The Bitcoin blockchain supports the transfer of a unique digital asset, which has a set of immutable rules and cannot be redeemed for anything else. This makes Bitcoin simpler and safer to some degree, but It also makes it limited especially in the current state of the crypto industry, where practical use cases for new technology can not be accomplished with Bitcoin, this is the case with complex Smart Contracts like Decentralized Autonomous Organizations.
There are two types of smart contracts. Deterministic and non-deterministic Smart Contracts. The first can be executed independently on the Bitcoin Network, since all the information required for the execution of the contract is stored on the Blockchain, a provably fair lottery is a prime example of a deterministic smart contract.
Non-deterministic Smart Contracts require the input of a third party software, an Oracle that can provide information that is not stored on the blockchain, on which the contract acts upon. The information can be related to real life events, such as the weather or a sports games or it can be imported from other blockchains or traditional payment methods. Oracles are a two-way stream and allow the contract to be executed on the blockchain according to exterior information, or to execute on an external payment method according to information from the blockchain.
Altchain vs Sidechain
Although we have cryptocurrencies that allow the creation of complex deterministic and non-deterministic Smart Contracts through Turing complete programmable languages, like Ethereum, the creation of altchains with their own native value currency exposes users to the high volatility associated with new cryptocurrencies and it subtracts value from Bitcoin.
Unlike Alternative cryptocurrencies, Rootstock will use Bitcoin as the native currency token to fuel its smart contract platform, making use of the 2-way peg, Sidechains and Drivechains systems, in which a Bitcoin can be locked in a special accounts that act as gateways and redeemed on the Rootstock blockchain in form of Rootcoin (RTC) in order to allow the creation and deployment of smart contracts as well as faster and cheaper transactions and pegged/stable value asset issuance on the Rootstock blockchain. This adds value to Bitcoin and broadens its use case applications.
2-Way Pegs and Federations
These 2-way pegs will be secured through a system of Federations that allow the transfer of funds between the two blockchains. Federations will be reputable blockchain companies, such as renouned exchanges, that will facilitate the transfer from Bitcoin to the Rootstock blockchain and vice-versa, for which they receive a monetary incentive generated by transaction fees. In a 2 way peg, the value of a sidechain’s native currency (Rootcoin) is automatically pegged to the value of the other blockchain’s native currency (Bitcoin), allowing the two to be automatically traded without the need for any type of price negotiation or competition.
The Federations act as semi-trusted third-parties (STTP), since they cannot control the Bitcoins locked, and can only release them with the consent of the majority of the STTPs. Federations cannot, in this sense, create their own transaction but only sign and introduce them in the Bitcoin network.
A completely trustless system can be achieved, however, through the implementation of a Bitcoin hardfork, proposed by the RSK team in the Drivechain Bitcoin Improvement Proposal, that would allow miners to act as decentralized 2 way pegs, removing the need for the STTPs or Federations.
The Rootstock blockchain will be secured by a system that can be more or less decentralized according to the resources available, in a sense that when there are less RSK Miners, the federations can step in and provide a higher number of algorithmic votes, and vice versa.
Dispite the Federation system, Rootstock plans to be decentralized and will secure its blockchain through a merged mining system that allows users to mine Rootstock and Bitcoin for the same cost as mining Bitcoin only, providing an extra source of revenue for Bitcoin miners and adding the security and decentralization provided by the Bitcoin network on to the Rootstock network, depending on the quantity of miners that choose to merge mine Rootstock.
Rootstock also provides a scalabity solution superior to Bitcoin with 100 transactions per second and reduced storage and bandwidth requirements through probabilistic verifications and sharding techniques.
In Rootstock, every participant has a stake in the platform’s governance model. Besides proof-of- work consensus, Bitcoin holders in the RSK platform will be able to vote through a proof-of- stake system and full-nodes will be able to vote through a new protocol that allows them to prove they have a copy of the blockchain. Federations will also be able to vote on protocol changes in the current STTP system.
The Rootstock Virtual Machine (RVM), is the Turing-Complete virtual machine on which these contracts are created and deployed. The RVM will be, at first, backwards compatible with the Ethereum Virtual Machine, meaning that any application built on Ethereum can also run on Rootstock blockchain.
This will allow developers that are already involved in bitcoin to have access to a Smart contract platform that provides the same features and programming languages as Ethereum, without the need to buy into a different cryptocurrency.
Practical use case scenarios for the implementation of smart contracts are abundant, from micropayments and loans to decentralized exchanges and escrow services. These are all applications that are currently unfeasible on the Bitcoin Network, thus making the implementation of Rootstock the official upgrade from Bitcoin to a Crypto 2.0 system.
“Best of Bitcoin (currency and settlement system) + best of Ethereum (smart contract programming environment)” Nick Szabo, creator of the Smart Contract concept.