As a seasoned crypto investor with a decade-long journey under my belt, I have witnessed the evolution of this digital frontier from a distant spectator to a passionate participant. Bitcoin, the pioneer of cryptocurrencies, has proven its mettle as a digital store of value and a means of transfer, but its utility beyond these functions has been a bone of contention.
The fact that Bitcoin has proven itself as an effective digital form of saving value is indisputable. However, its usefulness for purposes other than storing and transmitting value is often questioned.
In simpler terms, the system used for trading, borrowing, and creating related products for Bitcoin (BTC) often depends on external, custodial services. This issue is magnified because there might be few or risky options for moving Bitcoin across different blockchains.
In recent times, technological breakthroughs have sparked a surge of developer work within the Bitcoin Layer 2 sector. This activity could result in an imminent expansion of Bitcoin-focused Decentralized Finance (DeFi) over the next few years. As of October 2024, Ethereum is leading the DeFi market with approximately $47.5 billion in total value locked (TVL), while Bitcoin’s TVL is at around $1.9 billion. If Bitcoin managed to match 10% of Ethereum’s market share, it could potentially boost its TVL by $4.8 billion, demonstrating its unrealized potential in DeFi and the importance of effortless cross-chain compatibility to bridge the gap.
In this context, several initiatives like Chainlink CCIP, LayerZero, Threshold Network, and Portal-to-Bitcoin are working to connect different blockchain networks. Among them, Portal-to-Bitcoin is particularly noteworthy for enabling cross-chain transactions via atomic swaps, reducing the need for custodial services. Recently, a report by CryptoMoon has delved into the methodology used by Portal-to-Bitcoin to facilitate Bitcoin integration within DeFi platforms, providing an innovative solution to this issue.
Portal-to-Bitcoin: A native Bitcoin solution for cross-chain non-custodial swaps
The Portal-to-Bitcoin system offers a method for exchanging native Bitcoin across different chains without relying on wrapped tokens or custodial connections. Instead of traditional lock-and-mint mechanisms, it utilizes atomic swaps, more specifically, Multi-Party Hash Time-Locked Contracts (MP-HTLCs), to facilitate these exchanges.
When a user starts a trade, the involved funds get secured in a Hash Time-Locked Contract (HTLC) on one blockchain system, such as the Bitcoin network. The other party then establishes an equivalent HTLC on another chain, like Ethereum. Both contracts utilize the same cryptographic hash and impose a time restriction for the trade to be finished. If either participant discloses the shared secret (preimage), the trade is finalized; otherwise, both parties retain their assets.
Portal-to-bitcoin employs an Automated Dynamic Market Maker (ADMM) to facilitate users’ trades between assets. This ADMM resembles Uniswap v3, but it’s designed to handle liquidity and execute swaps quickly across multiple chains. This system can manage both range and market orders, as well as reduce costs and the risk of front-running by grouping transactions within each block before execution.
To safeguard its infrastructure, Portal-to-bitcoin employs a validator system backed by its exclusive Notary Chain. This Notary Chain relies on a Threshold Signature Scheme (TSS) to prevent any single validator from having control over vital cryptographic keys. While some level of trust is still necessary, the decentralized structure makes it impossible for a small group of validators to misuse funds.
Charting a Course for Bitcoin’s DeFi Evolution
Solving crucial trust and custody matters, Portal-to-Bitcoin offers a practical approach for seamless integration of Bitcoin within broader DeFi systems across different chains. This could potentially unveil substantial value within this sector. For more comprehensive details on cross-chain technologies and an in-depth look at Portal-to-Bitcoin’s distinctive architecture, please refer to the complete version of our report.
This piece is designed primarily to provide general knowledge; it’s not meant to serve as legal or financial advice. The perspectives, ideas, and viewpoints shared here belong solely to the writer and may not align with those held by CryptoMoon.
In other words, CryptoMoon is not responsible for the information in this article, nor does it recommend any products discussed here. It’s essential for readers to thoroughly investigate any product or company they come across and make their own informed decisions, understanding that all actions are their own responsibility.
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2024-12-03 18:02