Nikolas Sargeant
Few will deny that Bitcoin stands as a beacon of innovation in the financial technology industry, but its prestige in the crypto industry masks a simple truth – that Bitcoin has few uses besides being a method of payment or a store of value.
With the digital asset industry evolving to support emerging decentralized finance use cases like lending, borrowing, staking, and yield farming, Bitcoin has found itself left behind. BTC holders, or “hodlers”, can only do that. They simply hold onto their BTC in the hope that its value might one day rise. The alternative is to trade BTC and try to make profits from buying and selling the asset, which is often a matter of potluck.
It's a stark contrast to other popular cryptocurrencies such as Ether, USDC, SOL, and so on, which offer numerous opportunities for holders to generate wealth in a way that’s relatively low risk. These tokens, which support smart contracts, can be deployed in a variety of ways through DeFi protocols. An ETH holder can provide liquidity for a DEX trading platform or a lending protocol, for example, or they can stake their tokens to help secure the network and verify transactions, earning regular rewards for doing so. For the brave, there are far more complex mechanisms involving activities such as liquid restaking and yield farming that can vastly increase their returns.
Bitcoin does none of this. It’s unable to support smart contracts because its designer, Satoshi Nakamoto, was more focused on immutability and security than programmability. The lack of programmability means it’s difficult to automate Bitcoin transactions, which precludes its use in DeFi applications. That’s why there are no DeFi dApps that live on the Bitcoin blockchain, unlike Ethereum, which is home to hundreds.
Thus, Bitcoin is often described as an idle asset. Investors cannot leverage in the way they can use other cryptocurrencies, or even a physical asset such as gold, which can be used as collateral to obtain a loan, for example.
Expanding Bitcoin’s Utility
There have been efforts to change this. One of the best-known is the idea of “wrapped BTC”, or wBTC, which is an asset that lives on Ethereum. To obtain wBTC, BTC holders must lock up their BTC tokens with a third-party custodian who will then mint a corresponding number of wBTC tokens on the Ethereum blockchain, where they can be used in DeFI protocols.
Wrapping Bitcoin is far from ideal though. It’s tricky for many people to do, and it requires trusting a centralized provider. Moreso, it’s a risky business, as those third-party custodians are left holding enormous amounts of value, making them tempting targets for hackers. Were one to be hacked, the value of the wBTC tokens associated with them would surely collapse.
To get around these deficiencies, some developers have focused on the idea of Bitcoin Layer-2 networks. Projects such as Rootstock and Stacks connect to the Bitcoin blockchain as a kind of “sidechain”, making it relatively simple for users to bring BTC into their ecosystems, which host various Bitcoin-friendly DeFi applications.
Bitcoin L2s represent good progress and bring more utility to BTC, but their development has been slow and they have been unable to attract large amounts of liquidity, which makes them less practical and profitable for investors with larger BTC holdings. The lack of liquidity means that the incentives they offer fall short to those found in other DeFi ecosystems, like Ethereum.
Bitcoin Interoperability Is Key
This explains why some developers are now switching their focus away from Bitcoin L2s, and instead exploring ways to advance BTC’s interoperability with other blockchains, so it can be used natively on those networks.
One of the most intriguing of these projects is Zeus Network, which is working to achieve seamless interoperability between Bitcoin and the Solana blockchain, which is not only one of the fastest decentralized networks in the world but also one with significant value locked. Solana’s total market capitalization stood at an impressive $82.3 billion in July 2024, making it the fifth most valuable cryptocurrency, trailing only BTC, ETH, Tether, and BNB.
Zeus’s goal in trying to make Bitcoin and Solana interoperable is to make it possible for BTC holders to use those assets within Solana’s vast ecosystem of decentralized applications, which spans not only DeFi but also areas such as GameFi, NFTs, SocialFi, CasinoFi, and others.
It makes sense for Zeus to try and link Bitcoin to Solana, not only because the latter boasts a strong ecosystem, but also because of its highly efficient blockchain architecture, which is capable of processing a cool 65,000 transactions per second – making it perfect for mainstream adoption.
The arrangement benefits Solana too, as a stronger link with Bitcoin would bring vast amounts of liquidity and boost an already very healthy and active ecosystem.
A Permissionless Communication Layer
To bridge BTC to Solana, Zeus doesn’t actually use a bridge at all, but rather, an extremely novel “permissionless communication layer” that makes it possible for BTC to be used on Solana without ever leaving Bitcoin’s blockchain. With Zeus, the transactions are actually processed on Solana’s blockchain, taking advantage of its speed, but the signatures that confirm those transactions live on the Zeus layer. Once enough of those transactions have been signed and accumulated, they will then be broadcast to Bitcoin’s blockchain, where they are confirmed and become immutable.
So user’s BTC tokens always remain on the Bitcoin network, where they benefit from its unparalleled security. In the Solana ecosystem, they use an alternative asset whose value is pegged 1:1 with BTC to access a wide array of DeFi dApps.
Zeus goes some way to solving the concerns that have prevented many people from using traditional bridges. It employs “Multi-Party Computation” and “Fraud Proofs”, which are sophisticated cryptographic methods that reinforce the security of transactions between the two networks. It has created an incentivized network of nodes – community members – who are assigned to monitor transactions to ensure no one tries to cheat.
Bitcoin’s Untapped Potential
While Bitcoin can hardly be described as a failure – it’s not – many in the crypto community agree that it has so much more potential. Yes, it’s a great way to send money overseas at lower costs, yes it’s incredibly secure, and yes it’s a great way to store value and hedge against risks like inflation. But it’s also quite useless, aside from those use cases.
If Bitcoin is to match the capabilities of traditional financial currencies like the U.S. dollar and the Euro, it needs to be more flexible. It needs to support various kinds of investment activities, so people can put their BTC to work and generate more wealth.
By providing a way for Bitcoin to interact with Solana, it gives BTC an opportunity to act more like a traditional reserve asset such as U.S. Treasury bonds or gold, which underpin much of the world’s financial economy. That is why interoperability networks such as Zeus have so much promise, as the next evolution of Bitcoin.
