Researchers at the Massachusetts Institute of Technology (MIT)’s Digital Currency Initiative (DCI) have built a technology solution which is likely to expand Bitcoin‘s utilities significantly, with the help of Lightning Network that also incorporates smart contracts. Alin S. Dragos and T. Dryja are the researchers leading this initiative. Notably, Dryja was one of the inventors of Lightning Network.
Bitcoin has become the most famous of all cryptocurrencies, with enthusiasts trading in it from all over the world. However, the Bitcoin protocol has faced significant scalability and latency issues, which also resulted into high transaction fees. Segregated Witness (SegWit), a technology solution bypassing the block size limit, thus improving scalability, was rolled out last year. Adoption of SegWit has picked up starting earlier this year, and there has been improvement in scalability of Bitcoin, accompanied with reduced transaction fees.
While SegWit has already contributed to improved scalability and transaction speed of the Bitcoin protocol, its larger contribution to the protocol could very well be facilitating more advanced technology solutions, for e.g. Lightning Network. Lightning Network creates another layer on top of the Bitcoin protocol, using which the Bitcoin users can carry out fast and cheap transactions, while only settling the final status of the payment transaction in the blockchain.
Effectively, the intermediate smaller payment transactions done using the Lightning Network aren’t broadcast to the blockchain. This means that those intermediate smaller transactions aren’t conducted via the highly secured decentralized blockchain protocol, and had SegWit not resolved the malleability bug that the Bitcoin protocol had, Lightning Network wouldn’t find acceptance from the users.
While Lightning Network is likely to make Bitcoin even more lucrative to a wider audience due to faster and cheaper transaction, a key point to note is that Bitcoin still remains a protocol for allowing cryptocurrency payments over a decentralized network, and not for wider functionalities. Ethereum has brought a wider set of functionalities to the crypto world with its smart contracts, which aren’t present in the Bitcoin protocol.
Smart contracts, i.e. pieces of code allowing legal-like functions such as transferring crypto tokens based on fulfillment of contractual terms and conditions, make Ethereum so powerful in the world of blockchain and cryptocurrencies. While it’s possible to code smart contracts for Bitcoin protocol, the rich proprietary programming language Solidity offered by Ethereum makes it the most sought after protocol to code smart contracts. This is why over 1,000 distributed apps (DApps) and many famous cryptocurrency projects have been launched using the Ethereum protocol.
The DCI researcher team bridges this gap, with an outside programmed entity called an “Oracle” that will broadcast external data to the smart contracts which can be set up to execute certain predetermined functions based on the data broadcast by the Oracle. For e.g., two users of the system can set up a smart contract that will be transfer crypto tokens from one user to the other, based on current price of US dollars reaching a certain level. The actual crypto payment transaction will be conducted over the fast Lightning Network.
However, the Oracle can, in the normal circumstances, know the identity of the users making use of the data it transmits to the smart contracts, and that compromises privacy of the Bitcoin users. With privacy being a focus area of the decentralized cryptocurrencies such as Bitcoin, this isn’t a desired outcome.
The DCI researcher team uses Discreet Log Contracts (DLCs) to solve this. DLCs keep the privacy of the Bitcoin user secured, by mixing other data with the key of the data broadcast by the Oracle. The Oracle won’t know this added data element, it will be known by the DLC program only, and hence the Oracle can never find out whether the data broadcast by it has even been used by a user, or whether that data has at all been recorded in the blockchain.
The DCI researcher team has already built an experimental Lightning Network with this technology, and it’s called “lit”. Dryja and Dragos have indicated that the MIT DCI team will not continue to work on this technology beyond a certain point, rather, they will hand over a functioning prototype of the technology to other companies. These companies will conduct detailed market survey to find use cases for this technology, and build suitable apps to cater to the growing crypto market. The MIT DCI team is already in discussion with a number of companies for this, and more information on this is awaited.
