Internet Computer Protocol aims to become a Bitcoin 'layer zero' with threshold-Schnorr implementation

Internet Computer Protocol is enabling users and developers to leverage the decentralized blockchain network as a Bitcoin “layer zero” following the planned implementation of threshold-Schnorr signatures, announced today.

The implementation will allow ICP smart contracts to directly sign Schnorr signatures to etch Runes, inscribe Ordinals, send, receive and bridge BRC-20 tokens, sign Taproot transactions and re-inscribe Ordinals — creating dynamic NFTs that change based on user behavior.

While described as a Bitcoin “layer zero,” it is more like an interoperable layer than one that modifies the Bitcoin protocol in any way.

The full implementation of threshold-Schnorr-BIP340 is tentatively expected to launch in the summer. Combined with ICP’s protocol-level integration with the Bitcoin network, it leverages the liquidity and security of Bitcoin without relying on centralized bridges, according to a statement shared with The Block.

The move enables ICP smart contracts to derive addresses and authorize transactions on the native Bitcoin network, tapping into the potential of Bitcoin-based DeFi and web3. However, it’s important to note that these capabilities are built on ICP's infrastructure and then interact with Bitcoin.

“It's super exciting to see the growth and variety of applications building the Bitcoin economy and opening up the Web3 space over the past year,” Aisling Connolly, Senior Research Scientist at ICP developer the DFINITY Foundation, said. “Yet, there are still some major orchestration problems to be addressed by the industry. ICP's threshold-Schnorr integration aims to solve these problems by adding functionality, speed, and security to interactions in and beyond Bitcoin, Web3, and the internet as a whole.”

What are Ordinals and Runes?

The Bitcoin Ordinals protocol, launched in January 2023 by Casey Rodarmor, offers a way to store and trade digital content on Bitcoin. By utilizing satoshis, the smallest units of Bitcoin, users can engrave NFTs, BRC-20s (fungible tokens similar to Ethereum’s ERC-20s) and other arbitrary data directly onto the Bitcoin blockchain — with each piece becoming a unique tradeable asset.

While the terms “Ordinals” and “inscriptions” are often used interchangeably, an ordinal is technically a unique serialized identifier for a single satoshi, and an inscription is the content or data attached to that specific satoshi.

Runes, also developed by Rodarmor, is a new fungible token standard for Bitcoin, set to launch on the halving at block height 840,000. On Monday, investment firm and spot bitcoin exchange-traded fund issuer Franklin Templeton said that Runes has the potential to help Bitcoin fungible tokens compete against the Ethereum and Solana ecosystems.

Runes offers a more efficient solution compared to the UTXO bloat caused by the existing BRC-20 minting process. UTXOs (unspent transaction outputs) represent a specific amount of bitcoin received by a user but not yet spent. Runes is also compatible with Bitcoin’s Layer 2 Lightning Network, increases privacy and does not need to rely on off-chain data.

Benefitting Bitcoin miners post-halving

Internet Computer Protocol stated that following this week’s Bitcoin halving event — when the miners’ block subsidy reward gets cut in half from 6.25 BTC to 3.125 BTC — miners will have to rely more on transaction fees for revenue and that building new applications and services for the Bitcoin network can increase the value of its blockspace, resulting in more transaction fees for miners.

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The halving is now just four days away, according to The Block’s Bitcoin Halving Countdown page. The estimated countdown is based on Bitcoin's average block generation time of 10 minutes, setting a potential date of April 20 at around 2:30 a.m. UTC (10:30 p.m. ET on April 19), as things stand.

ICP claims over 300 developers are building Bitcoin-enabled decentralized applications via its network. These include interoperability protocol Omnity, non-custodial payments app ckBTC, yield-bearing protocol Dopamine Finance, Bitcoin Ordinals Layer 2 Bioniq and Bitcoin-backed stablecoin project Taler DAO.