Thursday, March 22, 2018

RSK Labs Says Smart Contracts and Masternodes to Bring More Value to Bitcoin

The bitcoin community is growing fast, and so does the scaling problem. As Bitfinex and Coinbase added support for Segregated Witness, bitcoin network capabilities remain limited – thousands of unconfirmed transactions are often stuck when there is a new flow of interested users.

The scaling debate is going on and opinions remain divided on the best solution for the network. Some support Lightning technology, which is being developed by several teams simultaneously. Others are in favor of sidechains. A few rebels call for changing PoW-algorithm with co-founder Cobra being one of the best known community members among them. Anyway, only time will tell which solution is the most efficient one.

RSK Labs is one of the leading companies working on sidechain teachnology oras they define it drivechain solution for different blockchains. Moreover, RSK also seeks to implement smart contacts into the bitcoin network.

Earlier this year the company has launched beta-version for RSK mainnet called Bamboo which is compatible with Ethereum DApps’ interface.

ForkLog talked with RSK co-founder Gabriel Kurman to find out how his team is going to transform the bitcoin network into a financial system of the new generation with billions of users.

Forklog: Let’s talk about sidechains. What is it and why does it matter for bitcoin and the whole technology?

Gabriel: There are multiple ways to connect to different blockchains. Sidechain is one of them, but it requires a hardfork of the bitcoin blockchain and 5 opcodes to be modified. In the case of a drivechain, which is a simplified version of a sidechain, you need to conduct only softfork and have 1 opcode modified. This opcode allows miners to decide whether release funds in the drivechain or not every time they mine a new block.

One year ago we presented our BIP to Bitcoin Core team. There are ongoing discussions on the implementation process. This softfork would allow us to borrow bitcoins from bitcoin network, use them on the drivechain to secure smart contracts execution and then send them back to the bitcoin blockchain.

Everytime you want to execute a smart contract on the RSK drivechain, you send bitcoins (or satoshis) to a special bitcoin account, where those funds are locked. Then you use the same private key to receive the equivalent amount of smart bitcoins. It’s 1 to 1 conversion.

You need smart bitcoins to pay for smart contract execution on RSK. Then users can send those bitcoins to the 2-way peg to unlock original amount of bitcoins. The community supports RSK much, because in this case bitcoins will be actually the fuel for smart contracts. It means the higher demand for Bitcoins and hence a higher price.

We have decided not to use Ethereum and chosen bitcoin as the most reliable coin with longest track record and security in crypto history.

ForkLog: In what way does RSK solve the bitcoin scaling problem?

Gabriel: In bitcoin you can process up to 5 transactions per second. New blocks are generated every 10 minutes. In case of the RSK sidechain or drivechain you can process up to 400 transactions per second with new blocks generated every 14 seconds.

We are also working on the third layer or offchain payment channel called Lumino. It will allow RSK drivechain to process up to 20 000 transactions per second. It’s an offchain solution for the bitcoin scaling problem (similar to Lightning but applied to any token).

No doubt, the original bitcoin blockchain will always be the most secure layer and the store of value that is used for very large transactions. But we think it’s rational decision to use upper layers for small transactions or solutions that require additional functionality such as smart contracts.

ForkLog: So, what is the main goal for RSK? Do you want to accelerate bitcoin blockchain or introduce smart contracts to bitcoin in the first place?

Gabriel: Our main goal is to reach billions of users, who are abandoned by the traditional financial system. 50% of planet’s population is poor, they don’t have any access to financial services. We can transform this reality, change it, with the help of blockchain technology and smart contracts to build a better society and more inclusive financial system. This is our main goal.

The security of the bitcoin blockchain and flexibility and programmability of smart contracts will help us to build the Interned of Value. We seek to apply the main benefits that the Internet-Of-Knowledge brought to the exchange of information such as democratic and instant access, low cost, now applied to any kind of exchange of value.

ForkLog: I assume that you’re tired of this boring question, but I have to ask it. If there are smart contracts on the bitcoin blockchain, is there any need for Ethereum?

Gabriel: It’s not the competition in the first place, it’s about collaboration in the same direction. Ethereum and RSK technologies are open-source, so everybody has access and benefits from each other’s innovation.

We think Ethereum has achieved great things and we are close to its amazing community and the Ethereum foundation. Actually, that is why we choose Solidity language as well as web3 to bring smart-contracts to the bitcoin netwotk. In the next three or five years we’re going to find out which network provides the highest level of security at the lowest execution cost. This will be key in order to be able to reach billions of users.

