Fully Trustless Cross-chain Bitcoin Token Swap via zkBridge

In the constantly evolving Bitcoin ecosystem, achieving trustless interoperability between Bitcoin and different networks is critical. At Polyhedra Network, we’ve made strides in enabling Bitcoin to interact seamlessly across chains using our zkBridge technology. We first enabled interoperability for transactions originating from Bitcoin through our zkBridge Bitcoin messaging protocol. This is done by enabling the recipient blockchain to verify Bitcoin block headers and transactions via ZK proofs and ensure security. However, facilitating transactions from other blockchains to Bitcoin remains challenging due to Bitcoin’s limited smart contract capabilities. To enable secure message passing from other networks (such as Ethereum) to Bitcoin, we have introduced two methodologies using zkBridge in our previous posts:

1. The Bitcoin AVS: Secure the message passing from Ethereum to Bitcoin through borrowing the crypto-economic security from EigenLayer dual-staking. The Bitcoin AVS enables a fast and trust-minimized interoperability protocol to Bitcoin with a carefully designed slashing mechanism guaranteed by zkBridge.
2. Verify ZK on Bitcoin: Verify the ZK proofs directly on the Bitcoin by using FRI (Fast Reed-Solomon Interactive) style ZK proofs as the final layer of on-chain verification. Then we can build the zkBridge when Bitcoin is the receiver chain by using the ZK verifier on Bitcoin.

In this blog, we present a lightweight and efficient protocol to enable a fully trustless cross-chain Bitcoin token swap. The protocol introduces two counterparties, a maker and a user, to process the token swap. The token swap between two counterparties is secured by our zkBridge Bitcoin messaging protocol. This enables direct token swaps and enhances Bitcoin’s liquidity and integration with various blockchains.

At the heart of our implementation lies a novel mechanism designed to bridge the gap between Bitcoin and smart contract-enabled blockchains. Unlike traditional approaches, our solution navigates the inherent limitations of the Bitcoin network, which lacks native support for smart contracts and, therefore, cannot directly confirm transactions originating from networks like Ethereum. Our cross-chain Bitcoin token swap protocol has broad applications. For example, it enables a Bitcoin Layer-2/sidechain to securely withdraw BTC tokens to the Bitcoin network in a fully trustless way.

How It Works: A Step-by-Step Overview of the Protocol

Our solution navigates Bitcoin’s limitations by employing Ethereum smart contracts to orchestrate the token swap process. This mechanism ensures that Bitcoin can effectively communicate with and perform transactions across other smart contract-enabled networks. Here’s how it unfolds:

1. Maker deposits BTC to the liquidity pool on Bitcoin, and deposits collateral to the collateral pool on Ethereum. Makers also specify the receiving address on Ethereum to receive the swapped WBTC.
2. Users send WBTC to the liquidity pool on Ethereum. User’s tokens are held in the liquidity pool on Ethereum until the maker submits the proof of transferring the corresponding BTC on Bitcoin.
3. The maker transfers BTC to the user’s receiving address on Bitcoin from the liquidity pool.
4. Upon successful transaction confirmation on the Bitcoin network, the maker submits proof of the transaction to the smart contract on Ethereum using our zkBridge Bitcoin Messaging Protocol.
5. The smart contract on Ethereum verifies the proof and releases tokens to the maker, finishing the cross-chain Bitcoin swap.

* If the maker fails to submit the required proof within the specified time frame, the collateral will be slashed and compensated to the user.

Advantages of Our Design

Our mechanism introduces several key advantages:

• Full Trustlessness and Security: This system protects against malicious behavior by makers. In cases of dishonesty, the absence of verified transaction confirmation prevents the maker from receiving the funds, exposing them to potential penalties
• Efficiency and Decentralization: The process is decentralized, allowing any node to participate as a maker. The zkBridge enables swift and cost-efficient communication between Bitcoin and other networks.

Expanding Bitcoin’s Utility and Fostering Economic Growth

The wider adoption of this functionality opens up new avenues for financial innovation, such as decentralized finance (DeFi) applications, which can now incorporate Bitcoin more fully into their ecosystems. The implications for economic growth within the blockchain space are profound, as this new level of interoperability facilitates a more fluid, efficient, and accessible global cryptocurrency market.

Encouraging Innovation and Collaboration

By bridging the gap between Bitcoin and other blockchains, we are laying the groundwork for a future where developers, entrepreneurs, and users can collaborate across different networks, leveraging the unique strengths of each to create more diverse and powerful applications. This environment of increased interoperability is fertile ground for innovation, where new use cases and business models can flourish.

About Polyhedra Network

Polyhedra Network is building the next generation of secure, interoperable, and scalable Web3 infrastructure with advanced zero-knowledge proof technology. The team has developed and deployed several next-generation zk-SNARK protocols resulting in performance improvements orders of magnitude faster than existing solutions. Polyhedra’s interoperability solution, zkBridge, connects over 25 blockchains and proves the validity of cross-chain messages utilizing zero-knowledge proofs. Developers building with Polyhedra Network can create secure, scalable, interoperable applications without any additional trust assumptions.

For more information visit: https://polyhedra.network