Sergio is co-founder and chief scientist at RSK Labs. The whitepaper was pretty good. I am happy that he is here. Thank you. Just give me a minute.

Alicia Bendhan Lous Parker BitDevsNYC

Yes, I use powerpoint. Please don't read my emails.

Thanks everyone for staying here and not going to the next room. Thanks for the organizers for inviting me. Today I am going to talk about Rootstock. It's a codename for a smart contracting platform that we are developing for SKY labs, which is a company we founded in 2015.

I am Sergio Lerner. I am from Argentina. Is there anyone else here from South America? I am a computer security researcher. I am also an entrepreneur. My first company was a high-tech medical company. When I discovered bitcoin, I completely switched to doing bitcoin companies. From the very beginning, I was working with smart contracts. This is a combination of many years of work.

I am going to start from some simple concepts about smart contracts. I hope I don't bore anyone. Then I will start with the more complex things.

When I have to explain to my mother what I am doing, I found I had no explanation. There are two ways to understand this. One way is that a smart contract is a way to attach rules to money in a payment network. I can send you money, but at the same time restrict it so that you can only use it in some ways. The other way to understand a smart contract is where you have a program, and you give the program the control over the money. So you can have a distributed DNS system where you can have this system to register payments to register domains.

What's the relation between Bitcoin and smart contracts? Bitcoin has a limited implementation of smart contracts. The multi-sig wallet is based on this smart contracting scripting system. This is called Bitcoin script. Taking the case of Bitcoin wallet, there are things we cannot do. We can't apply limits on daily withdrawal amounts. We need some persistent memory to store the partial amount of money we are spending. We don't have reflection, we can't inspect the timestamp or inspect the transaction amount. Also, one of the things we would like to do with a wallet is have some payment addresses, and we can't do this with Bitcoin right now because we cannot inspect the confidential transactions.

So why did Satoshi chose to implement this restricted incomplete non-turing complete language? There is a reason for this. It allows transactions to be replayed when there is a huge reorg of the blockchain. In that case, you can take a transaction from one of a branch and then put it into another branch. At the time that Satoshi thought abut this, I think he had a good design goal. But this time, we don't see many huge reorgs, so we can start to think what if we could include introspection into transactions so that they can relate to the block and read the block timestamp for example.

So these are the restrictions of Bitcoin Script. We have no recursion. Not turing complete. Limited resources. No persistent memory. Almost no context inspection. Most of the interesting opcodes in Bitcoin Script are disabled. We want to extend these. We want to give Bitcoin the power of smart contracts, before Blockstream sidechain Elements Alpha becomes better known to the public.

Off-chain contracts is one way to do this. You could have oracle-based model, like Codius. This was tried by Ripple, but was later deprecated. Someone proposed a tamper-proof open-source hardware platform, like Andrew Miller's recent paper. This is obviously difficult to do.

Another way to do smart contracts is to do on-chain verification and off-chain execution, using hybrid techniques like SNARKs (libsnark etc.) which is very promising but it has some drawbacks, like right now it seems to require a trusted setup, and it's not battle-tested. So it could be problematic for implementing in Bitcoin right now. Zero-knowledge contingent payments are using SNARKs right now.

Another way is to do on-chain deterministic replicated execution. Once you have this setup, you can emulate smart contract execution on SNARK, but with a minimum cost. So the solution allows you to grow into any other possible of smart contract solution.

The history of practically implementing smart contracts begins in 2013 with QixCoin which was determinstic... created only for gaming and gambling. At the time I was working on peer-to-peer poker playing. I implemented a prototype which is similar to today's Ethereum. I was aware of the financial applications but I was focused on poker.

The following year, Ethereum came around. And over the last year we had Counterparty which implemented an Ethereum-compatible VM. And then we presented Rootstock.

A smart contract is a program that is given persistent memory. This memory is protected from access by other contracts. It also has a digital safe deposit box where it can deposit other crypto assets, such as currency. It can create deposits and payments. It can receive messages and send messages, to interact with other programs and other smart contracts within the blockchain.

What is a distributed application? It's a collection of smart contracts, together with the external applications that interact with them. One example is a protected wallet that stores BTC and USD and in order to pay $1000 per day into BTC or USD, to do this the smart contract to pay more each day, it would ... to authorize more spending. And at the same time, it has to see what is the value of the Bitcoin each moment, to be able to restrict Bitcoin spending. It has to interact with two other smart contracts which are probably created by the same people. The design which includes 3 smart contracts, each one interacting with each other, and also interacting with external applications like graphics interfaces and gateways to other systems, etc.

So why did we choose Bitcoin? Why not create yet another new speculative token? It's clear that Bitcoin is the most secured decentralized cryptosystem. With the advent of the 2-way peg, we can do almost anything with Bitcoin to do almost anything that other blockchains can do. Also, it has the most real-world use cases. It has a large head start, large network effect, and most importantly, we have been part of this community for more than 4 years and we love it. Even if there is argue all the time, we feel part of it.

The team is, these are the six founders: Gabriel Kurman, Diego Zaldivar, .... slide gone.

We setup ourselves into roles last November. We want this to be a smart contract layer for Bitcoin. We want it to be democratic yet decentralized. We want to increase the number of use cases for Bitcoin. We want financial institutions to comply with their regulations and develop their use cases over Rootstock. We want to incentivize the Bitcoin and Ethereum community to test our platform. Most important, we want high incentives for Bitcoin miners. They are the ones that are doing the security. We can't forget that. We want them to be 100% mining on Rootstock. We have managed to do this I think. And trying to kind of solve a few things.

