ICP’s Schnorr integration ushers in Bitcoin DeFi era

Advanced threshold cryptography, which is a complex encryption technique, will be employed by the Internet Computer Protocol (ICP) to enable decentralized finance features and activate smart contracts directly on Bitcoin‘s fundamental layer.

At Paris Blockchain Week, Aisling Connolly, a senior research scientist at Dfinity, explained to CryptoMoon how ICP‘s adoption of threshold-Schnorr signatures would allow its smart contracts to gain Bitcoin blockchain addresses and approve transactions directly.

Claus Schnorr signatures are a kind of digital signature that function like a hidden agreement between two entities. By employing this method, one party can confirm having approved something without disclosing their confidential key.

With this implementation, ICP smart contracts can generate Schnorr signatures for creating Bitcoin Runes and recording Ordinals in a decentralized fashion. Moreover, they will be able to transfer BRC-20 tokens directly on the Bitcoin mainnet, sign taproot transactions, and re-inscribe Ordinals.

Mid-2024 is when ICP plans to complete the rollout of threshold-Schnorr, a key feature that lets smart contracts generate addresses for Bitcoin transactions and grant approval on their own. The fundamental implementation of this technology, known as threshold-Schnorr-BIP340, has already been incorporated into ICP.

“Schnorr offers additional capabilities such as grouping transactions together. It also paves the way for novel applications on Bitcoin that are currently emerging. For instance, some individuals have been inscribing Ordinals over the past year, which Schnorr will facilitate seamlessly without requiring any modifications and even from other blockchains,” Connolly describes.

Researcher’s finding: After a Bitcoin halving event, inscribing Ordinals or carving Runes typically involves utilizing Schnorr signatures. Connolly explained that Schnorr signatures share some resemblance with the ECDSA signatures employed by Bitcoin for ownership management. However, he emphasized that Schnorr signatures are “more straightforward, quicker, and more secure.”

“If you have Schnorr as a native thing, then it allows smart contracts to directly write or etch runes on the Bitcoin blockchain. This is pretty special. I don’t know anyone who’s doing this at the moment.”

It’s anticipated that merging Schnorr signatures with ICP‘s integration at the protocol level with Bitcoin will create opportunities for decentralized applications (DApps) and services, enabling them to take advantage of Bitcoin’s liquidity and security without requiring centralized intermediaries.

Connolly pointed out several practical applications currently being developed by the ecosystem community.

In simpler terms, Connolly describes a scenario where Internet Computer Protocol (ICP) functions as the coordinating platform. For instance, if you currently have a Decentralized Application (DApp) on Ethereum but wish to incorporate Bitcoin, an ICP contract can be employed. This contract works in harmony with your DApp to communicate and write data to Bitcoin.

Other innovators are creating new applications starting with ICP (Internet Computer Protocol) as a foundation. Connolly pointed to Taler DAO, a Bitcoin-supported stablecoin based on algorithms, as one of the latest endeavors utilizing this infrastructure.

An alternative perspective to consider is the potential reaction of the larger Bitcoin population towards the proposed integration. Long-time Bitcoin users, often referred to as “OG” Bitcoiners, tend to be cautious when it comes to new integrations or solutions that aim to connect Bitcoin with other blockchains.

According to Connolly, chats with Bitcoin advocates indicate a welcoming perspective towards Bitcoin’s infrastructure, expanding its potential uses.

“Some of the work that we’re doing is being picked up by Bitcoiners and in the BitVM Telegram chat, they’re discussing the stuff that we’re doing and how it can be used.”

A researcher holds the view that the Bitcoin community is typically receptive to investigating and adopting platforms such as ICP‘s decentralized exchanges, which enable non-custodial wallets. According to Connolly, this setup empowers users to take advantage of DeFi features like staking Bitcoin without surrendering their private key control.

“If Bitcoin is the kind of de facto store of value in a digital currency like cryptocurrency, why can it not be the sort of de facto like hyper-secure compute platform as well?”

Approximately 300 developers are currently working on Bitcoin-integrated Decentralized Applications (DApps) in the realms of DeFi, NFTs, gaming, and social media for ICP. ICP initiated this feature in 2022. By employing chain key cryptography, ICP smart contracts now have the capability to directly manage Bitcoin transactions without requiring intermediary bridges for cross-chain functionality.

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2024-04-16 16:21