On May 22, 2020, renBTC – a 1:1 ERC-20 token representation of Bitcoin (BTC) – went live on the Ethereum mainnet.
Since its launch, the total number of renBTC that has been bridged from Bitcoin to Ethereum has experienced exponential growth. At the time of this writing (November 5, 2020), the number of renBTC has surpassed 20,500, totaling $282M+ in USD value.
As seen in the chart above, the number of renBTC is keeps growing tremendously over the course of 2020 and doesn't seem to stop.
What's the Problem With Bitcoin on Ethereum?
Bitcoin (BTC) is an enormous store of value with a market cap of nearly $256 billion. It’s the most dominant crypto asset by a landslide and is widely viewed as the best digital store of value, hence the narrative “digital gold”.
Bitcoin is getting adopted as a treasury reserve asset, (ie. Microstrategy, Square, Grayscale, etc.); it has garnered ever-growing institutional interest (ie. Ark Investment Management and growing CME Bitcoin interest), and it’s even getting adopted at a state level from Iran for value exchange.
That said, Bitcoin’s value proposition of being a hard, uncensorable, and unconfiscatable digital store of value is very strong.
However, this is where the buck stops.
While Bitcoin is great just the way it is, it’s pretty much just an idle asset that cannot participate in the exciting world of DeFi that Ethereum has to offer. Bitcoin on Ethereum however, can be used in all sorts of innovative ways. It can be used in any Ethereum DeFi application for lending, borrowing, collateral, earning interest, yield farming, boosting liquidities, etc.
In essence, Bitcoin on Ethereum allows hodlers to continue holding onto their Bitcoin value whilst also utilize DeFi apps. And in turn, DeFi apps benefit immensely from tapping into the high value and liquidity of Bitcoin. A win-win scenario.
So what’s the problem here?
Let me explain.
The most prominent form of Bitcoin on Ethereum – Wrapped Bitcoin (WBTC) – which makes up nearly 80% of all Bitcoin on Ethereum, is a somewhat centralized solution to bridging Bitcoin on Ethereum. It’s centralized because it requires users to go through a Know Your Customer (KYC) procedure and to use a third-party custodian service (BitGo) in order to bridge their Bitcoin onto Ethereum.
This poses to be a big problem for some potential users as it raises privacy and censorship concerns and goes against the ethos of Bitcoin, which is decentralization and censorship resistance.
That said, Wrapped Bitcoin (WBTC) is not an ideal solution for the long term decentralized vision that Bitcoin and Ethereum encompass. In order for Bitcoin on Ethereum to truly succeed, we’ll need a non-custodial and decentralized solution for bridging Bitcoin on Ethereum.
How renBTC Solves The Problem?
RenBTC is a non-custodial, decentralized, secure, capital-efficient, and economically protected form of Bitcoin on Ethereum. RenBTC currently makes up nearly 13.5% of all Bitcoin on Ethereum and was launched on May 22, 2020.
Now, before we can understand how renBTC solves the problem of non-custodial and decentralized Bitcoin on Ethereum, we must understand how it works:
The company behind renBTC is Ren (REN) – an open protocol and cryptocurrency that enables the permissionless and private transfer of value between any blockchain.
RenBTC is a part of the decentralized RenVM network, which is made up of nodes (or in other words, computers) that create a network in a decentralized fashion.
The Ren network uses an architecture of shards which include 200 nodes each. Each shard employs a Byzantine Fault Tolerant consensus algorithm called sMPC which allows for the generation of a Bitcoin address which can only be used if 66% of the nodes of one shard are working together.
If 33% of the nodes fail or steal funds, the entire shard stake will be confiscated and used to buy and burn renBTC in order to compensate users for lost funds. Also, in order to prevent Sybil attacks, Ren uses an adjusting fee, which changes accordingly to the amount of REN staked.
Okay, that was pretty complicated, but hear me out:
All you really need to know is that renBTC operates on an open and decentralized blockchain protocol that enables you to bridge your Bitcoin onto Ethereum in a secure and, most importantly decentralized way. So absolutely no KYC is needed to perform a BTC -> renBTC swap. From there, you can use your renBTC across hundreds of decentralized applications.
You can lend it, borrow, gamble. Just like if you were interacting with ETH, DAI or any other ERC-20 token.
But how can you be sure renBTC is fully collateralized?
On October 5, 2020, Ren collaborated with Chainlink on a new Proof of Reserve mechanism to improve the transparency and auditability of its cross-chain asset bridges, ie. renBTC.
Thanks to Chainlink’s Proof of Reserve mechanism, smart contract applications in the Ethereum DeFi ecosystem can now trustlessly and autonomously verify the reserves backing the Ren ecosystem.
How Chainlink’s Proof of Reserve Works for RenVM
Using Chainlink’s Proof of Reserve Reference Contracts, smart contracts can now ensure with high confidence that renBTC is fully collateralized by Bitcoin on its native chain.
Said another way: Smart contracts can now audit the collateralization of RenBTC in a fully automated and censorship-resistant manner, removing the need to rely on manual off-chain verification methods such as a monthly audit report.
Compared to existing forms of Bitcoin on Ethereum like Wrapped Bitcoin (WBTC), renBTC appears to be better and fits well into Bitcoin and Ethereum’s long term decentralized vision.
On top of that, you can swap your renBTC for your original BTC whenever you want. All you need is to still be in possession of that renBTC (some people lose it when trading).
How Community & Investors Reacted?
The Ethereum DeFi community appears to be very pleased that renBTC has a strong focus on decentralization and censorship resistance when it comes to putting Bitcoin on Ethereum.
Especially excited about renBTC is the DeFi crowd, who are already putting their idle Bitcoin assets to work with renBTC on DeFi applications.
One DeFi enthusiasts ( that's renBTC creator himself ;) ) showcased on Twitter that $7.5M worth of renBTC is already earning 20% APY on KeeperDAO, an on-chain liquidity underwriter for DeFi:
Another DeFi fanatic on Twitter congratulated Ren on their 100,000 BTC transacted milestone on November 1, 2020:
As seen above, he also stated that he hopes to see greater adoption of renBTC through their collaboration with leading DeFi applications such as Curve, Maker, Aave, Acala, and Badger.
The biggest recognition of the tech behind Ren Protocol was the launch of REN token on Coinbase & Pro in early October 2020:
As renBTC achieves greater adoption among the leading DeFi applications, we can expect to see renBTC gain dominance over its centralized cousin, WBTC.
Also, I expect the Bitcoin and Ethereum community to naturally migrate towards renBTC over other forms of Bitcoin on Ethereum, simply due to its high level of decentralization, transparency, and security.