interBTC at a Glance

The interBTC bridge connects the Polkadot ecosystem with Bitcoin. It allows the creation of interBTC, a fungible token that represents Bitcoin in the Polkadot ecosystem. interBTC is backed by Bitcoin 1:1 and allows redeeming of the equivalent amount of Bitcoins by relying on a collateralized third-party.

Fig. 1 The interBTC bridge allows the creation of collateralized 1:1 Bitcoin-backed tokens in Polkadot. These tokens can be transferred and traded within the Polkadot ecosystem.

Functionality

On a high-level, the BTC Parachain enables the issuing and redeeming of interBTC. The issue process allows a user to lock Bitcoin on the Bitcoin chain and, in return, issue interBTC on the BTC Parachain. Consequently, the redeem process allows a user to burn interBTC on the BTC Parachain and redeem previously locked Bitcoins on Bitcoin. Users can trade interBTC on the BTC Parachain and, through the Relay Chain, in other Parachains as well. The issue and redeem process can be executed by different users. Typically, this process is augmented by a collateralized realized third-party, a so-called vault.

Fig. 2 The BTC Parachain includes a protocol to issue interBTC by locking Bitcoin and a protocol to redeem Bitcoin by burning interBTC tokens.

Components

The BTC Parachain makes use of two main components to achieve issuing and redeeming of interBTC:

• XCLAIM(BTC,DOT): The XCLAIM(BTC,DOT) component implements four protocols including issue, transfer, redeem, and replace. It maintains the interBTC tokens, i.e. who owns how many tokens and manages the vaults as well as the collateral in the system.

• BTC-Relay: The BTC-Relay component is used to verify that certain transactions have happened on the Bitcoin blockchain. For example, when a user issues a new interBTC an equivalent amount of Bitcoins needs to be locked on the Bitcoin chain. The user can prove this to the interBTC component by verifying his transaction in the BTC-Relay component.

The figure below describes the relationships between the components in a high level. Please note that we use a simplified model here, where users are the ones augmenting the issue and redeem process. In practice, this is executed by the collateralized vaults.

Fig. 3 The BTC Parachain consists of two logically different components. The XCLAIM(BTC,DOT) component (in green) maintains the accounts that own interBTC tokens. The BTC-Relay (blue) is repsonible for verifying the Bitcoin state to verify transactions. Users (in purple) are able to create new interBTC by locking BTC on the Bitcoin chain and redeeming BTC by burning interBTC. Also, users can trade interBTC on the BTC Parachain and in the wider Polkadot ecosystem.