A secure, reliable bitcoin gateway enables users to hold bitcoins on the Waves network — moving them around with the speed and efficiency of Waves, rather than on the slower and increasingly costly bitcoin network.
Bitcoin is here to stay. Its network effect and battle-tested security make it the first, the largest and the default currency of the crypto world. Vastly more money is transferred as bitcoin than any other digital currency. Alts trade against it. It is the reference currency and the reserve currency of crypto land.
Unfortunately, bitcoin’s greatest strength is also its chief weakness. Decentralisation brings with it freedom from outside interference. It also means that development is slow, and it is hard (perhaps even impossible) to achieve consensus about changes to the protocol.
And so we have the current situation, in which bitcoin transactions are backing up, and consequently fees rising sharply. A year ago a transaction with a fee of 0.0001 BTC would go through almost immediately. Today, the same fee might lead to a delay of 48 hours before a miner picks it up. With the recent bull run, the fee necessary for a fast transaction isn’t just higher in BTC terms — it’s higher in dollars too. This means that the cost of a fast transaction can approach that of moving money in the legacy banking system.
There are various proposals to fix this issue, all of which have met with a mixed response. It is hard to keep all of bitcoin’s various stakeholders — miners, end-users, wallet companies and businesses, amongst others — happy at the same time. Raising the block size has proven divisive, to say the least. There has been support for sidechains, but the technical hurdles are significant.
Sidechains can be thought of as a black box in which transactions occur, ultimately settled on the bitcoin blockchain, but without every transfer being registered individually. What happens in a sidechain stays in a sidechain. Funds are locked to an address using a smart contract, and within the system of the sidechain may be moved around thousands of times to different addresses, before exiting back onto the main blockchain. It’s an ingenious way of using bitcoin’s blockchain for vastly higher transaction volumes, without bloating it to the point of uselessness.
The Waves bitcoin gateway functions, conceptually, in a similar way. Funds are securely ‘locked’ when they are deposited to the cluster of servers that hold BTC in multi-sig storage, with a token being issued on the Waves blockchain to represent them 1:1. Those Waves bitcoins (WBTC) can then be moved around on the Waves blockchain, with its advantages of speed and scalability. Whilst this may not have the theoretically unbreakable security levels of smart contracts (assuming they are implemented correctly), security is nevertheless extremely robust and far in excess of that of traditional exchanges with their single-point-of-failure problems.
For cold storage, when funds are not moved for long periods, the bitcoin blockchain is the best option. But when funds are being moved around frequently, perhaps being used as a means of payment in BTC (i.e. not moved to an exchange), WBTC can profitably stay within the Waves system. It is only when they need to be moved to an exchange that the bitcoin blockchain is required again — assuming that exchanges do not integrate the WBTC token. This makes it easy and efficient once again to move BTC around. Higher costs and/or delays are only incurred when exiting to use the bitcoin blockchain.
