A comparative analysis of major BTC-on-Ethereum tokens
The ERC-20 token, backed by Bitcoin is something quite special on crypto. This means that a person can deposit Bitcoin and receive Ethereum relative of BTC, so it becomes possible for the user to take advantage of Ethereum emerging ecosystem, especially DeFi.
This article compares tBTC (released by Keep Network), renBTC and WBTC in terms of technology and usage. These three tokens have many in common, but at the same time they are quite different.
Starting with WBTC, it is necessary to say that it is built on the consortium model. This means that it doesn’t follow the values of crypto decentralized architecture. KYC pass is obligatory for the WBTC minters but users, who wish to transact and hold WBTC don’t have to to this procedure.
However, WBTC is proved to be the first Bitcoin-backed ERC-20 token and thus it has more adoption. Centralized model allows any deposit size and fast unlock of funds.
tBTC is developed by Keep Network and Summa and it is based on decentralized model and while WBTC relies on merchants, tBTC relies on science (game theory). tBTC builds incentives for users and they don’t have to pass any KYC, because the processes are running in trustless manner.
Since tBTC is a decentralized system, it has signer nodes and the process of choosing nodes is brought by Keep Network and is called Random Beacon. In order to become a signer, user has to stake KEEP tokens (starting from 100 000 KEEP) and bond ETH. When the deposit is requested, Keep network randomly selects a group of signers, which doesn’t have access to the wallet, but can only sign transactions for it.
It is necessary to mention that only maximum of 1 BTC can be minted each time. Overcollaterization, which is represented by a much greater value of ETH (150% of BTC amount) needed for a signer to be able to guard BTC deposits, from one side is a disadvantage but from another — it is made for protection against ETH-BTC price changes. In addition, in order to compensate users in the event of deposit loss, the collateral is used to buy tBTC on the exchange.
The launch of tBTC has been seriously delayed because of the technical issues. This may be not a disadvantage, because it is better to bring a reliable product to the market, especially talking about financial assets but still the competitors are ahead because of this. On the other hand, tBTC is well-secured because of the big amount of collateral needed.
renBTC is a part of RenVM network. It is a decentralized model, where holders of Ren Nodes (or Darknodes) need to stake 100 000 REN tokens to participate. This is a p2p-network with it’s own consensus rules. Unlike tBTC, only REN is to be staked and there is a different system architecture with shards, which include 200 nodes each. Each shard uses a special algorithm, called sMPC with Byzantine Fault Tolerant consensus algorithm. This allows to generate a Bitcoin address, which can be used only of 66% on nodes of one shard are working together.
If 33% of the nodes fail or steals funds, the entire shard stake will be confiscated and used to buy and burn renBTC in order to compensate users for lost funds. In order to prevent Sybil attacks, REN is using an adjusting fee, which changes accordingly to the amount of REN staked.
We have taken a look at a brief explanation of similarities and differences between tBTC, renBTC and WBTC. While WBTC is more centralized solution, tBTC and renBTC provide more decentralization, what is valued by crypto community. renBTC seems to be much more capital efficient more secure and economically protected, while tBTC is more secure and economically protected, what is highly necessary in volatile crypto market.
In conclusion, all these projects contribute a great value to both Ethereum and Bitcoin ecosystems. Projects are developing rapidly and it will be very interesting to see they will perform in long term.