What Is BitVM and How Is It Different From EVM?

In early October 2023, the acclaimed blockchain developer Robin Linus released the white paper for BitVM, a computational engine for smart contract–like functionality on the Bitcoin chain. Linus is a prominent figure in the industry, having created ZeroSync, a zero-knowledge proof protocol for Bitcoin. His latest innovation, BitVM, has the potential to impact the industry on a much more profound level than the ZeroSync platform.

By enabling smart contract functionality for the Bitcoin network, BitVM has the potential to leverage the massive army of Bitcoin holders and traders. Currently, smart contracts and decentralized apps (DApps) are firmly associated with Ethereum (ETH) and other smart chains. Yet, the world’s largest chain — Bitcoin — eschews the ongoing DApp revolution. BitVM is the latest and probably most promising technology that’s about to change the status quo.

Key Takeaways:

• BitVM is a computational engine designed to enable Turing-complete Bitcoin smart contracts, which would enable a variety of Bitcoin-based DApps.

• BitVM processes transactions mostly off-chain, which minimizes the computational load on Bitcoin’s blockchain.

• Unlike Ethereum’s EVM, which supports multi-party operations, BitVM is limited to two-party transactions. However, developers could explore combining BitVM with Layer 2 solutions for Bitcoin’s network that work around this limitation.

What Is BitVM?

Despite being the first and largest blockchain, Bitcoin isn’t natively equipped to run smart contracts, the technology that underpins DApps. As such, it largely remains a platform for cryptocurrency asset transfers and storage.

BitVM (Bitcoin virtual machine) is a computational engine designed to enable smart contract–like functionality for Bitcoin. Released on Oct 9, 2023, BitVM’s white paper details the technological implementation of this promising idea.

You can think of BitVM as an add-on computational layer for the Bitcoin chain that developers can use to power smart contract–like functionality. Notice how we use the term “smart contract–like” instead of simply “smart contract” when discussing BitVM. This is because there’s an important distinction between the complex smart contracts that run on Ethereum and BitVM's smart contract capabilities.

While Ethereum smart contracts are capable of supporting multi-party transactions, BitVM is designed to enable mostly two-party transactional exchanges. We’ll delve deeper into the distinction between the two in a later section.

Most of the processing in BitVM happens off-chain, reducing the load on the Bitcoin chain and enabling more efficient operations. The off-chain processed transactions are bundled into batches and posted to the underlying Bitcoin blockchain, utilizing a validity confirmation model similar to the one used in optimistic rollups.

An essential feature of BitVM’s smart functionality is its Turing completeness. Turing-complete systems are capable of executing computational tasks of any degree of complexity. BitVM’s Turing completeness ensures that this computational engine can be used to program sufficiently complex smart contract–based applications.

How Does BitVM Work?

BitVM's functionality is made possible through Bitcoin's Taproot upgrade. BitVM uses a model combining fraud proofs with a challenge-response protocol to process and validate transactions between two parties: a prover and a verifier. The prover initiates a computational task and sends it over the channel established between themselves and the verifier, who then confirms the validity of the computation. Once verified, the transaction is added to the overall batch collated for posting to the underlying Bitcoin blockchain.

If the verifier rejects the computational task sent by the prover, Bitcoin’s on-chain validity checking mechanism can then be used to examine the transaction and settle the dispute. The additional on-chain validation in such disputes protects the prover from spurious, wrongful rejections by the verifier, and the system is designed to punish verifiers who unjustly reject legitimate computations performed by provers.

At the same time, the on-chain dispute validation is also designed to penalize provers who send fraudulent or incorrect computations. If the verifier’s dispute claim is found to be justified, it’s the dishonest prover who is penalized by the system.

Verification, Efficiency and Bundling

While additional on-chain validation in cases of disputes consumes the resources of the Bitcoin blockchain, the two-way interactions in which no disputes arise are settled within the BitVM environment, with no consumption of Bitcoin’s resources. The key idea is that the vast majority of two-way interactions between provers and verifiers aren’t going to result in disputes. As such, the overall impact of BitVM transactions on Bitcoin’s chain will be minimal.

BitVM’s model, therefore, assumes that most transactions posted to the blockchain are valid — thanks to the mutual agreements between provers and verifiers — unless a fraud claim is raised. Such an assumption is similar to the one used in classic blockchain optimistic rollups. While the exact technical nuances of optimistic rollups and the model used by BitVM differ, the verification model used by the computational engine can generally be described as one representation of optimistic validation technology.

After bundling transactions into a batch, BitVM then posts them to the Bitcoin blockchain. Both the optimistic validation model and batch-style processing used by BitVM significantly reduce the computational load on Bitcoin. As such, BitVM not only enables smart contract functionality on Bitcoin but does so in a highly efficient, low-consumption manner.

Source: BitVM white paper

BitVM's Potential Use Cases for Bitcoin

BitVM opens up enormous potential to leverage the world’s largest blockchain beyond simple Bitcoin transactions. The technology behind BitVM and its Turing-complete nature enables a large number of DApp solutions, mostly those that involve two-party interactions.

