Role of Finality Bridge in Bitcoin’s Future

In an unique interview with BeInCrypto, Charlie Hu, a key contributor to Bitlayer, discusses the long run of Bitcoin bridging applied sciences, together with the Finality Bridge and the BitVM Bridge. These groundbreaking options goal to resolve Bitcoin’s limitations in scalability, programmability, and DeFi integration, providing a safer and environment friendly option to transfer Bitcoin belongings throughout blockchain ecosystems.

Hu delves into the technical variations between conventional multisig setups and the revolutionary trust-minimized strategy provided by the BitVM Bridge. He additionally highlights how the Finality Bridge permits Bitcoin holders to interact in DeFi actions, finally contributing to the expansion of the DeFi house and enhancing liquidity.

The Role of the Finality Bridge and BitVM Bridge

The Finality Bridge and BitVM Bridge characterize the following evolution in Bitcoin bridging expertise. These options goal to reinforce Bitcoin’s potential to work together with decentralized finance (DeFi) ecosystems, which has historically been a problem because of Bitcoin’s lack of programmability. Charlie Hu explains that the BitVM Bridge is the third technology of Bitcoin bridging expertise.

“The BVM bridge is the third-generation Bitcoin bridging solution technology. We have wrapped Bitcoin, which relies on an older multisig setup—a federation of signers where the majority must be honest. However, it’s clear that we can’t rely on wrapped Bitcoin as a long-term bridging solution. We need a new generation of technology that is more trust-minimized and doesn’t depend on the current multisig structure to bridge Bitcoin liquidity from Bitcoin Layer 1 (L1) to EVM (Ethereum Virtual Machine) or other programmable environments,” Hu instructed BeInCrypto.

Previous methods, like wrapped Bitcoin, relied on older multisig setups, the place a federation of signers wanted to take care of honesty to make sure safety. However, this construction has confirmed to be unreliable and exposes customers to potential dangers.

“In contrast, the BitVM bridge is more trust-minimized. We only need to trust one signer to be honest, and that signer can unlock the funds through the two-way pegging mechanism,” Hu continues.

This enchancment reduces the potential for malicious actors to compromise the system, addressing vulnerabilities uncovered by current incidents just like the Bybit hack. Unlike wrapped Bitcoin, which relied closely on multisig setups, the BitVM Bridge makes use of Bitcoin scripts and two-way pegging mechanisms to make sure safer and environment friendly transactions between Bitcoin Layer 1 (L1) and Ethereum Virtual Machine (EVM) environments.

Enabling DeFi on Bitcoin

The limitations of Bitcoin Layer 1 in enabling decentralized finance are well-known. Bitcoin L1 doesn’t help good contracts, that means it can’t facilitate lending, automated market makers, decentralized exchanges, or every other DeFi actions. Bitcoin’s UTXO-based money system is primarily designed for funds, however it struggles with scalability and flexibility in extra advanced eventualities.

To handle these points, the Finality Bridge presents an answer by connecting Bitcoin to extra programmable, trust-minimized environments, like Layer 2 options.

“Without the bridge, you can’t really do DeFi. Bitcoin L1 doesn’t have smart contract capabilities or programmability. You can only make payments. To enable Bitcoin DeFi—where Bitcoin holders want to earn yield, engage in on-chain options, liquid staking, and other creative DeFi use cases—you need to bridge to a programmable, trust-minimized environment like a Layer 2 solution,” Hu explains.

Bitcoin L1’s scalability is constrained by its potential to course of solely seven transactions per second (TPS), which ends in community congestion. This can result in excessive charges and failed transactions as customers compete to pay for restricted block house.

“Many users experienced this during the 2023 ordinals mint,” Hu recollects. “People paid for gas fees, but their transactions failed because they paid too little compared to others who were paying higher fees. This led to a situation where everyone was fighting to pay higher fees, but in the end, they burned their Bitcoin and the transactions still failed.”

The Finality Bridge solves these issues by enabling Bitcoin to work together with Layer 2 options, thereby permitting Bitcoin holders to take part in DeFi actions and scale their transactions with out the restrictions of Bitcoin L1.

The Versatility and Future of the Finality Bridge

One of the numerous benefits of the BitVM Bridge is its potential to bridge Bitcoin belongings to a variety of ecosystems, together with each EVM and non-EVM chains. Through its current partnerships with chains akin to Arbitrum, Plume, Base, Starknet, and Sonic, the BitVM Bridge is positioning itself to be an integral part in the long run of cross-chain interoperability.

Sonic, for instance, makes use of Solana VM, which opens the door for Solana ecosystem integration, regardless of its oblique connection to Bitcoin.

“Our bridge is versatile, supporting both EVM and non-EVM chains, making it highly adaptable,” says Hu. “For example, Sonic (which uses Solana VM) connects us to the Solana ecosystem, even though indirectly.”

