Threshold has found an interesting way to do this: a protocol known as tBTC v2.
But how does it work? Let’s start from basics.
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Until now, offering solutions to bridge BTC to Ethereum required users to send BTC to an intermediary in exchange for ERC20 token that represents the original asset. This model creates a point of centralization, requires the trust of a third party, the custodian, and is vulnerable to censorship, meaning it practically contradicts Bitcoin’s promise of secure, permissionless decentralization.
On the other hand, tBTC v2 is not relying on a centralized authoroty, but is secured by a network of decentralized nodes on the Threshold Network and mathematics.
In tBTC v2, a group of randomly chosen node operators on the Threshold Network takes the place of centralized middlemen. Through threshold cryptography, this team of independent operators collaborates to safeguard your Bitcoin deposits.
Assume you want to bridge one BTC to Ethereum:
You send your BTC to a wallet address. But what wallet address?
Well, every week a BTC deposit wallet is created and the private key is divided between 100 randomly chosen nodes from the Threshold Network. This wallet will escrow all the BTC deposits made during the week. At least 51 assigned nodes out of 100 are required to perform any operation on the wallet.
After you transfer your BTC, you have a balance from which you can mint you tBTC token.
Note that a new deposit wallet is created from a fresh set of random nodes each week. This prevents any potentially harmful individual node or group of nodes. So, if you want to deposit BTC weeks later, there will be a new deposit wallet.
A user with an account balance supplies a Bitcoin address. Then, the system decreases their account balance and releases the equivalent amount of Bitcoin to the user.
Note that The maximum redemption size is capped by the size of the largest wallet, and any redemption larger than that will need to be split into multiple redemptions.
tBTC V1: A ‘Trustless Bridge’
In tBTC V1, if anyone wanted to bridge BTC to Ethereum, 3 randomly selected operators using the system had to collateralize the deposit using their own ETH, thereby over-collateralizing the BTC.
If a user wanted to deposit 10 Bitcoin, three Keep operators were selected who had to come up with 10–15 BTC worth of ETH to collateralize the deposit. If anyone ever colluded to steal the underlying Bitcoin, they would end up losing more value in ETH than they would gain in BTC. Therefore, everyone would be incentivized to be ‘honest’.
Despite its relative security, the major drawback of this design was the huge capital constraint. Its success depended entirely on how much collateral operators were willing to put into the system in the form of ETH. The supply of ETH was not able to meet the demand for how much BTC people wanted to bridge.
tBTC V2: A Trust-Minimized Bridge
So, tBTC V2 replace the capital constraint with an “honesty assumption”:
¿What is the probability that a wallet will have at least 50 dishonest operators, given that X% of operators are honest?
And finally ¿what is the probability that we have nothing but good wallets for 5 straight years given that X% of operators are honest and we produce a wallet every week?
Since the risk calculation was sufficiently low, there was no need to have each wallet be individually collateralized. Therefore, V2 offers a “coverage pool”, this operates very similarly to insurance.
Unlike other solutions on the market, users on tBTC v2 are protected by the power of math and not by fallible hardware or people.
The second generation of tBTC provides Bitcoin holders secure and open access to the broader cryptoeconomy. tBTC v2 allows you to unlock your Bitcoin’s value to borrow and lend, mint stablecoins, provide liquidity, and much more.
In the interim period before permissionless minting is fully released, tBTC v2 will implement an optimismminting systemwhich includes two additional roles: Minters and Guardians.
MintersAn authorized group of between 3 and 7 pseudonyms are responsible for monitoring the chain of revealed deposits. Upon seeing a valid deposit, a Minter requests to mint the requisite tBTC. An automatic delay of three hours is triggered before minting is completed.
Guardians: During this three hour period, a second group, the Guardians, can cancel a mint if they determine it to be nefarious — due to fraud or any other issue — and remove the errant minter. Guardians will be authorized and drawn from the Threshold DAO and broader DeFi community. There is no upper limit on the number of Guardians.
It’s a matter of time to see tBTC v2 open and accessible to anyone.
You can find a summary of this article in the following video:
More information about Threshold Network and tBTC v2:
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