Bitcoin (BTC) is the largest cryptocurrency by market capitalization and is an emerging store of value asset. However, its limited programmability has constrained its utility in DeFi (Decentralized Finance) applications. Wrapped Bitcoin tokens help address this limitation and facilitate the transfer of Bitcoin's value to faster and richer platforms.
However, recent developments have raised questions about the reliability of wrapped Bitcoin (BTC) tokens. The node infrastructure of renBTC, once a popular BTC bridge, was compromised due to financial dependence on Alameda Research and the project shut down in 2022. WBTC, the largest BTC bridging token, is facing scrutiny due to centralized management, which has been heightened by Justin Sun's recent involvement in the project.
These concerns have sparked interest in how Bitcoin bridging protocols operate. To address this demand, TinTucBitcoin Research conducted a comparative analysis of four prominent Bitcoin bridging solutions—wBTC, renBTC, cbBTC, and tBTC. The paper provides readers with insights into the architecture, market performance, recent developments, and future prospects.
Explore the variety of wrapped Bitcoin solutions
Wrapped Bitcoin solutions exist on a spectrum of decentralization. Each approach on this spectrum brings unique trade-offs between security, decentralization, and efficiency.
At one end of this spectrum are fully centralized tokens, like cbBTC, which rely on a single organization for issuance and management. While this simplifies technical deployment, such projects have a single point of failure and are vulnerable to censorship and regulation. Simple alliances of custodial holders are the most common way to mitigate this centralization.
Some federated bridges require all holders to sign transactions, while others only require a majority. For example, WBTC operates with a 2-of-3 signature model, managed by the BitGo alliance. Despite an additional layer of decentralization, WBTC is still considered quite centralized due to the small number of custodians and their close relationships.
Liquid Federation, on the other hand, has a more reliable distribution model, where a large number of independent and trustworthy companies jointly manage Bitcoin reserves and sign transactions. It operates on a multisignature mechanism of 11 out of 15.
More advanced bridging models often achieve decentralization through more sophisticated key-sharing schemes, relying on additional cryptography. A prime example is tBTC v2. Unlike federations that use a set of trusted organizations, tBTC v2 utilizes a staking system. However, currently, it is still limited by current cryptographic constraints. Our full analysis reveals several technical and trust-related trade-offs associated with these solutions.
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