Newbie questions regarding the Cardano-Bitcoin Bridge
Newbie questions regarding the Cardano-Bitcoin Bridge
How does a bridge technically work?
How is it possible that one’s BTC can be on the blockchain, while loaning it out on the cardano network?
What would happen if you loaned out your BTC and the loan is not being payed? How can that be communicated to the bitcoin network? Also – creating this loan necessarily demands ADA, where is that ADA coming from? If the user only has BTC.
Finally – doesn’t already existing cryptocurrencies like ETH or Solana already have bridges to bitcoin? Or does this specific bridge have something special that I am missing?
Now, if we suppose that the above statements are true – wouldnt this result in a huge demand for both BTC and ADA?
Furthermore, since we already have a bridge between ADA and ERGO (please, correct me if I am wrong) – wouldnt this result in that ERGO would have an increase in demand as well?
In UTXO chains, each UTXO is locked by the private key that can sign the transaction to unlock it with a valid signature.
Cardano extends UTXO by allowing other things to lock a UTXO, like a smart contract, you have to satisfy that smart contracts logic to unlock the UTXO.
From what I can tell the BitcoinOS on the Bitcoin chain, is allowing zk proofs to confirm that basic conditions are met so that UTXOs can be unlocked.
So you would lock BTC inside a Bitcoin UTXO, and Cardano eUTXO could see that lock and represent that locked BTC inside Cardano. To unlock the BTC in Bitcoin again, you need to send the ZK proof back to Bitcoin, and to do that you have to do something on Cardano that satisfies a smart contract that locks or destroys the BTC on Cardano.
My explanation is almost certainly wrong in some regard, but I expect that’s the general principle.
To my understanding is that fees can also be paid in BTC (“babel fees”) so the user doesn’t even need Ada, and the user also won’t necessarily know that they’re using Cardano.
If a user would borrow an asset on Cardano, then their Btc could be collateral, and if the user can’t repay the loan, the btc would be liquidated on a Cardano dex.
To my understanding, the difference with other bridges is that our bridge will be natively implemented and you don’t need some other entity to manage the Btc for you. So Btc holders stay in control of their funds in their own Btc wallet. It’s not WBTC on Eth for example. They can instead interact with smart contracts in a Btc wallet.
I’m very curious how this all will unfold. I’m a non-technie and had/have trouble understanding some parts too, so maybe someone else can answer your questions more extensively than I can or provide more insight.