Everything that can be done with Ethereum is also possible with Rootstock, a second layer built on Bitcoin – but safer and cheaper.
Last week Ethereum changed its consensus mechanism from Proof of Work to Proof of Stake – probably the most talked about crypto event of the year. It means that instead of solving a cryptographic puzzle to be able to add a new block to a blockchain – something that is open to anyone, if you are willing to invest in the needed hardware – now you have to own a lot of Ether to get even more of it.
This system benefits the rich Ethereum owners (the so-called “whales”). It will inevitably lead to even more centralisation of the already quite centralised altcoin founded by Vitalik Buterin. Since the merge happened, more than 60% of all blocks were validated by only four players: Lido Finance, Coinbase, Kraken and Binance.
This makes Ethereum vulnerable to manipulation, as centralised entities regulated by governments can easily be forced to obey the goverments’ rules. We should not forget that the main reason cryptocurrencies exist is to get the state out of the financial system. Since the merge, this obviously no longer applies to Ethereum, if it ever did.
Is this huge disadvantage acceptable in order to have lower transaction fees and to “waste less energy”? Both arguments are not convincing. Ethereum’s outrageously high transaction fees have not decreased since the merge, and the Ethereum foundation says that they will not decrease significantly in the near future. The often misused “energy argument” is not valid either, as we have shown in our series The Green Side of Bitcoin. On the contrary, the green energy generated at peak times, which would otherwise overload the grids, can be used to mine Bitcoin, making renewable energy generation more economically viable.
Hence the question is: will any of the wannabe “Ethereum killers” funded by venture capitalists, such as Solana, Algorand or Avalanche, replace Ethereum in DeFi and Smart Contracts? I doubt it, as they have similar problems to Ethereum: they are controlled by a few people who can change the protocol at will. Many also use the questionable Proof of Stake consensus model. Despite its shortcomings, Ethereum’s dominance of the DeFi space is so big that it would need a much better system to overcome the network effect that always benefits incumbents.
I only see one cryptocurrency that has the potential to do this: Bitcoin. Only Bitcoin has a network effect that can surpass that of Ethereum. It is by far the most well-known crypto asset that has been dominating the crypto economy since the beginning. Many people don’t know yet that anything that can be done with Ethereum is also possible with Bitcoin. Originally Bitcoin has been designed to be electronic cash and nothing else. Therefore, a “second layer” is needed to provide more functionality: a sidechain that is pegged to the Bitcoin blockchain and allows smart contracts to run on Bitcoin.
There are several projects with the goal to add more features and more flexibility to Bitcoin, such as Liquid, Stacks or RGB. The most advanced one is called Rootstock, developed by IOV Labs from Argentina. Its main developer, Sergio Lerner, fixed several bugs when he was a Bitcoin core developer. He also identified the one million Bitcoins mined by Satoshi in the early years. Together with other IOV founders he developed QixCoin, the first cryptocurrency to use the concept of pay-per-execution, also known as transaction ‘gas.’
Rootstock’s main net was launched in January 2019 after more than three years of fundraising and development. Its sidechain has different qualities than the Bitcoin blockchain. Its block times are much faster, it uses an account system similar to Ethereum’s and, most importantly, it allows for a Turing-complete programming language – which means that you can run any kind of computer program on it. Bitcoin’s programmability is limited on purpose, as full programmability has its risks.
Using a sidechain minimises this risk. The Bitcoin protocol itself remains secure and immutable, while additional features like smart contracts cannot endanger the underlying network but stay on the “second layer”. Rootstock’s native currency called Smart Bitcoin (or RBTC) is pegged 1:1 to Bitcoin through a so-called Two Way Peg. If you lock a certain amount of Bitcoins in the Rootstock system, you will receive the same amount of Smart Bitcoins, which you can redeem at any time for your original Bitcoins. That means: you cannot miss the next Bitcoin bull run, your Smart Bitcoins will always have the same value as Bitcoin.
Transactions on Rootstock are validated by existing Bitcoin miners through a process called Merged Mining. IOV Labs formed partnerships with the most important mining pools for this. That means: gas fees will always stay low, even when usage grows, as Rootstock miners already make their money in Bitcoin. Merged Mining is just an additional revenue with hardly any extra costs for them, so they don’t need to charge high gas fees.
The Rootstock developers consciously decided to use several of Ethereum’s established features like the Ethereum Virtual Machine and the programming language Solidity. Not because they could not have come up with other solutions, but for the sake of compatibility. This makes it easy to transform any smart contract developed for Ethereum into a Rootstock one. Some of the first projects of the Rootstock ecosystem were therefore just copies of well known ETH based ones, such as RSK Swap, a 1:1 copy of the decentralised exchange Uniswap.
The hard facts are in favour of Bitcoin. There is much more money invested in Bitcoin than in any other crypto project. Its computing power is some orders of magnitude higher than all the others, which makes it safer and less vulnerable to attacks. Its gas fees will always be low due to Merged Mining. In my view, Rootstock is superior to any comparable project. It only takes better communication to make more start-ups build on it and more people use it.
I will give some talks about Rootstock at Bitcoin meetups in Mexico soon. If you happen to be in this beautiful country, here are the confirmed dates so far:
– September 21st, 5pm: Tulum Crypto Club
– October 3rd, 5pm: Bitcoin Pool Party, Playa del Carmen
– October 13th, 7pm: Bitcoin Embassy Bar, Mexico City.
Join our Telegram group for more details!
By Aaron Koenig
Disclaimer: the editor of this blog is a member of the Rootstock ambassador network