Decentralized finance is a fairly new concept for the ordinary public. At its core, DeFi is a modern global financial system, equipped with innovative savings, loans and profit opportunities that enable the creation of innovative financial products without central gatekeepers. Since January 1, that pledge has been fulfilled with a request to exceed $ 11 billion in total frozen value, representing an increase of more than 1,550% since the start of the year.
Related: An explanation of the programming languages used in the blockchain
While we have seen Ethereum-based projects such as Uniswap, Aave, and Compound win the DeFi space, the community is starting to show signs of demand for solutions that include Bitcoin (BTC).
Bitcoin is the largest digital asset by market cap, but it remains largely a negative asset. In order to actively use Bitcoin in DeFi products, sentinels like BitGo have started Bitcoin Encoding Encoding (WBTC). Encapsulated Bitcoin takes the value of Bitcoin and combines it with Ethereum programming capability, giving investors the opportunity to generate additional returns on their Bitcoin investment without cashing it out. In the past two months alone, more than $ 1 billion of WBTC has been poured into the Ethereum network, indicating a demand for Bitcoin as an actively used financial asset.
Bring Bitcoin to the DeFi Orbit
Bitcoin is the most powerful sovereign blockchain blockchain, and is on its way to becoming the world’s first truly sovereign currency. Bitcoin has the most reliable blockchain security and most popular name recognition. The use of BTC in DeFi is still at a very early stage at present.
Bitcoin can be used in DeFi products in two ways: BTC representations that are encapsulated on separate chains (like WBTC on Ethereum) or the original smart contracts can flow to the Bitcoin chain itself. Building DeFi products directly on Bitcoin made practical sense, but was difficult due to Bitcoin’s limited programming language and scalability. Bitcoin has traditionally been considered a medium of exchange and a store of value. However, Bitcoin’s recent move to Ethereum as a packed asset indicates market demand for BTC at DeFi. In the process, people find unique, albeit unnatural, and potentially dangerous ways to do so.
Bitcoin’s limited scripting language has always been seen as an advantage, not a bug, as it provides security for the underlying blockchain. Smart contract logic can be added above Bitcoin via side chains like Liquid, linked chains like Stacks, or bulk chains like RSK. Transferring BTC from a major Bitcoin chain to such neighboring chains can be easier and more secure than issuing assets encapsulated in disconnected chains.
Bitcoin as an active capital
To fully bridge this gap, Bitcoin will have to switch from a passive asset to an active income-generating asset. One obstacle is the tribal nature of the users of cryptocurrencies. Many Bitcoins do not recognize encapsulated Bitcoin as Bitcoin. In my opinion, this is due to the fact that Bitcoin and the Ethereum community share different philosophies.
Ethereum has created a culture that encourages experimentation and testing in production. However, bold experimentation is not a common feature of Bitcoin. Bitcoin clients are by nature cautious, skeptical, healthy, and trying hard not to lose their assets. Bitcoin cryptocurrency is one of many DeFi innovations that bring risk by blending the two philosophies. Acquiring a valuable asset like Bitcoin and placing it in a smart contract like the ERC-20 token that shares Ethereum security features can be a difficult concept for Bitcoin owners. There has to be a more secure solution to getting BTC into DeFi’s orbit.
While acknowledging the opportunity to use Bitcoin, I believe we can see a future in which Bitcoin will remain the property of the blockchains. As DeFi continues to grow, Bitcoin will likely remain a center of gravity for cryptocurrencies and smart contracts around Bitcoin will initially open up access to innovation and $ 250 billion in Bitcoin capital.