A Decentralized Bridge to Seamlessly Transfer Bitcoin to Ethereum

This article introduces a decentralized solution for bridging Bitcoin to Ethereum. It leverages Eigenlayer for cryptoeconomic security and Zero-Knowledge Proofs for transaction verification. This enables users to securely deposit Bitcoin (BTC) and mint equivalent tokens on Ethereum. While also providing a mechanism to burn these tokens to reclaim BTC.

Overview

As ERC20 tokens gain popularity and their use in decentralized finance (DeFi) continues to expand, Bitcoin holders are presented with an opportunity to leverage their BTC on the Ethereum blockchain. This allows them to earn yields and participate in various DeFi activities. However, existing solutions for bridging Bitcoin to Ethereum often rely on centralized entities. These entities impose limitations such as Know Your Customer (KYC) requirements and control by a single party. These limitations undermine the principles of decentralization and restrict user access.

A solution like zkBTC can address these challenges through the creation of a trustless bridge between Bitcoin and Ethereum. It uses Eigenlayer for cryptoeconomic security to establish a decentralized node network that manages the BTC-to-Ethereum transfer through a distributed key management system.

Zero-knowledge proofs can be used to verify transactions, ensuring both privacy and integrity. This will allow users to deposit BTC, mint equivalent zkBTC tokens on Ethereum, and redeem their BTC by burning zkBTC. This approach can provide a fully decentralized, transparent, and secure method for bridging Bitcoin and Ethereum.

Problems with Existing Solutions

Current solutions for bridging Bitcoin to Ethereum face several significant issues:

Centralization

Current solutions like Wrapped BTC involve funds being controlled by a central custodian, such as BitGo. This introduces a single point of failure and trust that can compromise security and reliability.

Complex User Experience

Transferring assets often involves navigating cumbersome KYC procedures and complex steps, which detracts from the simplicity expected in decentralized finance.

zkBTC: The Ultimate Decentralized Solution

To mitigate the above issues a solution like zkBTC allows users to bridge their Bitcoin to Ethereum without needing permission from any centralized entity. The process is straightforward. Users transfer their BTC to a Distributed Key Generation (DKG) wallet via a Pay-to-Script-Hash (P2SH) transaction that includes their Ethereum address. The DKG wallet is managed by node operators, who secure the network by re-staking their ETH using Eigenlayer.

These node operators are responsible for monitoring Bitcoin transactions and generating verifiable cryptographic zk-SNARK proofs. Once a transaction is validated, the zk-SNARK proof is submitted to Ethereum smart contracts. These contracts verify the BTC transaction and mint zkBTC tokens to the user's Ethereum wallet. This process will ensure a secure, efficient, and trustless bridge between Bitcoin and Ethereum.

Key Components

Distributed Key Generation (DKG)

Since Bitcoin does not natively support smart contracts, Distributed Key Generation (DKG) provides a decentralized method for managing Bitcoin holdings. DKG allows node operators to collaboratively create a wallet where the private key is split into shares distributed among them. To perform any action, such as executing a transaction, a predefined threshold of these shares (e.g., 51%) is required.

To enhance security, the DKG wallet undergoes periodic shuffling after a defined epoch or whenever there is a change in the network of operators. This process ensures that the distribution of key shares remains secure and resilient against potential compromises or changes in the operator set.

Eigen Layer AVS

To ensure a cryptoeconomically secure network, Eigenlayer can be leveraged by developing Actively Validated Services (AVS) on top of it. This approach enables Eigen operators to secure any network by running its nodes and delegating staked ETH. Thereby preventing malicious behavior through a slashing mechanism.

At the time of writing, Eigenlayer had $12.548 billion locked, making it the second largest in terms of total value locked (TVL) after Lido, according to DeFiLlama. This highlights that instead of creating a new network of stakers, leveraging Eigenlayer provides access to a large pool of economic security.

Node operators in the zkBTC network will have two key responsibilities:

Managing the DKG Wallet

They will be responsible for creating and maintaining the Distributed Key Generation (DKG) wallet and signing transactions for Bitcoin redemption.

Generating zk-SNARK Proofs

 They will produce verifiable zk-SNARK proofs to confirm Bitcoin transactions and submit these proofs to Ethereum smart contracts, allowing users to mint zkBTC tokens in exchange for their deposited BTC.

Zero-Knowledge Proofs

To ensure fast and secure verification of Bitcoin payments, the network can generate zk-SNARK proofs, which facilitate the minting of zkBTC tokens on the Ethereum blockchain. When a user deposits BTC into the DKG wallet through a P2SH transaction that includes their Ethereum address, zk-SNARK proofs are created to validate this Bitcoin transaction. These proofs are then submitted to an Ethereum smart contract, which verifies their validity. Upon successful verification, the smart contract mints an equivalent amount of zkBTC tokens to the user's Ethereum address. This approach ensures a seamless, secure, and efficient transfer of BTC to Ethereum-based assets.

User Flow

BTC to zkBTC Conversion

The user initiates a transfer of their BTC to a Bitcoin wallet address via a P2SH (Pay-to-Script-Hash) transaction, which is controlled by the network. Once the transfer is complete, the network generates a zk-proof and submits it to the bridge smart contract on Ethereum. The user can then mint zkBTC using the Ethereum wallet they specified in the Bitcoin script used in the P2SH transaction.

zkBTC to BTC Conversion

To redeem their actual BTC, the user transfers their zkBTC, along with their Bitcoin wallet address, to the bridge smart contract. The smart contract then burns the zkBTC and emits an event. The network listens for this event, reaches a consensus on it, and initiates a BTC transfer on the Bitcoin chain through the DKG wallet using ECDSA threshold signing.

Conclusion

The decentralized Bitcoin-to-Ethereum bridge represents a significant advancement in cross-chain interoperability. By integrating advanced cryptographic techniques and consensus mechanisms, zkBTC can provide a secure, efficient, and trustless method for transferring BTC between Bitcoin and Ethereum. This approach will not only enhance security and transparency but also reduce reliance on centralized intermediaries, paving the way for broader participation in the decentralized finance ecosystem.