Quite clearly, DeFi’s integration with Bitcoin is inevitable. Given the fact that Bitcoin is the largest cryptocurrency network with a huge community of dedicated users, its smooth integration with DeFi can majorly impact DeFi usage.
So, to delve deeper into this subject and understand how it can be achieved, I reached out to
Diego Gutierrez, the co-founder of RSK - a platform trying to bring together DeFi and Bitcoin.
Q1. Welcome to unhashed. What’s your story behind joining the crypto space? And what led you to establish the project you’re currently working on?
Answer: When I first discovered Bitcoin, around 2011, I didn‘t get it. It was my friend Wences Casares, the founder of Xapo, who introduced me to Bitcoin again about a year later. At that time there were strict capital controls in Argentina and I had major problems getting paid by clients from Europe and the US.
It would cost around 10% of the amount and take three weeks or longer. Wences was in California then and he sent me 5000 Bitcoins just to test how it works. I sent them all back to him except for one which he told me to keep. All this happened in less than an hour, we didn’t ask permission from anyone and we paid a very small fee. That was an “Aha moment” for me.
It was obvious that this could solve my problems and those of many others. Wences, who was already a well-known and successful entrepreneur then, organized the first Bitcoin meetup in Buenos Aires. As he was living in the US, I took over and organized the second meetup in February 2013. That is where I met Rodolfo Andragnes and Franco Amati, with whom I founded the Argentinian Bitcoin Foundation and the Latin American Bitcoin Conference.
At a later time, I got in contact with my co-founders and collectively we realized the Bitcoin network, much more advanced and more secure, didn't have smart contract capabilities. So, we set out to fix that. That is why we have developed a sidechain that’s pegged to the Bitcoin blockchain by a process called Merged Mining.
For every Bitcoin miners mine, they also create what we call a Smart Bitcoin. RSK has similar qualities as Ethereum, which even uses the same programming language Solidity. That means everything you can create with Ethereum, like smart contracts, tokens or dApps, you can also do on a sidechain – but with the security of the Bitcoin network and for a much lower cost.
Q2. It’s very uncommon that people associate Bitcoin with decentralized finance and smart contracts, and understandably so. But DeFi on Bitcoin may largely impact DeFi’s adoption. So, what’s the best way of working on that front to bring DeFi to the Bitcoin network and how are you doing it now?
Answer: The vision is to encompass not only the future of DeFi but also of Bitcoin and that’s why it is critical to bring together DeFi and Bitcoin.
Ever since the early days of DeFi, enthusiasts have been asking whether Bitcoin will ever join the DeFi revolution. DeFi platforms such as Money On Chain (MOC) RIF and Sovryn, both built on top of RSK/Bitcoin, are a testimony to the enormous potential of DeFi on Bitcoin, and how it is making finance more inclusive and easily accessible.
Money On Chain created the first-ever bitcoin collateralized stablecoin, allowing Bitcoin holders to earn a passive income by staking their BTC. On the other hand, RIF On Chain (ROC) offers a fast and secure platform for transacting RIF-backed products as well as an opportunity for RIF token holders to generate a passive income.
Sovryn is a decentralized protocol for Bitcoin lending and margin trading. The DeFi ecosystem on top of Bitcoin has been growing, with more products available set to achieve broader adoption. Some of the solutions besides Money7e on Chain (the first stablecoin on Bitcoin), Sovryn, and RSK Swap are Kripton Market, Tropykus, Bundles Finance, Rlending., Defiant, Liquality, Babelfish to name a few.
The plan is to continue to move forward with building the blocks to enable a new global financial system so that developers and entrepreneurs can build the solutions that are needed for it to flourish.
Q3. Recently, RSK reported over 2,000 Bitcoins locked in its network, which is more than that locked in the popular Lightning Network. What do you think played in your favor and what did you do differently to beat other Layer 2 solutions for Bitcoin?
Answer: Reaching the 2,000 locked BTC milestone is another sign of a strong appetite among users for the Decentralized Finance (DeFi) sector for solutions built on Bitcoin.
Lightning would be more comparable to RIF Lumino Payments built on RSK than to the entire RSK blockchain itself. We don’t see Lightning as a competitor but as a complement. With dual Lightning/Lumino nodes, people will be able to do atomic swaps of bitcoins for smartBitcoins, greatly simplifying the use of RSK.
Q4. 15-second transaction time for Bitcoin payments seems exciting. And you achieve that with DECOR+. How does DECOR+ help make transactions faster on the Bitcoin network?
Answer: There is a huge challenge of making transactions faster in a blockchain whose consensus is based on proof-of-work. Making transactions faster implies reducing the average block time. The main problem is that as the inner-block time is decreased, the network produces more and more stale blocks (also called orphans in Bitcoin or uncles in Ethereum).
High production of stale blocks brings two problems. From the network perspective, these blocks are normally discarded and they do not contribute to the security of the honest chain. From the perspective of an individual miner, producing stale blocks means wasting work without receiving any compensation. To avoid creating stale blocks, they need to join larger pools or invest in better network connectivity. Both things incentivize centralization and make mining more unfair.
DECOR+ is a variation of Nakamoto Consensus, which is the protocol used by Bitcoin. Nakamoto consensus is highly competitive in the sense that the miner who mines a block receives all the block reward and the miner that mines a sibling block receives nothing. This means miners benefit from other miners' failures. For example, they are incentivized to DoS-attack rivals to collect their block rewards.
In contrast to this, DECOR+ is a consensus protocol that incentivizes cooperation between miners. Even if the transactions in stale blocks (known as siblings on RSK) are not executed by RSK, the miners of blocks are paid a fair share of the reward. The network also incentivizes cooperation and mitigates most fee sniping incentives. DECOR+ helps achieve an average block confirmation time as low as 15 seconds. However, currently, most miners are configured in a way that makes the network generate blocks at a 30 seconds average. Miners may reduce the inter-block time if the mempool (the waiting area for transactions in the Bitcoin network) becomes congested.
Q5. While decentralized finance seems to be gaining decent traction among end-users, how do you think corporations are preparing for this new financial paradigm?
Answer: So far almost exclusively, Decentralized Finance (DeFi) has been serving the cryptocurrency community but the majority of wealth resides in the legacy financial system. The full potential of DeFi’s interoperability, global reach, and openness will be unleashed once DeFi is connected and adapted to the needs of the traditional economy. The banking industry will experience a major revolution. They will need to adapt to the new paradigm, evolve or die.
Likewise, corporations will be forced to face and embrace this paradigm shift. It reminds me of the first Internet revolution in the late ’90s. All of sudden not only did new businesses and business models came up (social media networks, search engines, eCommerce platforms) but also it had a great impact on brick and mortar businesses that had to adapt to the new technology and revisit their business models in order to take advantage of the new technology.
Disclaimer: The sole purpose of Unhashed is to unhash (decode) information about projects innovating using blockchain and cryptocurrencies and share it with the community. The writer does not have any vested interest in any of the projects covered herein. Not that this article shares any, but still, taking investment advice from strangers on the internet is not a wise thing to do.