Moving Bitcoin to Ethereum with tBTC

Bitcoin and Ethereum solve different problems. Bitcoin excels at being hard money – it’s secure, battle-tested, and resistant to change. Ethereum moves fast, enabling DeFi and smart contracts. tBTC connects these networks by letting you use Bitcoin’s value inside Ethereum’s programmable environment.

Prior Bitcoin Bridge Designs

Two main approaches have tried to bridge Bitcoin to other chains. Both work, but come with serious trade-offs.

Federated Bridges

The first approach uses groups of trusted custodians who control multi-sig wallets. WBTC works this way – a small group of companies hold Bitcoin and mint corresponding tokens on Ethereum. This design is simple and easy to audit. The problem is trust – custodians can block withdrawals or steal funds, either on their own or under pressure from governments.

Synthetic Bitcoin

The second approach creates synthetic Bitcoin-backed assets, similar to how DAI represents USD. These systems are flexible but risky. A synthetic Bitcoin token could inflate beyond the real Bitcoin supply. It’s also dangerous to back a volatile asset (BTC) with another volatile asset (ETH).

The tBTC Protocol

tBTC takes a new approach. It keeps Bitcoin’s key properties – fixed supply, censorship resistance, and direct redeemability – while enabling seamless use on Ethereum.

Core Design Goals

• Zero trust requirements – no reliance on centralized parties
• 1:1 backing – each TBTC token represents exactly 1 BTC locked in the protocol
• Always redeemable – holders can convert back to BTC at any time
• Economically secure – signers have more to lose than gain from cheating

How Deposits Work

1. You request to deposit BTC through an Ethereum contract
2. The system randomly picks a group of signers
3. Signers generate a Bitcoin address for your deposit
4. You send BTC to that address
5. Once confirmed, you get TBTC tokens on Ethereum

The protocol splits deposits into standard lot sizes of 1 BTC. Want to deposit 5 BTC? You’ll create 5 separate deposits. This improves security by spreading risk across multiple signing groups.

Signer Security

Random signer selection happens through a decentralized beacon to prevent gaming the system. Signers must put up ETH worth 150% of the Bitcoin they help secure. This ensures they lose more from cheating than they could gain.

If ETH prices drop and collateral becomes insufficient, the protocol automatically starts liquidation. This maintains system health even during market volatility.

Deposit Ownership

When you deposit, you get an NFT called a deposit owner token. This token proves your ownership of the deposited Bitcoin and gives you exclusive redemption rights. You can hold this token or transfer it to someone else.

Light Relays

To verify Bitcoin transactions on Ethereum, tBTC uses a specialized system called Light Relays. Unlike full Bitcoin bridges that store all block headers, Light Relays only track difficulty adjustments. This makes proofs efficient while maintaining security.

Important Details for Users

Deposit Rules

• Send exactly the lot size (1 BTC) – no more, no less
• Only the first UTXO counts for each deposit
• Include a small ETH fee for setting up signing groups

Redemption Process

• Only deposit owner token holders can redeem
• Redemption includes signing fees (0.005 BTC) and any beneficiary fees
• Signers must process redemptions within fixed time windows
• The protocol enforces proper signature creation

Signer Incentives

Signers earn fees for securing deposits, similar to traditional custodians. The protocol targets returns competitive with centralized services while maintaining decentralization.

Ready to start using tBTC? Check out our deep dive for detailed technical information.