Date - Cryptocurrency X Webflow Template
December 12, 2022
Reading Time - Cryptocurrency X Webflow Template
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 min read

Components of DLC.Link

DLC.Link develops a secure, decentralized infrastructure enabling smart contracts to interact with Bitcoin blockchain sans asset porting to other chains.

Until recently, Bitcoin-native decentralized finance (DeFi) was literally impossible. The Bitcoin blockchain couldn't accommodate complex financial contracts. Its simple language – optimized for security – could not encode smart contracts. Therefore, holders had to port Bitcoin to other blockchains every time they wanted to participate in DeFi.

To use Bitcoin on other chains, holders rely on custodians or crypto bridges to mint synthetic tokens like wrapped Bitcoin (wBTC). Wrapped tokens lock Bitcoin with custodians or in smart contracts to mint synthetic versions on other chains. The downside of this is clear: custodial wrapping and bridging of Bitcoin compromise the user's self-sovereignty, privacy, and security -- the primary ideologies of the Bitcoin ethos. 

In 2017, Thaddeus Dryja, the Bitcoin Lightning Network co-inventor, published a whitepaper on Discreet Log Contracts (DLCs). The whitepaper describes Bitcoin-native smart contracts with a small on-chain footprint compatible with the Bitcoin language. The system that Dryja outlined allows users to retain their private keys and financial sovereignty.

Below, we will introduce the use of DLCs and will detail the components of the DLC infrastructure that we provide.

A Brief Introduction to DLCs

DLCs are conditional contracts or escrows between two participants. An event dictates the outcome of the DLC. That event consists of an announcement which sets up the details and potential outcomes and an attestation which identifies one of the outcomes as the official one. The attester's job is to build and sign the event announcement and attestation. 

Suppose Alice and Bob want to bet on the outcome of a football match. They have multiple ways to do it.

First, they could bet off-chain. However, the winner must trust the loser to comply with the outcome. This sounds tricky since losers often need to honor agreements.  

Secondly, they could bet with a multisig wallet. Here, Alice and Bob use a transaction to lock up the funds in escrow. The funds are unlocked with another transaction using the participants' private keys. However, this method can be more risky than the first. If the loser fails to honor the agreement by not signing the transaction, the winner won't receive anything – not even their stake.

Thirdly, Alice and Bob can bet with a multisig wallet. In this method, they will use a transaction to lock up the winnings in escrow so that, in addition to a third party, at least one signs the transaction that unlocks the win. Alice and Bob could choose a trusted intermediary to intervene in case one doesn't cooperate. Nevertheless, the intermediary would know the bet's details by signing it. Therefore, apart from the participants losing their privacy, the third party could likely collude with one of them to spoil the bet.

Finally, consider a fourth approach: Alice and Bob could utilize a blockchain like Ethereum, wrap their Bitcoin, and seek the help of a third party. The third-party sources data from off-chain systems about the match onto the network, acting as an automated attester. The participants could encrypt the bet into one transaction that petitions the attested. After the attester provides the outcome, the contract performs the payout. The entire contract would be published in the Ethereum blockchain for all users.

Perhaps Alice and Bob should leverage DLCs.

Smart Contracts with DLCs

At their core, DLCs are like special multisig wallets with attesters, which translate instructions from smart contracts into instructions within the DLC. DLCs solve the issues highlighted above in a seamless way. They preserve user privacy, reduce users' on-chain footprint, and help prevent MEV. Furthermore, DLCs do not involve third parties. This sounds like magic. Doesn't it? Let's briefly discuss how DLCs work.  

How DLC.Link Solves the Oracle Problem

The oracle problem refers to the current issue of integrating off-chain data into smart contracts on the blockchain. Bitcoin transactions, which are a form of smart contracts, typically leverage limited data, including public keys, signatures, timestamps and block sizes, which is reliable as its validity is objective and trustlessly verifiable through the blockchain.  

At DLC.Link, we implement attestors that take instructions from off-chain sources. Our network of attesters listen to events from various blockchains, and translate those instructions so as to settle DLCs. Our infrastructure can serve anyone willing to use BTC as collateral to open, pay interest, or close a loan contract in a manner conforming with the Bitcoin principle of a trustless monetary system.   

Components of DLC.Link

The components of the DLC.Link consist of the following:

DLC Attestation Network (TM)

Our Attestation Network (TM) plays the role of a mediator by confirming the outcome for the DLC participants. This is the main engine that powers the DLC.Link infrastructure. The Bitcoin DLC Attester cryptographically attests to the outcome of events happening in the real world or other chains. 

Every DLC needs an attester. At DLC.Link, we acknowledge that the success of our infrastructure is determined by a vibrant ecosystem of a high-quality attesters attesting to outcomes of events outside the Bitcoin blockchain.   

Smart Contracts

Smart contracts, from applications such as DeFi, betting, escrow, and more using DLCs, and the DLC.Link Management Contract. The smart contracts communicate between various on-chain sources, including data attesting systems, DeFi apps’ contracts, and more. DLC.Link makes smart contracts scalable and private and allows users to determine the outcome of a contract without involving a third party or trusting each other.

With DLC.Link, blockchain explorers and non-intended parties are unaware of the contract terms and transaction amounts. This way, DLC.Link succeeds in bringing private and scriptless smart contracts to the Bitcoin network.

Wallets 

Two participants with DLC-enabled BTC wallets are used to set up and sign the DLC event details. The parties can be users, institutions, smart contracts, or any entity with a Bitcoin address. DLC.Link works similarly to a multisig wallet in that two signatures are required to execute a transaction. But unlike a wallet, DLC.Link does not track balances – so by analogy; it is more apt to describe it as a “special multisig keychain.”

Developer Tooling

Our developer tooling components include a key vault for securely storing and managing cryptographic keys and credentials, a health monitor for ensuring the stability and performance of our infrastructure, a backchecker to verify the consistency and integrity of data, and cloud storage specifically designed for storing and managing CETs (Certified Execution Templates).

DLC.Link is building an infrastructure that offers a secure and decentralized way for smart contracts to interact with the Bitcoin blockchain without porting assets to other chains. Our infrastructure:

  • Facilitates non-custodial escrow functionality: Our infrastructure enables functionalities such as lending, swapping, and betting in a trust-minimized way. The parties involved in a contract, or even a third party, can't steal or compromise it since the funds are held in decentralized vaults. This means that the collateral won't be mismanaged, like in the Celsius case.  
  • Minimizes online attacks: DLCs act as special multisig wallets where finality is achieved through an unbiased attester network. The DLC.Link leverages attester signatures of transactions as private keys to achieve finality and, by default, only permits the assets in the contracts to be spent.  
  • Eliminates central points of failure: As mentioned, DLCs hold the collateral across multiple escrow accounts, preventing the creation of central points of failure. This implies there is no single vulnerability hackers can exploit or manipulate – even when one account is compromised, the other accounts can still achieve consensus.   
  • Provides Bitcoin Base-Level Security: Since the DLC.Link is built on the Bitcoin network; applications, assets, and transactions inherit its base-level security. Throughout its 12-year history, the Bitcoin blockchain has never experienced any security breach, making it the most secure and reliable network.