Bitcoin.
What are the benefits and utilities of ckBTC?
The intrinsic benefit of ckBTC is the expectation of a wrapped coin. Wrapped Bitcoins, or wBTC, are a type of cryptocurrency representing real Bitcoin on a blockchain other than the Bitcoin blockchain. They are created through a process called "wrapping," where Bitcoin is deposited into a smart contract, and an equivalent amount of wBTC is issued to the depositor.
Some benefits of wrapped Bitcoins include:
- Interoperability: Wrapped Bitcoin allows Bitcoin to be used on blockchains that do not natively support Bitcoin. This enables Bitcoin to be used in various decentralized finance (DeFi) applications and protocols.
- Liquidity: Wrapped Bitcoin can be traded on cryptocurrency exchanges that do not support Bitcoin, increasing liquidity for Bitcoin.
- Ease of use: Wrapping Bitcoin into wBTC allows users to take advantage of the fast transaction speeds and low fees of the blockchain that wBTC is issued on without having to worry about the technicalities of using Bitcoin.
- Security: Wrapping Bitcoin into wBTC can provide an additional layer of security, as the Bitcoin is held in a smart contract rather than directly controlled by the user.
It is important to note that wrapped Bitcoin is not the same as Bitcoin and carries its own set of risks. Considering the benefits and potential risks of using wrapped Bitcoin or any other cryptocurrency is always important.
However, the individual accountability built on the blockchain makes ckBTC unique and stands tall amongst the crowd. ckBTC is well collateralized, and users can even see the level of the backing at any time while making transactions. Furthermore, it is totally decentralized and not controlled by a selected few but a completely decentralized network.
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