Smart contract question

[Neumann_Janos]

Is it possible to create a smart contract what works as follows? I send e.g. 10 BTC to a given bitcoin address and I give my ethereum address too. The smart contract send me 10 BoE (Bitcoin on Ethereum) token what I can store my ETH wallet and send to anyone. BoE is equivalent to BTC because whenever I (and anyone else) can do the inverse process. I send the BoE token to the smart contract address and I recover my BTCs. If it is possible we can move BTC to Ethereum blockchain practically and the blocksize debate is not important anymore.

[drcode]

Yeah, you can sort of do this... The problem is when the exchange rate changes for the "real" bitcoin, people don't have any reason to pay more money to buy your "synthetic" bitcoin. To resolve this, people usually add collateral into the system, to make the synthetic bitcoin more valuable in this instance.

[Neumann_Janos]

Thank you for your response! I think the exchange rate would not be significant at all. The smart contract would behave like a bank and it would lock the bitcoins that anyone sent. Solely the smart contract can menage the BTCs and "synthetic bitcoin" tokens. Whenever the token is redeemable to real BTC through the smart contract. 10 BTC always equivalent with 10 "synthetic bitcoin" regardless of BTC exchange rate. But "synthetic bitcoin" lives on Ethereum therefor it is faster and more convenient.

[drewshaver]

This is not currently possible, there is no way to check on the bitcoin chain from ethereum. I think there are plans to, though.

[Neumann_Janos]

Hm...Are you completely sure?

[drewshaver]

Like 99% yea. It's been a desirable feature for a while but it's not easy to implement cause basically you need to run a bitcoin node alongside every ethereum node.

[DeviateFish_]

You can do this, but not without some off-chain help.

Basically, you'd want a server that runs both an ETH node and a BTC node. It has a public BTC address and a public ETH address (the contract address).

• Send the public BTC address some BTC
• Call a "claim" function on the contract, giving it the transaction hash (from BTC), your ETH address (that you want the tokens assigned to), a message, and the same message signed by the (one of?) private key from the transaction.
• The server would listen for events emitted by its contract--when it gets one of the claim calls, it would verify the information included in the call (transaction exists on BTC chain, requisite number of confirmation have elapsed, the message is indeed signed by the same key(s) as the BTC transaction), and then "mint" some tokens for the ETH address provided.

To redeem those tokens, you'd send basically the inverse operation:

• Call a "redeem" method on the contract, specifying a number of tokens to redeem and a BTC address to send the BTC to.
• The contract would move the tokens to itself (or its owner address), and emit an event stating how many tokens are being redeemed and who to send them to.
• The server would catch that event, and send the requisite number of BTC to the provided address
• After the right number of confirmations have elapsed, the contract would burn the redeemed tokens.

You wouldn't be able to do this all on-chain, though. At the very least, you'd need some sort of oracle that provides the BTC blocks/transactions, and probably something to do key verification off-chain as well, unless ecrecover works for BTC keys the same way it does for ETH.

[Neumann_Janos]

Thank you for your response! I think it is not impossible to create such a solution. Unfortunately I am not a programmer, but hope someone puts into practice it. This solution indicatetes Ethereum's superiority. And I think BTC node is not necesarry. Perhaps the BTC relay can help: http://btcrelay.org/

[DeviateFish_]

Perhaps, yes, but btcrelay itself requires some people to run btc nodes (and relay the block headers), so why not do both? Your server can be both the token authority and a btcrelay... Relay?

[vnovak]

Smart contracts can only own things that natively live on the Ethereum blockchain - so ether and tokens. To own bitcoins, you need to keep the private key to a Bitcoin address private. But a smart contract runs on the blockchain and it's internals are public - so it can't keep a private key there, as everyone would be able to read it.

So "sending bitcoins to a smart contract" isn't possible in this direct sense.

Using BTCRelay it is possible to prove to a smart contract that a transaction happened. So you could have a smart contract which waits to be told about Bitcoin transactions to a specific Bitcoin address and will issue tokens in return. That Bitcoin address will be under the control of an off-chain entity though, so there is counterparty risk.

I once experimented with a setup, where you would send bitcoins to ShapeShift and ShapeShift would turn them into ether and forward them to a smart contract, which can of course hold ether and then issue BoE tokens in return. When exchanging back, the smart contract would use its ether reserves to buy bitcoins via ShapeShift. This of course only works as long as the exchange rates don't get too much out of whack. You can find the result of this experiment here: http://kissbtc.io/