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The rapidly developing blockchain ecosystem is currently facing a number of bottleneck issues. Scalability is currently the number one problem afflicting both Bitcoin and Ethereum, but as blockchain technology matures another important problem is becoming more pressing— interoperability. This brief RSK assessment illustrates a solution… and a potential problem.

Isolated blockchain networks are, in most cases, unable to communicate with each other. The impact true interoperability would have on the blockchain ecosystem is staggering— communication standardization is what allowed the development of the TCP/IP protocol suite to transform the US Department of Defense ARPANET program into the internet as we know it back in the 1980’s.

There are currently a number of platforms that are attempting to solve the issue of interoperability in the blockchain ecosystem, such as the Blockchain Interoperability Alliance. The alliance is a joint venture between AION, which aims to create a common protocol for cross-blockchain operation, ICON, an interconnecting blockchain network that is focused on connecting disparate blockchains, and Wanchain, a cross-blockchain smart contract execution platform.

While the Blockchain Interoperability Alliance is an admirable endeavor, al three participants share one common element— they’re all built upon the Ethereum blockchain. The RSK project, however, is focused on facilitating cross-chain smart contract execution between the Bitcoin and Ethereum blockchains.

With the launch of the Bamboo Mainnet Beta, RSK appears to be close to launching viable Bitcoin-based smart contracts that could dramatically reforge way Bitcoin is used— if it works.

And this is where our RSK assessment gets interesting.

Ethereum-Style Smart Contracts on the Bitcoin Blockchain

Formerly known as Rootstock, the RSK platform is aiming to bring Ethereum-like smart contract functionality to the Bitcoin blockchain by creating a sidechain— the RSK blockchain.

The promises made thus far by the RSK team are impressive— according to the RSK FAQ, their solution will allow a diverse range of smart contracts to be executed in parallel to the Bitcoin blockchain, such as micro-lending, supply chain tracking, escrow services, asset tokenization, and even IOT machine-to-machine transactions.

Simply creating a mechanism that allows for smart contract execution with Bitcoin, however, is insufficient— the Bitcoin scalability problem is currently slowing down transactions on the Bitcoin blockchain and making transactions prohibitively expensive for smart contract functionality.

The RSK platform, however, promises transaction speeds of up to 400 transactions per second, which is on par with PayPal. RSK states that a second layer network will be embedded on release that integrates RSK’s on-chain scaling Lumino tech in order to reach speeds of up to 2,000 transactions per second.

The RSK Lumino scaling solution is being developed by Bitcoin specialist Sergio Demian Lerner, and uses the “Lumino Transaction Compression Protocol”, or LTCP, which integrates features of the Lightning Network scaling solution. Lerner’s LTCP solution is delineated in his white paper, and uses delta compression alongside Lightning Network-like payment channels in order to increase on-chain capacity, thereby increasing transaction speeds.

According to RSK, the smart contracts that operate on the RSK sidechain are programmed on Solidity, making the RSK VM fully compatible with the Ethereum VM. Hypothetically, RSK’s sidechain could potentially make cross-chain interoperable smart contracts between Ethereum and Bitcoin possible, which would be an extremely big deal.

Bitcoin Smart Contracts, But At What Cost?

Instead of attempting a fork, RSK has created a sidechain as a workaround to the difficulty associated with implementing new code into the Bitcoin blockchain. The core concept behind this sidechain is relatively simple— Bitcoins are “locked” on the Bitcoin main chain by sending via a “2-way peg” to the RSK side chain.

RSK’s 2-way peg doesn’t transfer currency between the chains—when BTC is locked on the main chain, the same amount of SBTC— RSK’s token— becomes available on the RSK chain. This SBTC is then used in smart contract execution. When SBTC is converted back into BTC the process is reversed.

There are, however, a number of security issues with this process. RSK refers to a “security protocol” that ensures BTC or SBTC cannot be unlocked on both blockchains at the same time. In reality, RSK 2-way peg security is a joint effort between 25 different organizations referred to as the “RSK Federation”. These organizations also assist with “instant peg liquidity” and multisig services, thereby controlling the capital placed on the RSK sidechain collectively.

The issue with the RSK alliance is that the list of member organizations— which include Bitcointoyou, Bitex, Bitfinex, Bitoasis, Bitpay, Bitso, bitFlyer, Bitgo, Blockchain Intelligence Group, Blocktrail, BTCC, CoinBR, Huobi, and Paycase, is extremely similar to the list of companies that backed the controversial SegWit2x fork that was cancelled in November 2017.

SegWit2x was interpreted by many in the core Bitcoin community as an orchestrated effort between centralized banking organizations and the DCG group— which boasts a board advisor who is currently a sitting board member of the Federal Reserve Bank of New York.

Many Bitcoin community members viewed the SegWit2x fork as an attempt to wrestle control over Bitcoin’s distributed model and insert unnecessary centralized intermediary parties into the architecture of the chain. RSK is backed, supported, and operated by many of the same entities that promoted the contentious fork in the first place.

The way RSK implements its sidechain requires “trusted third party” intermediaries that provide oracling services and function as an external security checkpoint, and thus is not truly decentralized. The core axiom of blockchain technology is the removal of third parties.

RSK may bring smart contracts to the blockchain, but there is a valid question around whether it does so at the expense of eliminating a core priciniple of the community.

Will RSK Kill Altcoins?

If RSK were able to achieve its goals without sacrificing decentralization, then it would be a highly disruptive, positive contribution to the Bitcoin ecosystem. The entire function of RSK’s “Federation” however, runs the risk of alienating those who opposed SegWit2x and everything it stood for, creating yet another community schism.

Of course, nothing to date has suggested that the motives of the RSK Federation are anything but pure. Inference based on past history is a notoriously fallible means of predicting the future.

So the question then becomes, is there truly a need – if Ethereum can scale using some combination of on-chain and off-chain solutions, does Bitcoin really need smart contracts that create the semblance of centralization? Is it worth the RSK?

The fact is, current blockchains that offer smart contract functionality may have their own issues. But they don’t come with strings attached.

Right now we’re not coming to any conclusions. Anything that stimulates mass adoption is good, and anything that creates a safer and more inclusive community is even better. We’ll wait and see how this pans out, and hope that all interests are truly aligned as the RSK team continues to build.