What is Rootstock (RSK)? A Beginner's Guide
September 13, 2023
Bitcoin layers are playing an increasingly important role in the Bitcoin ecosystem, adding scalability and utility to the ecosystem. Read on to learn more about Rootstock (RSK), how it works, and what it brings to Bitcoin.
What is RSK?
RSK, short for Rootstock, is a smart contract-based sidechain secured by the Bitcoin network. It was launched by RSK Labs in 2016 with the goal of adding value to the Bitcoin ecosystem by enabling Ethereum Virtual Machine (EVM) compatible smart contracts.
RSK is an independent chain with its own network of participants (nodes). However, its token is pegged to the value of BTC, creating a link between the two networks. Furthermore, the sidechain relies on Bitcoin’s Proof-of-Work (PoW) consensus mechanism to stay secure and is merged-mined with Bitcoin’s blockchain.
Rootstock helps to scale the Bitcoin network by providing a block confirmation time of 30 seconds, which is shorter than Bitcoin’s average of 10 minutes. It also reduces transaction costs since its blocks can hold more transactions, thereby enlarging block space.
Some of RSK’s features, such as merged mining and the 30-second confirmation time, were inherited from Qixcoin, a project Rootstock founders established in 2013. Qixcoin was designed to support peer-to-peer gaming.
How Does Rootstock Work?
Let’s take a look at how RSK works.
Merged Mining
Rootstock leverages Bitcoin’s security through merged mining, a process that allows Bitcoin miners to simultaneously mine blocks on the two networks with the same hardware and energy expenditure.
Bitcoin miners are not issued new coins for mining RSK. However, they do earn rewards for securing this sidechain. Rootstock uses a consensus protocol called DECOR+ to facilitate merged mining. Miners generate blocks on RSK every 30 seconds, compared to Bitcoin’s 10-minute average block time. RSK is secured by over 55% of Bitcoin’s mining hash rate.
Anyone can participate in merged mining by setting up a Rootstock node or joining a mining pool like BTCPool, Stratum Mining, Eloipool, or CKPool.
Two-Way Peg
RSK uses a two-way peg system called Powpeg that tethers its native currency, Smart BTC (rBTC), to BTC on a ratio of 1:1. It permits users to transfer funds to and from the two networks.
New rBTC tokens are created during peg-in transactions where BTC is locked, and an equivalent amount of rBTC is minted. In this transaction, BTC is sent to a multisig address on the Bitcoin blockchain, where it is locked until rBTC is redeemed again.
After locking the BTC, proof of transfer (simple payment verification proof) is submitted to a smart contract on the RSK blockchain called a Bridge contract. Upon receiving this proof, the Bridge contract creates an equivalent amount of rBTC and sends it to an RSK address.
On the contrary, a peg-out transaction locks rBTC and unlocks bitcoin. A user must send rBTC to a special bridge address on the RSK blockchain to initiate this transaction. Functionaries then sign the transaction to release the locked BTC. The required number of signatures must be collected from the functionaries to unlock the bitcoin in the multisig address. Next, the BTC is sent to the user’s Bitcoin address.
Functionaries don’t have access to the private keys of the multisig address holding the BTC. Therefore, they cannot conspire to steal it. They run Hardware Security Modules (HSMs) connected to RSK full nodes. HSMs are tamper-proof devices that each generate and secure one of the private keys to the Bitcoin multisig address.
RSK Virtual Machine (RVM)
RSK’s virtual machine is based on the Ethereum Virtual Machine (EVM), which means Ethereum smart contracts can also run on Rootstock.
EVM compatibility enables developers to use Ethereum smart contract coding languages and tools on RSK. As a result, they can use Ethereum’s programming language, Solidity, to build a wide range of smart contract-powered decentralized applications (dApps), taking Ethereum-based protocols as an example.
When we speak of an EVM, we refer to a type of software that powers Ethereum smart contracts and manages the state of the network.
Rootstock Infrastructure Framework Open Standard
Rootstock Infrastructure Framework Open Standard (RIF OS) is a suite of decentralized infrastructure protocols that facilitate the efficient development of dApps in an integrated environment. It provides companies and developers with diverse services, such as gateways, storage, oracles, marketplaces, identities, and naming services across multiple crypto economies. RIF is built on the Rootstock smart contract platform.
Users consume services on RIF using the RIF token.
What is rBTC?
rBTC, or Smart Bitcoin, is RSK’s native currency. It is used in the two-way peg system that links Bitcoin to Rootstock. Developers also use rBTC to pay gas fees when interacting with smart contracts on the Rootstock sidechain.
As a surrogate of Bitcoin, rBTC is tethered to BTC on a 1:1 ratio, and the value of 1 rBTC is almost equivalent to the value of 1 BTC. Moreover, the peg dictates that there will only ever be 21 million rBTC in existence, just as there will never be more than 21 million bitcoin.
You can purchase rBTC on the Bitfinex exchange or the decentralized exchange Sovryn and store it on wallets like MyCrypto, MyEtherWallet, Beexo, and Torus.
As of this writing, RBTC’s market cap is $87.1 million, compared to Bitcoin’s $501.1 billion. The circulating supply of rBTC is 3,365.
RSK dApps: What’s Happening on Rootstock?
Here are some of the dApps that developers have built on Rootstock:
Sovryn
Sovryn is a decentralized protocol built on Rootstock. It lets users swap assets off-chain and earn an investment income through lending and staking. Sovryn also offers zero-interest loans on Bitcoin-backed stablecoins.
