Extend Bitcoin, Ethereum and other blockchains

The Internet Computer blockchain is the first World Computer blockchain that provides a complete alternative to traditional IT. It is a blockchain with new capabilities, such as web serving, unlimited scaling, web speed, and orders of magnitude efficiency gains. All of this has been made possible by the new chain key cryptography framework. Now this same framework makes the capabilities of the Internet Computer available within other blockchain ecosystems, by allowing smart contracts on the Internet Computer to initiate transactions and computations directly on other blockchains...

Quick link: Dive deeper into the workings of smart contracts that directly process bitcoin on the Bitcoin ledger.

Essentially, the Internet Computer network can sign arbitrary transactions for execution on other blockchains. It does this using the chain key cryptography framework embedded within its decentralized protocols. For example, it can sign transactions to transfer cryptocurrency, or invoke smart contract code, on other blockchains.

This means you can extend other ecosystems with Internet Computer capabilities, or use its smart contracts as glue to construct fully decentralized Web3 and DeFi services that span multiple blockchains.

Let's look at some examples...

Extending Bitcoin or working with bitcoin

Bitcoin was the blockchain that started it all. Currently the network hosts vast liquidity (monetary value) in the form of bitcoin. However, the Bitcoin network is simple by design and does not host smart contracts.

As a consequence, Bitcoin does not have a native DeFi ecosystem of its own. Instead, Bitcoin's liquidity is "ported" to other blockchains that do have smart contract capabilities using insecure centralized blockchain bridges, which take custody of bitcoin for users, and create equivalent amounts of wrapped bitcoin on a destination blockchain, such as Ethereum.

Using native Bitcoin DeFi that operates directly on real bitcoin can provide major advantages over using wrapped bitcoin. In practice, blockchain bridges are cumbersome to use, can act as censors, or can get shutdown or hacked causing the loss of bitcoin backing the wrapped bitcoin, completely breaking services using the wrapped bitcoin, and potentially causing rippling systemic black swan events.

On the Internet Computer, smart contracts can process bitcoins directly on the Bitcoin ledger, without need for any kind of intermediary. They can create new bitcoin addresses, and send and receive bitcoin — as though they are in fact running on the Bitcoin network itself.

This means the Bitcoin community can now finally create what amounts to native Bitcoin DeFi using smart contracts hosted on the Internet Computer. These can even process HTTP requests, allowing user experiences to be created for DeFi users that are also fully decentralized, and can provide alternative means to sign Bitcoin transactions, such as Internet Identity.

Moreover, Internet Computer smart contracts can enable services from other blockchain ecosystems, such as Ethereum, to leverage native bitcoin too. For example, native bitcoin processing might be used by on-chain DEXs (decentralized exchanges), decentralized fundraising schemes, Web3 services, and more.

Quick link: Dive deeper into the workings of smart contracts that directly process bitcoin on the Bitcoin ledger.

Extending Ethereum or working with Ethereum smart contracts

Ethereum was the next major blockchain to launch after Bitcoin. It introduced smart contract functionality, which made it possible to upload "blockchain code" that would thereafter process and store data on the blockchain itself.

This was new, because on Bitcoin it's only possible to attach basic access control code to the bitcoin tokens themselves, which disappear when they are moved (transferred). Ethereum by contrast can host Turing-complete smart contracts at permanent addresses. ETH tokens move between these stable smart contracts, such that the blockchain is code-centric.

When considering the implications of blockchain hosting code, and related computation and data, in 2014 a member of the early Ethereum community mooted the concept of a World Computer. Ethereum's technological underpinnings, which will remain after The Merge, prevent it from making that leap. However, from 2015, Dfinity worked on delivery of the World Computer concept, finally launching the Internet Computer May 2021.

The incredible community and DeFi ecosystem that Ethereum built in the years from launch, can now be combined with the technological capabilities of the Internet Computer — without the use of bridges or other intermediaries.

This advance has come at a crucial time, because increasingly the Ethereum ecosystem is being held back and harmed by a lack of decentralization.

For example, today, although Ethereum smart contracts can be used to create a DeFi service, they are not capable of serving interactive web experiences that enable end users to interact with them. Typically, cloud computing infrastructure is used to provide the user experience, and often also to perform the vast majority of data processing and storage — especially where Web3 services and dapps are involved. This exposes them to all manner of vulnerabilities, including being censored by the cloud operator, getting hacked, and the transfer of legal liability for the otherwise decentralized service to the developers operating the cloud accounts involved.

For all the reasons, it has become very clear that DeFi and Web3 services built using Ethereum need to fully decentralize and replace centralized IT such as cloud services, and go fully on-chain.

Thankfully, the Internet Computer provides an easy solution. For example, a front-end user experience built using Internet Computer smart contracts, can respond to end user inputs by initiating arbitrary transactions on Ethereum, and can display Ethereum data and Ethereum transaction results to them.

Here's how a DEX (decentralized exchange) running on Ethereum could be improved:

• The interactive web experience, through which users place orders and manage their accounts, can be created using smart contracts on the Internet Computer, which can process HTTP requests.

• Expensive data processing and storage can be offloaded to Internet Computer smart contracts. For example, the Internet Computer can be used to manage user profile information, and log all their trades — it would even be possible to use them to create a continuous double auction order book.

• Internet Identity can be leveraged. This is an anonymizing blockchain authentication framework the Internet Computer provides to allow end users to securely create sessions with Web3 services using special hardware, such as the fingerprint sensor on their laptop, or Face ID on their phone. For example, a front-end built on the Internet Computer can map Internet Identity anchors to Ethereum public keys, and then allow end users to securely and conveniently authenticate themselves to the DeFi service using their fingerprint sensor (read a friendly Internet Identity introduction).

Ethereum integration, and Internet Computer integrations with other blockchains, works slightly differently than with Bitcoin, which involves UTXOs. Internet Computer smart contracts can create arbitrary Ethereum transactions, then query the results using HTTPS outcalls.

NOTE: At the time of writing, the full end-to-end framework for direct interaction with Ethereum and other blockchains is still in development, although individual Internet Computer technology features can be combined. You can proceed now using its Threshold ECDSA capabilities — watch how other community members are proceeding.