Smart contracts are automated agreements that run once the conditions are met. The contract is initiated between the contractor creator and the recipient. Automating the execution of the agreement, triggering the next action, self-executing workflow- all sorts of things can be done through smart contracts. Smart contracts for Bitcoin SV can automate tasks without any intermediary involvement. The contracts referred to as smart work on the if-then statement and get executed once the conditions are satisfied.
Smart contracts are written by developers as a code that exists in blockchain (distributed ledger). Developers use the Solidity programming language to develop contracts that are generally referred to as smart contracts.
What are bitcoin SV smart contracts?
Building web3 applications were earlier limited to Ethereum and other emerging blockchain. Bitcoin scripting language ensures powerful scripting. The bitcoin SV smart contract is software code that is executed across all nodes in the bitcoin SV blockchain network. When smart contracts are stored on the blockchain, they will remain permanently there and the code can never be changed. Bitcoin ledger is responsible for storing and replicating the agreement, assuring that security and immutability are intact. Initially, bitcoin wasn’t designed with smart code functionality but was only there to provide decentralized currency.
How to use bitcoin SV smart contracts?
Bitcoin SV smart contracts can do below things:
Functions as multi-signature accounts. Funds are only spent when a certain percentage of people agree.Facilitate management of agreement among multiple parties.Self-executes the process of sending data and receiving data.Rendering utility to other contracts.
Types of Bitcoin SV smart contracts
To write smart contracts in the Bitcoin SV blockchain, a script is used. The script is the language that enables writing smart contracts. Below are some of the common types of Bitcoin SV smart contracts.
Pay-to-Public-key-Hash(P2PKH)
P2PKH script is the most popular and commonly used bitcoin blockchain transaction. The locking script on the bitcoin network functions through private-public key pairs. P2PKH script allows bitcoin to be sent to the address so that only the owner can spend the bitcoin using a private key. The P2PKH functions in the below way.
Firstly, the receiver generates a public and private key pair.Transform public key into hash.Turning hash into address.The receiver then sends the address to the sender.The sender sends Bitcoin to the address.The receiver can now access the fund using bitcoin.
Multi-Signature Scripts
For transactions to occur, Multi-signature scripts require signatures from more than one party. The biggest advantage of Multi-Signature Scripts is that even if one party loses a private key, other parties do have access to the private key.
Pay-To-Script-Hash(P2SH)
Pay -To-Script-Hash is a special type of address that allows you to create addresses and spend based on the satisfaction of the script, provided by the sender. Unlike, paying for the public key hash, it pays for the hash digest of the redeeming script( script used to unlock bitcoin sent to P2SH address) on the chain. P2SH allows transactions to be sent to script hash instead of public key addresses.
With P2SH, one can send bitcoin to addresses that are secured in various ways. The recipient might require the signatures of several people or passwords or requirements that are unique.
Time Locked
The time-locked bitcoin SV smart contract is a smart contract that permits the execution of smart contracts at a certain time. The spending of bitcoin can be restricted until a specific time. Furthermore, this contract can be used to modify the spending requirements. For instance, within a specific period, it may be required to obtain three signatures to spend bitcoin. But, after the required time limit, it may require obtaining just one signature.
Limitations of the bitcoin network
The Bitcoin network has its own limitations such as slow transaction speed. Bitcoin was initially created to process 7 transactions per second. But since the network started gaining popularity, fees and transactions also started increasing. The slow transaction speed and high fees caused delays in the development of the bitcoin network.Another big concern was privacy. Though bitcoin transactions are private, all transaction details are easily visible through buying history.
Solutions to overcome limitations
Taproot Update
In November 2021, a Taproot update was released that facilitates a new way of performing bitcoin transactions by enhancing flexibility and privacy to process smart contracts. It allows multiple signatures and transactions to be batched together to speed up verifying transactions on the network. The taproot upgrade comprises three Bitcoin Improvement Proposals(BIPS)
Schnorr Signatures( BIP 340)Taproot(BIP 341)Tapscript(BIP 342)
Bitcoin SV smart contracts on additional layers
In addition to smart contacts being executed as regular bitcoin transactions, bitcoin can also be used to power transactions on additional layers. One such kind is the Lightning network.
Lightning network
The second layer of technology allows off-chain transactions. It was devised to utilize payment channels. Lightning payments are extremely fast as they are not recorded on the blockchain. The two-party multi-signature method allows parties to send and receive payments instantly with nearly no fees. The Lightning Network creates a smart contract between two parties. The agreement rules are coded into the contract upon creation and cannot be altered or broken.
Additional bitcoin layers
The most significant layers built on top of the blockchain are as follows:
Sidechains
Separate blockchains running parallel to the main blockchain are referred to as Sidechains. They have their own set of rules, purposes, and functionalities. Each sidechain has its independent blockchain network. There could be multiple side chains that are connected to the main chain.
Rolleups
The layer blockchain scaling solutions perform transactions outside the layer one network. This data from transactions are then uploaded to layer two blockchain layer. This would enhance security as the sole responsibility of keeping data secure lies with Layer 1 as data is on the base layer. This way rolleups can help in boosting throughput and reducing costs as there is no interference in the primary layer.
State Channels
State Channels allow parties to engage directly on the blockchain network. The transactions are conducted without taking into consideration primary chains. State Channels use smart contracts and are not dependent on layer 1 blockchain for transaction verification. After the transaction part is done, state channels ensure the storage of the resulting state on the primary layer.
Nested Blockchain
In the nested blockchain, there are a few secondary chains along with the main chain. The primary chain is responsible for assigning tasks while taking control of parameters. The work of performing different transactions lies with secondary chains.
Layer 3
Also referred to as the Application layer, it acts as a user interface to distinct blockchains that interact and communicate with each other.
Closing thoughts
Bitcoin has obstructed the world of finance by showcasing the way money can exist and function without the direct control of governments and banks. Through smart contracts for Bitcoin developers create new types of decentralized applications and use cases. Bitcoin SV as a smart contract platform provides a mechanism for contracts to be observable, verifiable, and enforceable.
PrimaFelicitas is a top Web3, blockchain and Metaverse development company that has rich experience in developing secure smart contracts. We also provide Smart Contract Audit Services. Furthermore, we offer various top level blockchain dApp development services that help you get best out of your business.
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