Bitfinex CTO proposes solutions to expand Bitcoin’s capabilities

Bitfinex’s chief technology officer and CEO Tether Paolo Ardoino told about promising solutions for the Bitcoin network that would “change the game,” increasing privacy and transaction speed.

Drivechains

The expert mentioned revived debate around BIP-300, proposed in 2017 by Paul Sztorc of Layer 2 Labs.

The description outlines the use of the so-called drivechains — a technology that allows creating sidechains on Bitcoin. Transactions in them are not signed with a standard cryptographic key. Instead a bulky multisig-system is used, where each block represents a new signature.

To create such a “master block” requires 13 150 of 26 300 confirmations.

“Drivechains can change the game because they reduce block creation time, improve privacy and allow the development of more complex smart contracts. However, they require changes, which could threaten the stability of the main network,” Ardoino said.

According to the technical description, BIP-300 focuses on slow, transparent and verifiable transactions that are easy for ordinary users to perform, but hard for attackers to compromise.

Drivechains are designed to “unload” the Bitcoin mempool. Withdrawals from them are executed through a “packets” form that aggregates many individual requests into one large batch on L1.

1. Overloaded sidechain nodes combine withdrawal requests into a large set.
2. The sidechain determines how to construct the transaction.
3. A 32-byte hash of the transaction is computed.
4. Miners confirm it within 3–6 months.

The drivechain technology enables DeFi solutions, as well as creatingNFT, security tokens and stablecoins.

According to the Bitfinex tech chief, drivechains aim for an optimal balance between security and creating new features. However, as with most such solutions, the most important aspect remains asset protection when transferring them from the main network.

Because implementation would require changes to Bitcoin Core, Ardoino warned that this could introduce vulnerabilities. Nevertheless, the expert noted that drivechains could potentially provide additional incentives for miners and distribute computational power more evenly across the network.

RGB — Stability

The Bitfinex CTO also told that RGB is the “best opportunity” for issuing stablecoins.

RGB is a system of smart contracts and off-chain protocol for Bitcoin and the network Lightning Network, which allows issuing digital assets on top of digital gold. It was created in 2016 by Bitcoin enthusiast Giacomo Zucco as “a system of assets not based on blockchain”, drawing on early ideas of Bitcoin Core developer Peter Todd.

Ardoino regards RGB as a “legitimate successor” to the Omni network after Tether ceased using it to issue USDT.

“RGB really represents the best opportunity to have a modern, scalable client-side smart-contract system that allows tokens on Bitcoin,” he explained.

According to Ardoino, Tether is currently evaluating the timing of a possible USDT issuance via RGB.

Cumbersome Bitcoin

Despite the wide range of capabilities, the Bitfinex CTO noted that the network is experiencing “ossification.” With each day, making changes to the core code becomes harder.

“I am confident that the debates will continue until there is consensus on the best scaling solution for Bitcoin. In the end, discussions are a good thing because they spur innovation and growth of sidechains technology,” he added.

It is hard to say what Bitcoin’s scaling will look like in the coming years, because technological innovations occur at unpredictable speeds, the CTO concluded.

Earlier, the Lightning Labs team introduced an alpha version of the Taproot Assets v0.3 protocol for the main Bitcoin network. The solution enables the issuance and management of financial assets like stablecoins.

In May, Digital Bitcoin Art and Assets launched an NFT marketplace based on RGB smart contracts.