Some of the most promising use cases of BitVM on Bitcoin’s blockchain include the following.

Automated or High-Volume Payment Solutions

While Bitcoin by itself can be used for ordinary peer-to-peer (P2P) payments between two parties, the lack of smart contract functionality on its blockchain currently prevents the use of sophisticated payment solutions based on high-volume transactions or automated arrangements.

There are many businesses, particularly within the fintech and supply chain industries, that would love to see such capabilities within Bitcoin. For instance, BitVM could enable automatic fulfillment of payment obligations upon delivery of goods or services. Frequent micropayments between two parties have also become a possibility, thanks to BitVM’s efficient transaction processing.

Betting Apps

The core functionality of betting DApps involves transactions between the betting service operator and each individual bettor. BitVM could potentially enable two-way contracts, in which bettors place their bets with the operator and get paid or charged based on the outcome of the sports games and other events they punt on.

DeFi Apps

BitVM’s smart contract–like functionality can also be used to power certain decentralized finance (DeFi) apps. A potential use case for the computational engine would be apps in which a chain of transactions between just two parties is enough to settle a contract. One example of such an app is a decentralized exchange (DEX) based on the order book model. Under this model, two parties — a seller and a buyer — would enter into a contract to swap cryptocurrencies.

However, the lack of multi-party functionality within BitVM might make some of the more complex DeFi apps — for instance, automated market maker (AMM)–based DEXs — challenging to implement natively. AMM DEXs heavily utilize liquidity pools, repositories from which many users deposit funds and get paid a share of the trading fees generated from the pools. As such, these exchanges require fairly complex multi-party implementations.

Environmentally-Friendly Payment Solutions

Being a massive consumer of energy, the Bitcoin blockchain isn't among the first choices of companies focusing on low environmental impact. BitVM’s efficient, low-footprint processing model enables transactions that use very little energy. The engine, therefore, can be used for green payment solutions. For instance, in the agricultural sector, the term "green payments" refers to payments (made to producers) that create a positive environmental impact. BitVM could be used to develop solutions that facilitate these agricultural payments.

BitVM vs. EVM

BitVM has many conceptual similarities to the Ethereum virtual machine (EVM), the computational engine that powers the Ethereum blockchain. EVM is a critical component of Ethereum and enables smart contracts and DApps on the blockchain. 

Similar to BitVM, EVM is a Turing-complete system, a property that allows developers to create apps with sophisticated functionality. However, BitVM and EVM also have several distinctions. The key differences between these two computational engines are as follows:

• BitVM is an engine that supports only two-party operations, while EVM is capable of multi-party functionality. This allows EVM to leverage more complex contracts for DApps.

• Most of BitVM’s transaction processing occurs off-chain, minimizing the impact on the underlying Bitcoin blockchain. Unlike BitVM, EVM is an on-chain engine, with all the operations conducted within Ethereum’s native environment.

• BitVM is an optional add-on engine for the Bitcoin blockchain, which doesn’t need BitVM for its own operations. In contrast, EVM is an integral part of the Ethereum blockchain; without EVM, there is no Ethereum.

BitVM's Limitations

BitVM’s core concept of Turing-complete Bitcoin contracts is nothing short of revolutionary. However, despite the engine’s merits and promise, it has certain limitations. One major limitation of BitVM is its inability to handle multi-party transactions, which restricts the use of more complex computations and solutions. As modern DApps grow more complex, multi-party functionality becomes vital.

Another limitation of BitVM arises from the heavy off-chain processing load (which, curiously enough, is one of its key merits). While off-chain processing is excellent for reducing the load on the Bitcoin network, it gives rise to two potential issues, the first of which is the resulting load placed on off-chain resources. Large-scale transactions and apps might place heavy demand on off-chain computing resources, which could significantly diminish BitVM’s environmental and efficiency advantages.

The second issue deals with transaction security. Bitcoin’s built-in cryptographic security mechanism has an excellent track record of protecting the network from hacker attacks and fraud. Moving a large proportion of transaction processing off-chain inevitably introduces more weak points to the overall data security framework.

Some of BitVM’s limitations might be addressed by combining the engine with a Bitcoin Layer 2 solution. For instance, the Lightning Network protocol, which runs over the Bitcoin blockchain, is capable of supporting more complex, multi-party smart contracts.

Final Thoughts

Turing-complete Bitcoin contracts offered by BitVM are a revolutionary concept with the potential to fundamentally change the landscape of the cryptocurrency industry. Various DApp niches, from DeFi and payments to betting and supply chain solutions, might profoundly benefit from utilizing the computational engine.

BitVM is also a major undertaking aimed at drawing in the multimillion army of BTC holders to participate more actively in the crypto industry beyond mere asset transfers and storage. At the moment, nearly 50 million Bitcoin addresses have non-zero balances. This represents a vast potential for developers utilizing BitVM.

The highly promising computational engine is now in the early stages of its conceptual development. Its white paper was just released in early October 2023, and there’s going to be a period of time during which the developer community “warms up” to the concept of Turing-complete Bitcoin contracts. Over the following few months, we’ll all likely hear more about BitVM. Stay tuned!

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