Bitcoin BitVM: What is it all about?

Smart contracts in the Bitcoin network. Sounds interesting? That's precisely why Bitcoin BitVM has been attracting a lot of notice from the community in recent months. The concept of Bitcoin Virtual Machine (BitVM) emerged from a paper authored by noted blockchain developer Robin Linus in 2023 titled 'BitVM: Compute Anything on Bitcoin.' Bitcoin BitVM is touted to revolutionize the Bitcoin network's use cases. Let's examine the subject in detail through this blog!

What Does Bitcoin BitVM Mean?

The Bitcoin Virtual Machine, or BitVM, is a concept that aims to expand Bitcoin’s functionalities without changing the original Bitcoin network. In his paper, Robin Linus defines BitVM as a ‘computing paradigm to express Turing-complete Bitcoin contracts.’ A modification in Bitcoin’s project protocol, or a fork, creates an entirely separate blockchain. Here’s where BitVM makes a difference. It enables the execution of smart contracts on Bitcoin by avoiding a fork. It essentially solves the scalability issue on the Bitcoin network by processing all complex computations off-chain, including smart contracts. On the other hand, lowering congestion on the Bitcoin network could also decrease processing times or fees, which in turn could potentially lead to several use cases. However, when Linus published his paper, BitVM was limited to only two parties. In any dispute between the parties, on-chain execution on the Bitcoin network is required. Wondering how the Bitcoin Virtual Machine works? Read ahead!

Working of Bitcoin BitVM

BitVM’s architecture enables transactions between the two parties called ‘prover’ and ‘verifier.’ As the names suggest, the BitVM system depends on a challenge-response protocol and fraud proofs. Let us go over it in detail. The computation between the two parties is initiated by the prover, who also evaluates the smart contract and its expected result. On the other hand, the verifier authenticates the computation and checks its authenticity and accuracy. Both parties also sign a series of transactions before the computation and make deposits into the smart contract. Once the smart contract is activated, any party attempting fraud loses their deposit while the other party receives it. Dispute resolution between the two parties is done by executing conditions of the smart contract on-chain. Bitcoin's on-chain validity checking mechanism penalizes both the prover and verifier if the former is fraudulent or if the latter rejects valid computations.

How Does BitVM differ from EVM?

The Ethereum Virtual Machine (EVM) acts as the core foundation of the Ethereum blockchain, executing all its smart contracts and processing transactions. Developers can also use EVM to create dApps and smart contracts. Conceptually both BitVM and EVM could sound the same, but they have stark differences. Here are all the details about the ‘BitVM vs EVM’ debate:

• Firstly, BitVM can presently only handle computations between two parties. EVM is far more versatile, enabling multi-party transactions. As a result, relatively more complicated smart contracts can be executed on EVM.
• BitVM processes all transactions entirely off-chain, except in case of disputes. On the other hand, EVM leverages the Ethereum blockchain and conducts all transactions on-chain.
• The functionalities and goals of BitVM and EVM are entirely different. BitVM is an addition to the Bitcoin blockchain that reduces activity on the native network by executing off-chain computations. However, EVM acts as the key component for Ethereum, and it is central to the blockchain’s use case as a decentralized finance (DeFi) platform. Hence, ‘BitVM vs EVM’ has broadly precise explanations.

Can BitVM expand Bitcoin use cases?

BitVM can be instrumental in taking Bitcoin’s scope beyond its current use cases. One could create applications on top of Bitcoin using BitVM. All of it could be done without tweaking the Bitcoin network. In his paper, Robin Linus also argues that BitVM acts as a bridge between Bitcoin and other blockchain networks. BitVM could provide a big impetus to apps related to the gaming sector, especially in two-way games like Chess or Poker. Moreover, the Bitcoin Virtual Machine’s smart contract functionality could induce use cases of advanced payment solutions involving big-volume transactions. It could mark a significant development for the Bitcoin network, which is only used for peer-to-peer payments currently. Other two-party applications, such as DeFi apps, decentralized exchanges, and betting apps, could also be developed using BitVM. The efficiency and low-congestion model of BitVM could be used to hedge Bitcoin’s impact on the environment, giving rise to various environment-friendly use cases. Over time, BitVM may continue to evolve and profoundly impact the crypto sector. Coupled with Bitcoin’s growing use cases with the help of BitVM, the crypto industry will likely see new innovative solutions in the near future!

Frequently Asked Questions (FAQs)

Q1. What is Bitcoin BitVM?

Answer: BitVM, introduced in October 2023 by Robin Linus, is a computing paradigm that enables complex, Turing-complete computations on Bitcoin without any protocol changes. It uses off-chain execution with on-chain fraud proofs to settle disputes, unlocking smart contract-like logic on Bitcoin's base layer. 

Q2. How does BitVM enable smart contracts on Bitcoin?

Answer: BitVM doesn't execute smart contracts on-chain. Instead, a prover commits to off-chain computation and a verifier challenges incorrect results using fraud proofs settled on Bitcoin. This conditional logic works within Bitcoin's existing Script without requiring new opcodes or consensus changes. 

Q3. How does Bitcoin BitVM work?

Answer: BitVM uses a prover-verifier model where computation runs off-chain and only disputes land on-chain. BitVM2 (August 2024) improved this significantly, it made challenge rights permissionless, meaning any participant can dispute a fraudulent transaction, not just pre-designated verifiers. 

Q4. What is the difference between BitVM and the Ethereum Virtual Machine (EVM)?

Answer: The EVM executes smart contracts on-chain for all users globally. BitVM runs computation off-chain and uses Bitcoin only for dispute resolution, making it less expressive but achievable without protocol changes, unlike EVM, which required Ethereum to be designed for programmability from inception. 

Q5. What are the benefits of Bitcoin BitVM for the crypto ecosystem?

Answer: BitVM enables trust-minimized Bitcoin bridges, Layer 2 rollups, and DeFi without modifying Bitcoin's consensus. Projects like Citrea's Clementine bridge are already being built on BitVM2. For traders on Delta Exchange, this infrastructure could eventually expand BTC collateral utility across cross-chain derivatives markets.