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.
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.
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.