Internet Computer comes with ‘liquid bitcoin’, what does this mean?

The Dfinity Foundation, a Swiss non-profit organization and also a major contributor to the development of Internet Computer (CP), issued ckBTC yesterday. This is a liquid and cost-efficient ”twin” token backed with bitcoin (BTC) on a 1:1 basis.

What is Liquid Bitcoin?

CkBTC brings layer-2 options to Bitcoin, allowing you to perform transactions faster and cheaper without compromising the security of the Bitcoin network. Layer-2s refer to a framework or protocol built on top of an existing blockchain, for the purpose of solving a base layer problem. This often has to do with the scalability of the blockchain.

By integrating directly with Bitcoin’s network, ckBTC can be used on DeFi applications on supported networks without relying on centralized bridging services, which pose a major security problem. A crypto bridge allows someone to transfer their cryptocurrency between multiple networks.

Dfinity founder Dominic Williams said the following about ckBTC:

”CkBTC means low transaction costs, speed and above all no bridges. This is a milestone in the Bitcoin journey and the Dfinity Foundation is excited to see projects building on the Internet Computer blockchain deploy ckBTC and new use cases to research.”

While the integration of BTC brings opportunities, it also inherits slow transaction times and expensive transaction fees. To counter that, Internet Computer has set fees for liquid bitcoin at just 0.0000001 ckBTC, at a value that is significantly lower than the network fees for Bitcoin.

CkBTC uses smart contracts

Normally, so-called wrapped tokens managed by a centralized entity. CkBTC, on the other hand, uses so-called canisters – smart contracts for asset transfers – and does not need middlemen or risky bridges.

Users deposit their BTC to a deposit address and receive the same amount of ckBTC in return. Of course, users can also deposit their ckBTC to receive an equal amount of BTC.