Looking forward, the group plans to combine extra blockchain networks utilizing Cross-Chain Interoperability Protocol (CCIP). However, the first focus stays on the trust-minimized bridge from Bitcoin L1 to Ethereum L1. This forward-thinking strategy permits the Finality Bridge to supply extensibility and compatibility with various blockchain ecosystems, fostering higher liquidity and enabling Bitcoin holders to completely take part in DeFi actions throughout a number of networks.

Trust-Minimized Bridges: A New Paradigm for Bitcoin

The time period “trust-minimized” is commonly used to explain the Finality Bridge. While it isn’t solely trustless, it considerably reduces the reliance on a number of signers for securing Bitcoin transactions.

In the previous, bridging options like wrapped Bitcoin relied on multisig setups, which required the bulk of signers to be trustworthy. The Finality Bridge, nonetheless, solely requires one trustworthy signer from the operators of the BitVM bridge, considerably decreasing the belief dependency in comparison with older methods.

“People argue that it’s not fully trustless, and the controversy stems from this,” Hu acknowledges. “While some claim it’s trustless, it’s more accurate to describe it as ‘trust-minimized.’ It’s not 100% trustless—it’s semi-trustless. We still need to rely on one honest signer out of the BitVM bridge operators. For example, if there are 100 operators, we only need one honest signer, which is 1%.”

This shift in the belief mannequin is essential in enhancing the safety of Bitcoin bridging options. By lowering the quantity of trusted events and counting on a single trustworthy actor, the Finality Bridge presents a extra resilient strategy, making certain customers can securely transfer their Bitcoin throughout totally different blockchain ecosystems with out concern of systemic collapse because of dishonesty amongst signers.

Finality Bridge and Native Yield Generation

The idea of native yield technology is central to the success of Bitcoin in DeFi environments. Through the Finality Bridge, Yield Bitcoin (Yield BTC) turns into an energetic participant in DeFi protocols, offering liquidity, staking, and lending alternatives. This yield technology is native and on-chain, that means it happens immediately inside the DeFi ecosystem reasonably than counting on off-chain or tokenized yield methods.

“DeFi is essentially built around core features like liquidity provision, staking, lending, and more,” Hu explains. “We’re bridging Yield Bitcoin to provide a one-to-one minted Bitcoin, which will enter various DeFi protocols through our bridge. This allows Yield BTC to participate in lending, liquidity pools, and other DeFi activities, generating yield.”

Yield BTC holders turn out to be liquidity suppliers in varied DeFi protocols, incomes yield in return.

“This yield is native, on-chain yield, not some tokenized or off-chain yield system. It’s real yield, generated within DeFi, without relying on incentivized tokens or other artificial mechanisms.”

The integration of Bitcoin into DeFi opens up new prospects for Bitcoin holders who want to have interaction in actions akin to lending, liquidity swimming pools, and different superior DeFi methods, thus contributing to the general development of the DeFi house.

The Finality Bridge’s Impact on the Broader DeFi Ecosystem

Liquidity is a elementary element of any DeFi ecosystem, and the Finality Bridge performs an important function in injecting liquidity into this house. By enabling Bitcoin holders to take part in DeFi actions, the Finality Bridge helps improve the Total Value Locked (TVL) throughout totally different protocols. The next TVL interprets right into a extra thriving DeFi ecosystem, which finally advantages all contributors, from particular person customers to builders and institutional traders.

“Simply put, without liquidity, you can’t have DeFi,” Hu says. “No matter how innovative a protocol is, it can’t operate without liquidity. You need seed liquidity, and you need to attract more liquidity from users, whales, and other sources.”

In the broader context of Bitcoin’s function in DeFi, the Finality Bridge helps to evolve Bitcoin from a payment-focused asset to a totally built-in participant in the decentralized finance sector. As Bitcoin turns into extra accessible and usable inside DeFi, it should entice extra liquidity and customers, additional strengthening the ecosystem and contributing to its long-term development.

Target Audience for the Finality Bridge

The Finality Bridge serves a broad vary of customers, together with particular person DeFi contributors, builders, and institutional traders. On the retail facet, the bridge is geared toward Web3 pockets customers who’re accustomed to DeFi ideas akin to lending and staking. For establishments, whereas the discussions are nonetheless ongoing, there may be potential for partnerships in yield-bearing merchandise, particularly if Bitcoin ETF staking turns into a actuality.

“We have campaigns targeting on-chain Web3 wallet users, which represent the retail side—DeFi users who understand concepts like lending, staking, and other DeFi use cases,” says Hu.

The group can be getting ready for the chance of Bitcoin ETF staking approval, making certain they’re able to rapidly have interaction with establishments as soon as the regulatory surroundings is favorable.

“Once approval happens, we need to be ready with signed MoUs, vetted proof of use cases, case studies, and a track record so we can quickly open up business opportunities.”