The Internet Computer Protocol (ICP) is set to revolutionize decentralized finance and smart contract capabilities on the Bitcoin base layer through the use of advanced threshold cryptography. Aisling Connolly, a senior research scientist at Dfinity, discussed how the integration of threshold-Schnorr signatures will empower ICP’s smart contracts to interact directly with the Bitcoin blockchain.
Schnorr signatures, named after mathematician Claus Schnorr, function as a secret handshake between parties, providing proof that one person has approved something without revealing their secret code.
This implementation will allow ICP smart contracts to utilize Schnorr signatures to perform various functions, including etching Bitcoin Runes, inscribing Ordinals in a decentralized manner, sending and receiving BRC-20 tokens directly on the Bitcoin base layer, signing taproot transactions, and re-inscribing Ordinals.
The full implementation of threshold-Schnorr is expected to launch in mid-2024. ICP incorporates the core implementation of threshold-Schnorr-BIP340, which enables smart contracts to derive addresses and authorize native Bitcoin transactions.
Connolly explains that Schnorr signatures offer additional functionality, such as batching transactions, and enable new use cases on Bitcoin. This includes inscribing Ordinals, which has gained popularity in the past year. Schnorr signatures simplify the process, making it faster and more secure compared to ECDSA signatures that Bitcoin currently uses.
By combining Schnorr signatures with ICP’s protocol-level integration with the Bitcoin network, the hope is to unlock new possibilities for decentralized applications (DApps) and services that can leverage Bitcoin’s liquidity and security without relying on centralized bridges.
Connolly cites several working use cases that are already being explored and developed by ecosystem developers. For instance, ICP can serve as an orchestration layer, allowing an existing DApp on Ethereum to interact with Bitcoin through an ICP smart contract. Additionally, developers are building applications from scratch using ICP, such as Taler DAO, an algorithmic Bitcoin-backed stablecoin.
While some traditional Bitcoin enthusiasts may be skeptical of integrations and solutions that bridge Bitcoin with other chains, Connolly believes that the wider Bitcoin community has an open attitude towards infrastructure that expands the utility of Bitcoin. This includes considering tools like decentralized exchanges on ICP that support noncustodial wallets, enabling DeFi capabilities like staking Bitcoin without compromising control of a user’s private keys.
ICP has a growing ecosystem of over 300 developers who are building Bitcoin-enabled DApps in various fields, including DeFi, NFTs, gaming, and social media. The integration of Bitcoin into ICP’s platform in 2022 eliminated the need for bridges to enable cross-chain functionality, allowing ICP smart contracts to hold, send, and receive Bitcoin.
In conclusion, ICP’s integration of threshold-Schnorr signatures is set to unlock a new era of decentralized finance and smart contract functionality on the Bitcoin base layer. The combination of advanced cryptography and protocol-level integration with the Bitcoin network opens up exciting possibilities for DApps and services that can leverage Bitcoin’s security and liquidity without relying on centralized solutions. The Bitcoin community is embracing this infrastructure expansion, and ICP is already witnessing significant development activity in various sectors.