The protocol is governed by a decentralized autonomous organization (DAO) consisting of SOV token holders. Holders must stake their SOV tokens to vote on protocol proposals.
Besides the governance token, Sovryn also has a USD-pegged stablecoin called Sovryn Dollar (DLLR) that is backed and overcollateralized with bitcoin.
Money On Chain
Money On Chain is a bitcoin collateralized protocol built on Rootstock. It offers three tokens, namely DOC, BPRO, and MOC.
Dollar on Chain (DOC) is a 100% bitcoin collateralized stablecoin with a 1:1 USD peg, while BitPro (BTPRO) is a HODL-and-earn token that allows users to earn an income on their BTC holdings. Earnings are distributed in Money On Chain (MOC) tokens. MOC is a governance token that gives holders voting rights.
Money On Chain mints DOC tokens when users hold their BTC positions in BPRO tokens. Investors can also earn extra yields by staking their MOC tokens.
Besides the three tokens, Money On Chain has a decentralized exchange called TEX, where users can create limit orders to swap tokens from the Rootstock ecosystem.
Tropykus
Tropykus is a Rootstock DeFi protocol for the Latin American region. It is a fork of RLending, a platform based on Compound’s codebase. Tropykus allows individuals and companies to save, borrow, and exchange digital assets.
Users can save bitcoin or DoC and potentially earn a higher interest rate than what traditional bank savings accounts offer. According to the protocol, the savings interest rate ranges between 3% and 8%.
Moreover, users can borrow these same assets against their savings, where the collateral is locked in a smart contract for the duration of the loan. Tropykus issues loans worth half the value of a user’s savings. Loans on Tropykus accrue interest rates, which fluctuate depending on market liquidity.
In addition to DOC and DLLR, Rootstock has other stablecoins such as RDAI, RDOC, XUSD, and BRZ.
Brazilian Digital Token (BRZ) is a stablecoin on Rootstock that is tethered 1:1 to the Brazilian Real, while RIF Dollar on Chain (RDOC) is pegged to USD 1:1 and collateralized by the RIF token. Users can acquire RDOC by spending RIF tokens.
rDAI is a wrapped version of DAI on the RSK that permits users to bridge DAI from Ethereum to Rootstock and vice versa. XUSD is a stablecoin within the BabelFish cross-chain protocol created by aggregating the liquidity from several stablecoin issuers into one token. Therefore, XUSD can be redeemed 1:1 with any of the underlying assets, including DAI, USDT, USDC, and RDOC. XUSD brings dollar liquidity to the RSK protocol.
A Layer 2 Protocol for DeFi on Bitcoin
RSK is helping developers expand Bitcoin’s utility by creating a DeFi ecosystem where users can swap tokens, mint stablecoins, borrow and lend funds, and earn yields.
It is also contributing to the growth of Bitcoin’s DeFi ecosystem, which presently has over 940,000 returning users and a total value locked (TVL) of $154.3 million. Rootstock has a TVL of $77.2 million, which is 50% of the current total value locked on the Bitcoin network.
As Bitcoin layers start to play an increasingly important role in the wider Bitcoin ecosystem, it will be interesting to see the part Rootstock will play in Bitcoin’s future.
FAQs
What is the RSK protocol for Bitcoin?
RSK, also known as Rootstock, is a sidechain built on top of the Bitcoin blockchain. It focuses on bringing programmable smart contracts to Bitcoin while improving transaction speeds. Rootstock connects to Bitcoin via a two-way peg and a merged mining mechanism. The former feature enables the transfer of funds between the two chains, while the latter helps the sidechain to leverage Bitcoin’s security. Through merged mining, Bitcoin miners can secure the two networks with the same resources.
Does Rootstock have a token?
Yes. Rootstock has a two-way peg token called Smart Bitcoin (rBTC), redeemable for BTC 1:1. It is created by locking bitcoin on a multisig address during a peg-in transaction. Users receive rBTC corresponding to the amount of BTC locked. Later on, users can redeem their rBTC through a peg-out transaction where BTC is unlocked and rBTC is locked. rBTC is used to pay the gas fees incurred when using smart contracts on Rootstock.
Smart Bitcoin shouldn’t be mistaken for the RIF token, as the latter is used to consume services on the Rootstock Infrastructure Framework (RIF). The RIF Open Standard is a suite of decentralized infrastructure protocols that enable the easy development of dApps. The framework is built on the Rootstock smart contract platform.
What is the difference between Rootstock and Stacks?
Rootstock and Stacks are smart contract-focused layer-2 protocols aiming to scale the Bitcoin network. Both are secured by Bitcoin but use different technologies to make this possible. Rootstock utilizes merged mining, a process that allows Bitcoin miners to simultaneously mine RSK and Bitcoin blocks with the same energy input and equipment. On the other hand, Stacks uses Proof-of-Transfer (PoX), a consensus model requiring the protocol’s miners to commit BTC to mine STX tokens. Using BTC on this network allows Stacks to leverage Bitcoin’s security.
Is RSK EVM compatible?
RSK features a virtual machine that is forked from the Ethereum Virtual Machine. This makes Rootstock EVM-compatible, allowing developers to create and deploy smart contracts on the protocol using Solidity. Furthermore, Ethereum smart contracts can run on Rootstock.
Besides Solidity, RSK developers can use Ethereum tools like Remix, Truffle, Ganache, and MetaMask to build and deploy smart contracts.