Extend Bitcoin, Ethereum and other blockchains
The Internet Computer blockchain is powered by novel cryptography, which forms the basis of new capabilities, such as web serving, unlimited scaling, incredible speed, and several orders of magnitude greater efficiency. This same cryptography also makes these properties available within other blockchain ecosystems...
Essentially, the Internet Computer network can sign arbitrary transactions for execution on other blockchains. It does this using the game-changing chain key cryptography framework that powers its decentralized protocols. For example, it can sign transactions to transfer cryptocurrency, or invoke a smart contract function.
Now 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 first blockchain, which 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 it does not host true smart contracts i.e. the blockchain code it can run has very limited capabilities.
As a consequence, Bitcoin does not have a native DeFi ecosystem of its own. Instead, Bitcoin's liquidity is "ported" to other blockchains using insecure centralized DeFi bridges, which take custody of bitcoin for users, and create equivalent amounts of wrapped bitcoin on other blockchains, such as Ethereum.
The use of wrapped bitcoin on Ethereum is not the same as native Bitcoin DeFi that operates directly on real bitcoin. Worse, these bridges can act as censors, or can get shutdown or hacked causing a loss of the bitcoin backing the wrapped bitcoin, completely breaking services using the wrapped bitcoin, and potentially causing rippling systemic black swan events within the destination DeFi ecosystems.
On the Internet Computer, smart contract code can process bitcoins directly on the Bitcoin ledger. 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.
Moreover, using Internet Computer smart contracts, services running in other blockchain ecosystems can leverage native bitcoin in fully on-chain DEXs (decentralized exchanges), decentralized fundraising schemes, Web3 services, and more.
Extending Ethereum or working with its contracts
Ethereum was the second major blockchain. It introduced smart contract functionality, which made it possible to upload "blockchain code" that could thereafter process and store data on the blockchain itself. While on Bitcoin, very basic script was attached to bitcoin tokens, then disappearing when they moved, on Ethereum, fully "Turing complete" smart contract code resided at fixed addresses, and tokens moved between them — creating the first code-centric blockchain.
But while the Ethereum community first mooted the idea of a "World Computer" in 2014, in practice its technological underpinnings roots the network in the world of traditional blockchain, which situation will continue after the merge. Meanwhile, from 2015, the Dfinity project pursued the idea of creating a blockchain that could replace traditional IT, such as cloud computing, databases and web servers — which resulted in the production of the Internet Computer after many years R&D.
Since its 2015 launch, the Ethereum network has built an incredible community and ecosystem, and its DeFi services are likely to continue providing the worlds preeminent public finance rails. However, increasingly, its ecosystem is being harmed by a lack of decentralization.
Today, although a DeFi system can be built on Ethereum, Ethereum's smart contracts are not capable of serving interactive web experiences. Typically, cloud computing infrastructure is used to provide this, and also to perform the vast majority of an Ethereum Web3 service's data processing and storage. This exposes them to all manner of vulnerabilities, including being censored by the cloud operator, being hacked, and making the developers that operate the cloud accounts involved legally liable for the services.
Indisputably, Web3 services on Ethereum need to decentralize and go fully on-chain. Even DeFi services need to start serving their interactive web experiences, through which users typically interact with them, from the blockchain.
Thankfully, the Internet Computer provides a solution. For example, a front-end built on the Internet Computer blockchain, could initiate arbitrary transactions on Ethereum, and display Ethereum data to the user.
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, could be created using smart contracts on the Internet Computer, which process HTTP requests.
- Expensive data processing and storage could be offloaded to the Internet Computer. For example, the Internet Computer could be used to manage user profile information, and log all their trades, and its even efficient-enough to do continuous double auction-style order book matching if useful.
- The Internet Computer enables user to conveniently and securely create sessions with Web3 services using Internet Identity (see friendly introduction). This can be mapped to Ethereum public keys. So, for example, a user could sign-on to a DeFi service, via a web page served by the Internet Computer, simply by pressing their fingerprint sensor.
Ethereum integration, and coming integrations with other blockchains, works slightly differently to Bitcoin, which involves UTXOs. Instead, Internet Computer smart contracts can create arbitrary Ethereum transactions, then query the results using HTTPS outcalls.
NOTE: At the time of writing, the Ethereum framework is still in development, although Internet Computer individual technology features can be used. Keep an eye on the Threshold ECDSA release schedule.