Rootstock — the First Sidechain in the Bitcoin Network | HackerNoon

Table of contents

1. Creation history

2. Technologies and products

   2.1. Rootstock

   2.2. RIF

   2.3 Roadmap for 2024-2025

3. Ecosystem and development

4. Tokenomics

5. Team

6. Investors and finance

7. Activities

8. Results

1. Creation History

The RSK project is one of the pioneering initiatives on the Bitcoin network, launched in 2015. Originating from the QixCoin project, which first introduced the concept of payment for execution, now known as “gas,” RSK was developed by the same team. The project aimed to create functionality comparable to Ethereum based on previous advancements. In the summer of 2022, the project rebranded as Rootstock, a sidechain on the Bitcoin network.

Alongside Rootstock, the team developed various products based on RSK, including dApps such as DEX, Wallet, Domain Service, and more. These dApps were built on general-purpose protocols encompassing payments, storage, computing, communications, and gateways/bridges. The goal was to establish a comprehensive RIF ecosystem (RSK Infrastructure Framework), unified under the RIF OS technology.

Although the unified RIF OS ecosystem was only partially realized, the company’s current focus is on implementing Layer-2 solutions on Bitcoin via Rootstock. RIF Labs has developed several protocols and dApps, refocusing itself as a development team for Rootstock. The subsequent discussion will delve into Rootstock technology (RSK) and RIF products as key technological innovations.

2. Technologies and products

RIF OS includes a large set of different services at each level of interaction:

2.1 Rootstock

Powpeg

The core technology of the Rootstock network is Powpeg, a two-way peg protocol designed to connect different decentralized networks, specifically the Ethereum Virtual Machine (EVM) and Bitcoin. Rootstock is fully EVM-compatible, meaning it functions similarly to the Ethereum network.

The Ethereum and Bitcoin networks have fundamentally different execution and block formats, making direct interaction between them impossible. For two different networks to communicate, their states must be readable at any point in time, necessitating the transfer of cross-chain messages using smart contracts. Since the Bitcoin network lacks native cross-chain messaging functionality, implementing classic cross-chain interaction is impossible. Moreover, cross-chain messaging was largely unexplored at the project’s inception.

Bitcoin also faced technical limitations, many of which persist today. Consequently, the project team utilized the only feasible technology available on the Bitcoin network at the time: multisignature (multisig) signatures. A multisig wallet was created on the blockchain, with multiple addresses acting as signers. Transactions could be sent and confirmed only by majority vote, decentralizing trust and eliminating a single point of failure.

Building on the multisig wallet, the team developed add-ons for automatic transactions. However, this approach had a significant drawback: a lack of true decentralization. The signatories of the wallet were individual people and organizations. If they colluded, they could potentially attack the network and cause irreparable harm. This structure is known as a federation, and the Layer-2 network itself is termed federated, as network decisions are based on the consensus of selected representatives rather than the entire network.

Signatories to the Rootstock multisig protocol are called “Functionaries.” They connect specialized equipment known as PowHSM, which interfaces with a specific type of Rootstock node called Powpeg nodes. These nodes provide Functionaries with comprehensive information about the state of the Rootstock network and its transactions. PowHSM generates a unique private key for signing the multisig protocol, necessitating a secure and stable network connection to ensure the device’s confidence in network integrity.

Functionaries also need to monitor the Bitcoin network to verify transactions. Instead of deploying resource-intensive nodes for this purpose, the team utilized SPV (Simplified Payment Verification) technology. This approach allows transactions to be validated by checking the header of each Bitcoin block, eliminating the need for full nodes.

Functionaries do not participate in network consensus or block production. Their primary role is to facilitate correct cross-chain BTC transfers between the Bitcoin and Rootstock networks. But the question appears: why develop such complex technology for a wrapped asset? The reason is that this wrapped asset, RBTC, serves as gas for the Rootstock network, necessitating the highest possible level of trust. If the RBTC-BTC connection is compromised, the entire network’s functionality could be stop.

Connecting to Powpeg requires a specialized device called PowHSM, which presents a potential critical point of failure. To mitigate this risk, additional procedures have been developed to verify the correct installation of PowHSM. A dedicated audit team currently handles this verification process, introducing a risk of centralization. However, the team plans to eliminate manual labor and fully automate this process in the near future.

