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RSK, the Ethereum-like side chain for Bitcoin developed by IOVlabs, evolves. The federated pegging mechanism, which is based on a Bitcoin address with multiple signatures (multisig), migrates to a system that uses hash power through RSK’s new dedicated hardware security modules.

“We are very excited about this release as it is a big step towards a fully decentralized smart contract platform on top of Bitcoin,” said IOVlabs Chief Scientist Sergio Demian Lerner. Bitcoin Magazine. “This is something the ecosystem needs.”

Sidechains and two-way pegs

Bitcoin sidechains are alternative blockchains with tokens linked to bitcoin; one token can always be exchanged for one bitcoin, so their values ​​must be the same. However, a sidechain can be designed with different protocol rules. The RSK side chain uses many of Ethereum’s rules, enabling Turing-complete smart contracts.

RSK is being merged by a subset of all Bitcoin miners, in which a majority of Bitcoin miners (by hash power) currently participate. They use their existing hash power to produce sidechain blocks and earn some extra transaction fees.

RSK tokens, which are called ‘bitcoin on RSK’ or rBTC, are backed one-to-one by real bitcoin on the Bitcoin blockchain (BTC) by locking bitcoin in a multisig address on the Bitcoin blockchain to create a Equal number of rBTC to be issued on RSK (“peg-in”). This is done through a smart contract from RSK called the “bridging contract”, which maintains the Bitcoin multisig address. Unlocking the BTC only happens when an equal number of rBTC is locked by returning it to the RSK bridge contract (“peg-out”).

A “federation” of reputable cryptocurrency companies holds the keys to the Bitcoin multisig address. (The original announcement consisted of 24 companies, of which an unknown subgroup is currently participating.) They are collectively relied on to unlock BTC from the multisig only when an equivalent amount of rBTC is locked. But technically, they can collude and steal the contents of the multisig address, giving rBTC holders the option to exchange their sidechain tokens for real bitcoin.

In the new RSK upgrade, Powpeg, the multisig will be controlled by a larger group of high-profile companies (called “Pegnatories”). Each of the Pegnatories has a special hardware security module that contains the signing keys (called “PowHSMs”). These modules only unlock bitcoin from the multisig if the equivalent number of rBTC is locked by returning them to the RSK bridge contract, and if this RSK transaction has 4,000 confirmations (which is roughly equivalent to 200 Bitcoin confirmations). The hardware modules make the peg-out transaction have 4,000 RSK confirmations by checking an RSK Simplified payment verification (SPV) proof.

Without 4,000 RSK confirmations, or without the cooperation of a majority of the PowHSM holders, the bitcoin remains in the multisig. (Powpeg is what IOVlabs calls a “vetocracy.”)

“The Powpeg employs an in-depth defense to security, stacking layers of security, such as confirming the bitcoin hash rate of peg-outs,” Lerner said. “This allowed us to create a unique multi-signature safe with transparent and verifiable delayed access. I think this is very important because the decentralized financial system must be built on the strongest security foundations. “

The identities of the high-profile companies that will act as Pegnatories will be announced in the coming weeks. Thereafter, additional technologies could be developed to further decentralize the peg, including the ability to introduce competing pegs without permission.

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Previously spelled “Rootstock”, RSK was launched in January 2018. The sidechain currently supports all transaction types and smart contracts that Ethereum supports. This also means that it supports any programming language that can be used for Ethereum, such as Solidity, Julia and Vyper.

As decentralized financing solutions (DeFi) where users can borrow, lend and trade coins become popular in the Ethereum community, IOVlabs hopes to bring these use cases to Bitcoin via RSK.


“We believe RSK should be the DeFi platform of choice for bitcoiners. We are committed to the ecosystem spirit and mindset of decentralization and security, and want to make bitcoin and bitcoin-based financial opportunities available to everyone “

Now that Powpeg is another step towards decentralization of the RSK sidechain, IOVlabs still plans to eventually convert RSK into a drivechain: a sidechain completely secured by hash power, for which two Bitcoin Improvement Proposals ( BIPs) been suggested. Rather than a federated system (with or without secure elements), ‘moving’ coins between Bitcoin’s blockchain and the side chain would be based solely on hash power. Lerner said it would be very easy to update the current RSK design to a drivechain.

See also for more information on Powpeg this Medium post by Sergio Demian Lerner.

Aaron van Wirdum is interested in technology and how it affects social and political structures. He has been covering Bitcoin since 2013, focusing on privacy, scalability and more. Hodls BTC.

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