The developer of the RSK sidechain, the company IOVlabs, has changed the way bitcoins are exchanged for the tokenized version of the first cryptocurrency, rBTC. The new system is named Powpeg and uses the hash rate of the Bitcoin network itself as security, according to Bitcoin Magazine.
Bitcoin sidechains are alternative blockchains with tokens pegged to the cryptocurrency at a 1:1 ratio. They can employ different protocol rules. The RSK sidechain incorporates a substantial portion of the Ethereum network’s rules, including the operation of Turing-complete smart contracts.
The rBTC tokens are mined using merged mining, and today nearly all of the largest mining pools participate in the process. Using existing hashing power, they produce blocks of the RSK sidechain, earning rewards in the form of transaction fees.
To issue rBTC, real bitcoins are sent to a multisignature address controlled by 12 parties, after which a smart contract issues an equivalent amount of rBTC. Bitcoins can be released by sending the corresponding number of rBTC to the address.
The keys to the multisignature addresses are held by the ‘federation’ of industry representatives, initially comprising 24 companies. However, technically they could collude to steal funds from the address whose keys they control.
The new system envisions a broader group of key holders (Pegnatories) and automation of the process through PowHSM, specialized hardware security modules.
Now, when users send bitcoins to the multisignature wallet, they generate proof of the transaction and send it to PowHSM. After confirmation, the modules transfer the corresponding amount of rBTC to the user.
RSK has launched a tool for Bitcoin–Ethereum interoperability
Bitcoins can be released, as before, only after the corresponding amount of rBTC has been sent to the address, but now after 4,000 confirmations in the RSK network (about 200 confirmations in the Bitcoin blockchain). PowHSM modules will also monitor compliance with this rule (RSK Simplified Payment Verification).
As said by RSK co-founder and IOVlabs’ director of innovation, Sergio Lerner, the unique Powpeg system, which he also calls ‘branchocracy’, is crucial, as the foundation of a decentralized financial system must rest on exceptionally high security.
The main RSK network has been operating since January 2018. The sidechain supports all types of transactions and Ethereum smart contracts. And with the growing popularity of the decentralized finance sector, IOVlabs hopes that DeFi services will become available on the Bitcoin network via RSK.
The head of RSK Labs spoke about smart contracts for the Bitcoin network and industry challenges
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