Additionally, the process of completing a BTC transaction between networks is notably lengthy due to the 10-minute duration of a Bitcoin block. To protect the “wrapper” from malicious actions, transaction finality requires a significant amount of time:

• Depositing BTC into the Rootstock network takes 100 blocks (approximately 17 hours).
• Withdrawing RBTC to the Bitcoin network takes 200 blocks (approximately 33 hours).

It’s important to note that while withdrawals from Optimistic Rollups can take 7 to 14 days, deposits are processed almost instantly.

Merged Mining

Consensus in the Rootstock network is based on classic Proof-of-Work (PoW), involving miners in transaction processing and block creation. Rootstock leverages the same miners who mine Bitcoin blocks, thereby enhancing its security without developing an entirely new mining infrastructure. However, this approach provides only a fraction of Bitcoin’s security and leaves Rootstock vulnerable to attacks and state rollbacks, which can be executed relatively cheaply.

To address this, the team implemented Merged Mining technology, allowing simultaneous mining of multiple coins from different networks, specifically Bitcoin and Rootstock. In the Rootstock network, there is no block reward; instead, miners receive a share of the network’s transaction fees.

The technology is straightforward: miners connect their equipment to both networks simultaneously. The header of a Rootstock block is included in the Bitcoin block. Before inclusion, the difficulty levels of both networks are compared, and if they differ, the block is not added to the Bitcoin network. This algorithm was first introduced on the Namecoin network.

A key challenge is that not all miners support Merged Mining for various reasons. Consequently, the secondary network only benefits from a portion of Bitcoin’s security. Blocks from the secondary network will not be published in Bitcoin unless the miner supports Merged Mining, creating security gaps.

However, Rootstock benefits significantly from this arrangement. Any attempt to roll back the Rootstock network state would require a rollback of the Bitcoin network as well. Due to gaps in Rootstock block mentions within the Bitcoin network, such rollbacks would be challenging and costly. The deeper the rollback, the more difficult and expensive it becomes.

On the Rootstock network, blocks are produced approximately every 30 seconds. Transaction fees, or gas, are distributed to three parties:

• Miners: 79%
• Multisig protocol signatories: 1%
• Rootstock team: 20%

Payments are managed via the REMASC (Reward Manager Smart Contract) smart contract and are made every block.

The final architecture of the Rootstock network (distinct from RIF OS) is as follows:

2.2. RIF

As already mentioned, RIF is a set of various services that create a full-fledged ecosystem on top of Rootstock:

• RIF Relay
• rLogin
• RNS
• RIF Rollup
• RIF Wallet

Let’s tell you a little more about them.

RIF Relay

RIF Relay is a system that allows users to pay for network gas using any token, not just RBTC. Essentially, it is a separate, fully-fledged network with its own technical architecture, deployed on top of Rootstock. This system provides end users the flexibility to pay in various tokens (from a pre-approved list), simplifying their interaction with the network and enabling what are effectively gasless transactions. However, the underlying process is much more complex:

1. User creates a gasless transaction request
2. The request is sent to the Relay client
3. It wraps this request in a Relay Request and signs it
4. The wrapped request is then sent to the Relay Server (off-chain component)
5. It creates a transaction and sends it to the Relay Worker (returns back to the on-chain component)
6. Relay Worker verifies the transaction and data, and then signs it
7. The signed transaction is sent to Relay Hub, which checks 2 parameters from Relay Manager:
   • availability of RIF tokens in staking through Staking Manager
   • availability of RBTC for gas payments
8. If both parameters are satisfied, then Relay Hub sends an instruction to Smart Wallet to execute the transaction.
9. Smart Wallet verifies the user’s signature.
10. After this, Smart Wallet carries out the transaction using RBTC held by Relay Manager.

The RIF Relay system involves several participants, categorized into three main groups:

1. Relay Hub: This is the core component responsible for executing transactions.
   • Relayer Client: An off-chain client running as a separate server via HTTP.
   • Relayer Worker: An on-chain client that directly sends transactions, pays gas in RBTC, and receives tokens used by the user to cover gas fees.
   • Relayer Manager: A staking account…