Home - Bitcoin - Smart Contracts Have Arrived on the Bitcoin Blockchain-What Next For BTC?

James Carter

May 12, 2023

Smart Contracts Have Arrived on the Bitcoin Blockchain-What Next For BTC?

The blockchain that underpins Bitcoin has entered a new era. The Uniswap smart contract suite was integrated directly onto the Bitcoin blockchain by a group of developers just the week before last.

Smart Contracts Have Arrived on the Bitcoin Blockchain

Uniswap is the decentralized crypto exchange (DEX) that operates on multiple blockchains that enable smart contracts, such as Ethereum and Polygon, and that operates based on automated market maker (AMM) smart contracts. These blockchains include Ethereum and Polygon.

According to @punk3700, one of the developers behind the DEX, the new Bitcoin-based decentralized exchange (DEX) called Trustless Market enables its users to swap so-called “Smart BRC-20 tokens,” provide liquidity and earn a 2% transaction fee, and issue new Smart BRC-20 tokens. In addition, the DEX allows users to earn a 2% transaction fee for providing liquidity.

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BRC-20 is a new standard for Bitcoin-based tokens that enables users to write information into each Satoshi. A Satoshi is a small unit of a denomination that can be assigned to BTC, and there are 21 million Satoshis associated with each Bitcoin.

“Smart BRC-20s are the first smart contracts deployed on Bitcoin,” it says on the website of Trustless Market.

The protocol said that the tokens can be issued for “virtually anything: a cryptocurrency, a share in a company, voting rights in a DAO, and more.” It also stated that the tokens “run exactly as programmed without any possibility of fraud, third-party interference, or censorship.”

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“DeFi will soon be available on @Bitcoin… According to the user @punk3700, “We couldn’t be more excited to be a part of the movement.”

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Bitcoin Enters DeFi

When AMM smart contracts are put into place on Bitcoin, it’s clear that Bitcoin has become a smart chain. This is true whether or not Bitcoin’s creators and biggest supporters wanted it to be used in this way.

Before the arrival of the Ordinals protocol late last year, which introduced text and image-based inscriptions to the Bitcoin blockchain, the BRC-20 token standard in March, and now smart contracts, the use of Bitcoin in decentralized finance (DeFi) had been limited. However, these developments have changed that.

Tokenized versions of the cryptocurrency, such as Wrapped Bitcoin (WBTC) on the Ethereum blockchain, had attempted, with varying degrees of success, to unlock the DeFi potential of the most valuable cryptocurrency in the world, which is Bitcoin.

Also, there has been a greatest deal of excitement in recent times regarding Bitcoin layer-2 scaling solutions that are enabled with smart contracts, such as Stacks.

On the other hand, the Trustless Market protocol has a good chance of being the pioneering application of a Cambrian explosion of new decentralized applications (dApps) that will be launched directly onto the Bitcoin blockchain.

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Furthermore, there is undeniably a market for Bitcoin DeFi.

According to @punk3700, after only three days of the protocol being deployed on Bitcoin, Trustless Market had already seen a trading volume of more than $500,000 by that point.

According to BRC-20.io, the market capitalization of regular BRC-20 tokens recently topped $1 billion for the first time, but it has subsequently fallen back down to approximately $500 million.

Will Bitcoin Become a DeFi Powerhouse?

The implementation of DeFi on Bitcoin is still in its infancy.

On the other hand, @punk3700 drew parallels between the current situation and Uniswap in 2018, when the protocol had just begun operating on the Ethereum blockchain.

Since 2018, AMM smart contracts have been at the vanguard of an explosion of DeFi applications on Ethereum and other smart chains. These contracts make use of DEXs like Ethereum.

One of the obstacles that could prevent Bitcoin from following in Ethereum’s footsteps is the blockchain’s limited capacity for transaction processing, which also continues to be a problem for Ethereum.

Bitcoin, on the other side, does not have any intentions or a roadmap to enhance its protocol in order to increase the transaction throughput. This is in contrast to Ethereum.

Layer-2 scaling solutions like Stacks may therefore hold the key if Bitcoin, or at least Bitcoin’s zone of sovereignty (i.e., the protocols like Stacks that rely on its underlying consensus process), is to become a DeFi powerhouse. Bitcoin’s zone of sovereignty refers to the protocols like Stacks that rely on Bitcoin’s underlying consensus mechanism.

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