For Bitcoin DeFi to Become a Reality, There's Now an Alternative to Op_Cat
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Bitcoin’s having a hell of a Sweet 16. Just wait for the wedding.
Just as we started the month countdown to the 16th anniversary of Bitcoin’s genesis block – which was actually the moment that all of crypto was born – Bitcoin hit the $100k mark. The next big landmark won’t be a price milestone – it will be a utility milestone.
It will come when this digital gold, this digital store of value, marries the world of DeFi. There will be a myriad of use cases that aren’t currently possible – but no compromise to Bitcoin’s principles and security. Like in a (good) marriage, Bitcoin keeps its identity but is able to achieve more. And it will be worth a celebration even bigger than today’s.
Now, true DeFi secured by Bitcoin isn’t possible. There are no covenants – a concept I’ll discuss below – and as such, no ZK-rollups or Bitcoin-native layer-2 networks that would be the natural “location” for such activity. And the liquidity of Bitcoin holdings is locked up. I expect this to change, quite possibly within a year.
What is more, the change that I envisage would be a fast route to solve some of today’s big problems such as privacy, scale, and payments. Bitcoin could give us all the privacy we want, the scale we need, and the payment structures that can get us all using crypto daily.
Traversing the trenches of the Bitcoin community, there’s a piece of code that would enable some or all of this functionality. If this Satoshi-era code, OP_CAT, is reactivated, it would pave the way for some or all of the above on Bitcoin.
In other words, you would be able to do much, much more than holding, and actually get a full DeFi experience secured by Bitcoin. The company I lead, StarkWare, has already announced that we’ll do the work so that the Starknet L2 could be secured by both Ethereum – as it is today – and by Bitcoin. Rollups squared.
I’ve likened OP_CAT to adding one button to this scientific calculator which gives you much more functionality. It doesn’t change the calculator into a tablet or into a games console, and it doesn’t change the security of this intentionally limited device, but it opens up more possibilities for those who know how to use them smartly.
But if we’re aiming to wed Bitcoin with DeFi, like in every great romcom, you need fallback options. A few weeks ago, a very interesting alternative route emerged, and among those steeped in Bitcoin’s inside baseball, some are getting very excited. This potential route plan is a way to get to DeFi without the reintroduction of the OP_CAT code.
It’s a direction called ColliderScript, which can achieve the necessary covenants on Bitcoin without OP_CAT. It’s still theoretical and would be exceedingly expensive for now. But in our world, theory can quickly become practical. And firsts, like the first genome sequenced, are always hugely expensive while costs can in due course be made viable. Let me take you through what was established and why it’s a big deal development that we’ll still be discussing in a decade or two.
Covenants and ColliderScript
The covenant in Bitcoin is a mechanism that imposes restrictions on how coins can be spent in the future. But don’t be fooled by the word “restrictions” – this mechanism is actually all about unlocking possibilities. Covenants enable smarter transactions. For example, covenants can return funds automatically if certain security conditions aren’t met or bring tools like crowdfunding and DeFi closer to Bitcoin.
Covenants could also prevent an attacker from getting full control over your Bitcoin, even if they gain access to your private keys. How? By enforcing a time-lock on your wallet’s funds. They even help the network scale in several ways, better managing the network’s existing set of rules.
The sole route to covenants on Bitcoin, it was assumed, was by having OP_CAT or similar code within Bitcoin’s protocol. Then my colleague Avihu Levy recently went on paternity leave, and like all good crypto OGs, he can’t really disconnect, so he started working on an idea he had been playing with in his head. It was a route to covenants without protocol change. Ethan Heilman and Andrew Poelstra had been working on ColliderScript individually. They all heard about each other working on it, and they all came together to work on it Avengers-style. Victor Kolobov from Avihu’s team got involved, and the collaborative outcome was recently published as ColliderScript: Covenants in Bitcoin via 160-bit hash collisions.
The big hurdle to covenants is the scripting system of Bitcoin. Covenants require access to the full range of information about transactions. But Bitcoin’s scripting system separates the tasks of verifying and inspecting signatures into two distinct layers, or "worlds." There is no natural way to bring together both “worlds” of information—they operate independently, and you cannot directly connect the verification of signatures in the big world with the inspection of the data in the small world. The big world is where signatures are verified, confirming the authenticity of the transaction. It gives you the big picture: that the transaction is authentic. The small world, on the other hand, is where specific rules about spending the funds are enforced. It provides the nitty-gritty details of the transaction.
ColliderScript provides a way to connect the two worlds. It allows the signature to be both verified in the big world and inspected in the small world. There is a group of elements that can exist in both worlds. The ColliderScript plan works by finding an element from this group that collides with a hash of the signature both in the big and small worlds. This “tells” the small world with a very high chance that it got ‘bridged’ with the correct signature and it can go about inspecting it.
By making this connection—by enabling the big and small worlds to “collide”—covenants can be realized.
Bitcoin doesn’t need to reinvent the wheel to be revolutionary; it just needs to keep getting better at what it does. Covenants bring that to life, along with amplifying what I’ve always believed Bitcoin to be: a tool for empowerment, giving individuals and small communities more control over their financial lives.
It feels personal
I remember in 2013 preparing my talk for the Bitcoin conference in San Jose. It was the first time I publicly spoke about STARKs, the cryptographic proofs I co-invented, which are today widely used in scaling.
Back then, the few people thinking about scaling Bitcoin with cryptographic proofs were pumped about its future. But we were few back then. In the formative years pre-dating the Lightning Network, most people weren’t even entertaining the idea of scaling Bitcoin. They were just hyped to be early in a once-in-a-lifetime chance to change the world. But I couldn’t shake the thought that we could actually expand the network to become more than digital cash. Today, this has an unstoppable life force of its own.
Headways like this remind me of why I fell in love with Bitcoin in the first place. It’s not NgU, strategic Bitcoin reserves, or ballooning corporate treasuries. Bitcoin is about the believers, like a new dad holding a baby who can’t stop thinking about code, and the friends and colleagues who get talking to him on X and Slack at unsociable hours to hack away at change.
This is a reminder that Bitcoin’s story is written by its people. Bitcoiners that are willing to put in the grueling hours, in between feeding time, to feed the network and its possibilities.
Yes, there are days like today when Bitcoin is in the limelight, with a memorable dollar number and a very clear story. But the future of Bitcoin will be written by those who see it as a puzzle worth solving, a story worth telling, and a technology/currency/philosophy/anchor for truth and integrity in ways that we are only starting to discover.
Bitcoin has reached $100k, it is reaching age 16, but let’s remember that, like all teenagers, it's still discovering itself, its strengths, and the range of things it’s really good at. There will be many more landmarks to celebrate. Prepare with excitement for Bitcoin’s transition to adulthood, for its wedding with DeFi, and then I hope for more new frontiers, including how Bitcoin can anchor our data and information and become a source of immutable truth and integrity.
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