ckBTC: The Road to Faster, Better, Low Fee Bitcoin Transactions
Part 1 - Bitcoin, Lightning and the Internet Computer
INTRODUCTION
Before diving into the topic let me tell you who I am, why I am writing this article, and the ones that will follow. My name is Joseph Hurtado, I am a Computer Scientist, Technology Consultant, developer, and project manager. I have been in the tech industry for over 15 years. I love Bitcoin, especially what it represents: freedom, decentralization, sound economic policy, and privacy for everyone on Earth.
I have also become quite knowledgeable in a little-known, but powerful blockchain called the Internet Computer. I have some good news to share in this, and the upcoming articles. The reason I felt compelled to write them was because of a series of conversations on X / Twitter, where it became clear a serious comparison between Lightning and ckBTC was needed.
THE GOALS OF BITCOIN
Bitcoin is the most successful blockchain in the world, only in the US, there are over 50 million people that use it for transactions or investing. At the last Bitcoin Conference in Nashville, Tennessee, the who's who of finance, technology, and politics came to Nashville; the speakers included two US presidential candidates and major CEOs of large funds, investment firms, technology companies, new media, and enthusiastic members of the worldwide Bitcoin community.
Bitcoin was built as a reliable alternative to fiat currency, one that is secured via computer algorithms (cryptography), is decentralized without a single issuer, is secure from theft, and is easy to transfer between two people, or organizations.
The Bitcoin network was launched in 2009 by Satoshi Nakamoto, and many enthusiastic computer scientists, programmers, and cryptographers who wanted it to succeed.
Bitcoin had from the beginning five key objectives:
1) To provide everyone with a cash alternative, so that ordinary people could buy and sell goods by using an electronic token, namely Bitcoin or BTC.
2) To provide a non-inflationary alternative to fiat currencies like the US Dollar or the Euro which were frequently devalued by central banks. Bitcoin would have a sound economic policy, set from day one, and immune to politics. This would eventually make it into a valuable investment asset.
3) To encourage freedom and privacy in the financial world by removing the connection between the person, and his money. Unlike bank accounts or credit cards, Bitcoin has some level of anonymity.
4) To foster global decentralization by rewarding people who invested in the network (miners) with Bitcoin rewards. This created a global network.
5) To securely hold the assets of the people who used the Bitcoin token by using strong cryptography that ensured no one could take your valuable tokens.
In 2024, we can confidently say that four of these five objectives have been achieved except the one that was the title of Satoshi Nakamoto's Bitcoin Whitepaper: a peer-to-peer electronic cash system. The reason is that the amount of transactions that the Bitcoin network can process is about 4 to 7 per second, in addition, the network requires 6 confirmations for a transaction to fully clear which means that at a minimum it takes about an hour for a single transaction to be finalized. This is perfectly fine if you want to buy $1000 of Bitcoin or send a similar amount to a friend, but it is way too slow for most everyday transactions, most stores won't wait over an hour to receive their Bitcoin.
To make matters worse Bitcoin transaction fees have increased significantly from around 50 cents in 2018 to several dollars today, with spikes that can easily go over $20 per transaction. These high fees make paying for a coffee, a Coke or even giving a tip unfeasible.
So, the electronic cash objective has not been achieved yet.
THE LIGHTNING NETWORK
Enter the first solution to this challenge a technology called Lightning. The Lightning Network began operating in 2018, it is the most well-known solution to the peer-to-peer cash payment challenge.
Lightning has been in active development for years, and it has received significant investments and a lot of goodwill from the Bitcoin community.
However, Lightning has also encountered severe limitations because of the way it was designed, architected, and implemented which have brought significant challenges to its objective of making small payments fast, and reliable for the general public.
THE INTERNET COMPUTER AND ckBTC
A few years later in May 2021, the Internet Computer was launched by the DFINITY foundation, it is arguably one of the most ambitious and sophisticated blockchains in the world today, capable of processing close to 5000 transactions per second. The Internet Computer features sophisticated cryptography, full support for Bitcoin transactions, and a powerful decentralized network of secure nodes worldwide.
On April 3, 2023, the Internet Computer released a powerful new feature called Chain key Bitcoin or ckBTC. ckBTC securely tokenizes Bitcoin inside the Internet Computer, and simultaneously make it extremely fast, and able to support cash-like transactions securely.
ckBTC is backed one-to-one with real Bitcoin. It can be used securely for a variety of use cases like buying a coffee, giving a tip, buying a book or sending it to a person all in under two seconds.
After a while if the user wants to exchange his ckBTC for Bitcoin he can easily do it with the Internet Computer Wallet, sending himself the amount of BTC he wants to his favorite Bitcoin wallet.
ckBTC is in many ways a better alternative to Lightning, and in the coming series of articles I intend to show you why.