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Why Bitcoin might become a major DeFi hub

This post will look at Spacechains, a feature that will most likely be added to Bitcoin in the near future.

 

What are Spacechains?

They are separate blockchains that outsource mining from the Bitcoin Blockchain thus having the same degree of security and decentralization.

What will be their native token that you pay fees with?

Bitcoins. But using an idea called P1WP (perpetual one way peg) meaning that once a bitcoin has been moved to a spacechain it will remain there forever. This is not a problem simply because the only purpose of the moved bitcoins is to pay fees. The transferred bitcoins will be burned from the mainchain once moved.

Will they bloat the Bitcoin network?

No, one Spacechain will only require 1 on-chain transaction per block. That’s an overhead of 0.026% of the network’s capacity.

What is the purpose of Spacechains?

They enhance the Bitcoin ecosystem without affecting the base layer and without the need to create more chains that can be less secure and less decentralized, more altcoins, more ICOs etc.

There will be spacechains with different purposes:

  • A chain for all kinds of assets issued by entities or individuals;
  • A chain that executes Ethereum-like smart-contracts;
  • A DNS chain
  • Stablecoins
  • Any DeFi applications you can think of.
  • Combinations of the above

All powered by Bitcoin.

How will this become a reality?

The SIGHASH_ ANYPREVOUT soft-fork needs to be signaled for approval just like Taproot was earlier this year. Since there’s no central figure in the development of Bitcoin, this will be handled by the community.

This Soft-fork does not only introduce the concept of Spacechains, it will also bring a lot of improvements and scalability to the Lightning Network Channels.