I had this idea about a year ago but really didn’t know of a way that it could be technically possible. But I think EOS could make it work.
The problem is that Bitcoin kind of sucks in some ways. Confirmation times are slow. So you really can’t use it for regular day-to-day transactions. Transactions per second is abysmal for widespread adoption. There are also those pesky transaction fees.
Don’t get me wrong. Bitcoin was revolutionary and it’s great in some ways. For example, it’s extremely secure.
So how can EOS solve these problems?
Well, we know that EOS has a very fast block time. 500 milliseconds to be precise. That means instead of waiting 30 minutes for a few confirmations on bitcoin you can wait 1.5 seconds. It’s also got at least a 100x more throughput in terms of transactions per second than bitcoin. So it has the basics but what it also has is smart contracts. This combination, I think, could enable a bitcoin backed eos token that is actually usable and would be redeemable in bitcoin.
Here’s what you would do:
1 – Create a smart contract that has control over a bitcoin wallet.
2 – Every time someone sends bitcoin to that wallet they include as part of their transaction their EOS address.
3 – The smart contract then creates tokens at a 1:1 ratio of the number of bitcoin that were received in the wallet.
4 – Next the smart contract sends 99% of those tokens to EOS address that was included in the bitcoin transaction.
5 – The remaining 1% is a fee that could be used in a few different ways and may not even be necessary.
6 – If someone sends the token back to the contract with a btc address attached, they will receive an equivalent amount of btc (minus the btc network fee of course).
That’s it in a nutshell. To power all those transactions there will need to be EOS staked. I’m not 100% clear on how that is done. But, I’m hoping that it would be able to make it self-sustaining by converting that 1% fee back to EOS and staking it to run this contract so that no one needs to stake their own coins. If that doesn’t work then it might work to just have each user of the token have to have 1 eos or so to run their own transactions.
What if bitcoin goes away?
If bitcoin goes away there wouldn’t be any way to create new tokens or redeem the btc but you could still use the tokens that were previously created. There would still be a limited supply and fast transaction speed, the price would just float on it’s own.
Why wouldn’t this work? Well, the main reason I can see is that this hinges on the ability for the smart contract to be able to store btc private keys and use them in a secure way. I assume this is possible, but that’s definitely a big assumption.