Now we need as many smart-contracts platforms as possible to build a fair and inclusive financial system for 3 billion people. We need as many great minds as possible working on an open-source technology that can be shared with everybody.

ForkLog: Some sceptics think that Solidity isn’t the best choice for smart-contracts. There is a lot of criticism around Ethereum Solidity-based smart-contracts’ vulnerabilities. Why did you choose it?

Gabriel: Solidity as a language has improved significantly since the DAO. The current version of Solidity has been audited, so the DAO problem should not to happen again (with proper audit it should not had happened in the first place anyways). Our goal at this time is to attract developers from all around the world to write smart-contracts on RSK platform so we think it’s an appropriate choice for now. In the future, we plan to develop the tools to allow smart contact programmability in other popular languages.

ForkLog: There is a concept of the federated sidechain. What it means and how it works? What do you think about the problem of trust in the federated sidechains?

Gabriel: Until Bitcoin Core implements the drivechain opcode to the bitcoin protocol, the only way to create 2-way peg is a so called federated drivechain. If you want to avoid the federation option, you need Proof-Of-Work, and this is possible only with drivechain opcode. So, now all sidechains are federated.

In our case, the federation includes 25 of the most prominent and respectable exchanges from 5 continents. This federation is aimed to secure 2-way peg with a distributed multisignature. There is no problem to convert bitcoins into smart bitcoins, but in order to unlock bitcoins back you need to get those signatures from the federation. When the drivechain is implemented, you will need signatures from the federation and miners.

The hybrid Drivechain will provide the network with the highest level of security, because you will need signatures from two different groups to release locked funds. It’s PoW-signatures in the first place and additional signatures from the federation.

We don’t expect significant funds on the peg at the beginning. Bitcoin blockchain will remain the store of value, smart bitcoins will only be needed for business rules and fuel for smart contract execution .

The transaction fee in RSK for a send transaction is 3 cents. You need few satoshis to execute a smart-contract. For example. if you do ICO on the RSK network, you will receive funds in bitcoins on the main blockchain where the store of value should be. In this case you need smart bitcoins only to execute smart contracts and send tokens to ICO participants.

So, in our case the federation has no real economic incentive to collude against the community, because it will completely destroy their business and reputation. But actually the PoW-solution is more reliable than federated one, that’s why we submitted drivechain BIP to the Bitcoin Core a year ago.

We’ve also received interest to implement the with Dash, Litecoin and Bitcoin Cash. Maybe those teams may decide to implement the drivechain faster than Bitcoin Core and will allow us to test it in production before Bitcoin. For instance, something similar happened with Litecoin implemented Lightning before Bitcoin which was really positive for the ecosystem as a whole.

ForkLog: So, RSK doesn’t focus only on the bitcoin blockchain?

Gabriel: We believe that bitcoin is the best blockchain to have the financial system built on, but the competition is good for the industry, it pushes it forward. We think that other projects help bitcoin to develop new features in the race to be better. It’s important. There should be an open-source development healthy competition to bring more security, decentralization and innovation to the users.

ForkLog: When it comes to consensus algorithms, do you prefer PoW only? Do you think PoW is the most efficient one?

Gabriel: Well, it’s a completely new technology, so it’s in the state of the permanent improvement and evolution. I think PoW is the best solution we have so far, because it has proved it can process huge amount of value, so I wouldn’t change it in the near future.

But we should be concerned with energy consumption by PoW-algorithm, it grows exponentially and in a few years it will be a major problem. We appreciate many researches being done to lower the energy consumption by miners, but we don’t know if they are going to be successful.

ForkLog: Do you think PoW is an ecological threat or it’s just a kind of FUD?

Gabriel: Yes, PoW consumes huge amounts of energy. If it’s clean energy, there is no problem. If it requires burning fossil fuels, it’s very bad from environment. That doesn’t mean that this process doesn’t provide the humanity with a great value. Every human activity requires energy consumption and causes greenhouse gas emissions.

We need an open discussion on which activity we perform as a society should be priority. Having long-term store of value without links to governments and central banks, and an alternative to gold for the first time the human history – it’s very important. And yes – I think PoW is the best consensus mechanism so far. Bitcoin is a breakthrough for humanity and PoW is needed to keep it working.

But we should keep on trying to find another solution that will be as secure and decentralised as PoW and won’t have so harmful impact on the environment. Unfortunately, I can’t confirm that we will ever find it.

ForkLog: What is wrong with PoS in this context?

Gabriel: It’s an interesting mechanism, but it’s far from being an alternative to PoW. There are many problems that PoS hasn’t solved yet and many questions around the algorithm. What to do if funds are stolen? Ethereum struggles to find the right answer, but it’s not that easy. Let’s recall the DAO hack. Hackers stole not only funds, but also the consensus of the platform. The most of the community doesn’t care about the consensus algorithm, they just hold tokens for speculative purposes and only 5% of the whole community voted about the DAO fork of this.

That’s is a big threat, because in this case only a small group of people will decide the future of the system. Moreover, you can’t vote having your tokens in the cold storage. You need them online or at least compromising the anonymity. And having them online is less secure than offline storages.

It’s good that we’re looking for alternatives, but we are far away from finding one. It’s too risky to implement PoS in its current form without testing and solving such major problems. It might be interesting from a technical standpoint but it risks a major delay in the Blockchain micro-financial solutions so desperately needed in our society.

ForkLog: So, you don’t think Ethereum will implement PoS in the near future?

Gabriel: I think Ethereum has another problem. I mean the infrastructure of the platform – business rules and store of value in the same layer. You know, Ethereum was never meant to be the store of value, because it has not been immutable and ETH is not scarce., but still many people use it as the store of value. These people will become very concerned when the time comes to move to PoS as if it fails, it will have a significant impact on the store of value. I think that’s why they introduced sharding – to have innovations tested in different shards without the limitations of the Ethereum mainnet.

ForkLog: Can I say that shards are the same thing as sidechains?

Gabriel: That is an interesting comparison. It seems that Ethereum is trying to transform its architecture in the way RSK interacts with bitcoin. It’s not a clear sidechain, but the concept is similar. The idea is to have business logic and smart-contracts on a different layer from the store of value. It allows you to innovate without threatening the store of value. PoS implementation for Ethereum will be very challenging, many users and miners will fear, so there will probably be another hardfork when PoS happens.

ForkLog: Let’s talk about Bamboo.

Gabriel: It’s the latest release of the RSK network and it’s a mainnet where you can for the first time receive smart bitcoins from the bitcoin blockchain.

ForkLog: How do you think – there will be one crypto in the end or not?

Gabriel: It’s hard to tell, but much of cryptos won’t definitely have sense in the future. In 90s we have websites for each thing – for apples, oranges, bananas etc. And there was no sense in that. In long-term many blockchains and tokens will disappear, but I don’t think that one token can be all-purpose solution. It’s probably not right. I expect around 10 cryptos to take 90% of the market cap in the long term.

ForkLog: Tell me about merge mining and how it powers RSK network?

Gabriel: For the first time RSK provides ASIC-miners the possibility to use their hardware and electricity to secure smart-contracts. They seek to participate in smart-contract revolution, but they didn’t have such opportunity in the past. We decided to take advantage of this infrastructure and use their electricity to secure smart-contracts and tokens without any loss of efficiency of the bitcoin mining. Every RSK user can create a token and it will be as secure as bitcoin, and miners will make money from smart contracts fees. This is called merge mining. For them it’s an additional revenue stream without extra cost.

We have support from 90% of miners, including Slush, Antpool,,, BW, Bitcoin India, BTCC, Bixin, F2Pool and Bitfury Group among other. Miners of Bitcoin Cash are also very interested in merge-mining RSK.

Bitcoin mining pools have high difficulty level to find blocks and low difficulty level called Proof-Of-Mining. Miners use Proof-Of-Mining to send information about hashing power of each miner to the pool in order to know how to share the reward from future blocks. Such answers are sent every 30 seconds and RSK allows mining pools to use those same answers to find RSK positive blocks.

ForkLog: What problems do you see in the current bitcoin network architecture?

Gabriel: I think it’s a problem that full nodes aren’t rewarded for their huge contribution to the decentralization. For that reason, RSK proposes to share smart contracts fees with RSK full nodes as well as bitcoin full nodes.

ForkLog: Do you mean full nodes will become masternodes?

Gabriel: Exactly. If you run both RSK and bitcoin full nodes, you will be rewarded twice. This is the first time ever a second layer solution is contributing to the decentralization of the bitcoin network. It will give users new economic incentives to run full nodes and add value to the network as a whole. We are going to develop BIP for full nodes’ reward this year.

Gabriel Kurman was interviewed by Nick Schteringard

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