We are trying to bring all the actors, we are trying to test the different, bring all the actors to form a community and try to design which will be the changes in the standard. Of course, we want to have low transaction fees, high transaction rate, we want to scale a little more than Bitcoin, maybe 100 transactions/sec to 500 transactions/sec without trouble. There is a tradeoff with decentralization, it's not free, I think we already have a decentralized Bitcoin so we want to be more scalable on top of Bitcoin.

These are the incentives for the Bitcoin ecosystem for the governance platform. There's nothing new here. There's a federation. Essentially, the two interesting protocols are for, for allowing Bitcoin users to vote, we are using proof-of-stake. This is something we are trying. It's something new. We are going to try to reward, to give votes to full nodes. Bitcoin full node owners, or Rootstock full node owners, and through a cryptographic construction called proof-of-unique blockchain storage, where we can test onchain if these nodes are holding a unique copy of the full blockchain.

What's the tech? What's new in Rootstock that we have created? We have the smart contracts. We are doing this as a ... compatible with... we've seen a lot of companies, each day we have a call with a company that wants to develop in Rootstock, we tell them OK, start working on Ethereum and then if you want you can switch. That's important for us because we want to see a standard. We don't want to have different smart contracting platforms. I think Rootstock can be that standard for Bitcoin. We have the 2-way peg which allows the Rootstock platform to use Bitcoin as a native currency. Because we have that fully 2-way peg, we need some new opcodes on the Bitcoin side, we will start with something simple, a hybrid - a federation and a sidechain.

The federation will have custody of the BTC funds. And then a sidechain on the Rootstock side, until we have a fully automatic 2-way peg on Bitcoin.

Also, we are doing merged mining. Bitcoin miners will be able to mine the Rootstock blockchain with the same mining power from Bitcoin, with no loss of profits on the Bitcoin side. We are making sure that when they do merge mining with Rootstock they will never lose out on Bitcoin mining.

The federation has a few rules. We begin to protect the network using checkpoints, distributed by the network. If a node wants to know if it is being sybil attacked, it can use the federation checkpoints as a second mechanism to make sure it's connected to Rootstock. We are also providing a fallback system where if the merge mining ever goes below a certain threshold, then the federation can use byzantine fault tolerance consensus to take control and take activity of mining on their shoulders. I think this will never happen, but we want to make sure the network will keep running even if we lose miners.

The Rootstock network we are having interesting technical improvements in terms of low latency for example. What is different? Well, in the first release, it's actually integrated interpreted VM compatible with the Ethereum VM. But in the next release, in the works, we are doing dynamic retargeting of some opcodes into a java-like bytecode. We will be able to use java to develop distributed applications. We will test this soon.

We will have a just-in-time (JIT) compiler for this.

Regarding the interface and higher-level applications, ... called Web3. This standard is pretty solid. We are implementing that. If you write an application in javascript that uses Web3, switch the network and you can use Rootstock.

Regarding the 2-way-peg, there's a problem. We have two blockchains. One is the main Bitcoin blockchain. The other one is the secondary chain. And you want to move BTC from one blockchain to another. The problem is that this is not possible. You have to lock or destroy the BTC on the Bitcoin blockchain, and then create the same amount of Bitcoin on the other secondary chain. Eventually you might unlock the Bitcoin on the Bitcoin blockchain. You need a protocol that enforces that the Bitcoin are never unlocked on both chains at the same time. There are a few ways to do this.

One is to use a federation, using multisig where, of course, you want to have renowned parties taking part of the federation. OP_CHECKMULTISIG.

The other solution is to use a sidechain, which is the concept that Blockstream has developed, which requires two new opcodes on the Bitcoin side. This is kind of problematic because these opcodes allow you to interpret other blockchains which uses the same transaction format as Bitcoin. This is limited. OP_WITHDRAWALPROOFVERIFY, OP_REORGPROOFVERIFY.

The third one is called Drivechain, proposed by Paul Sztorc, which requires a single new opcode. OP_CHECK_VOTES_VERIFY.

You could mix some of these solutions together. You can have groups validating and votes maybe. I am going to skip the part about how sidechains and drivechains work. Basically I would say that a drivechain is a way for miners to vote on which is the transaction that will unlock the bitcoins. If the miner engagement in Rootstock is high, then the same group of miners will have the same power about how to unlock the bitcoins, which is the same as in a sidechain anyway.

What we have now, what have we implemented? We are using a hybrid federated sidechain solution. We don't need new opcodes on the Bitcoin side. There is a Bitcoin address for the federation. On the Rootstock side, we have a full SPV node running on the Rootstock side. That SPV node is synced to the Bitcoin network through external messages. This provides the locking and unlocking services for Rootstock users and Rootstock smart contracts.

The bridge takes a long time to transfer Bitcoin to Rootcoins (which are Bitcoin-specific coins). We must protect the network from hacking, long reorgs, and if that occurs, it could create bitcoins that live in both blockchains. We're partnering with market makers and exchanges to provide liquidity just to trade 1 BTC for 1 Rootcoin, more immediately, in less time.

How does the federation work? It's running special software called a FedNode that runs a Bitcoin node and a Rootstock node at the same time. The FedNode listens to events created by the bridge. It just has to obey the messages. The bridge will say here is the transaction to sign, the FedNode has to transmit to the bridge the signature, then the bridge assembles all the signatures, creates the transaction, announces the transaction that has to be broadcasted on the Bitcoin side. There is no intervention by the FedNode of which outputs to spend or anything else.

This is how it works. Basically, we have these bitcoinj nodes running SPV node, in the matrix, because these bitcoinj nodes think they are connected to the network. But really it's a separate world in a smart contract. Nodes can send headers over this bridge, they can also send the transactions that lock the BTC, with an SPV proof so that the bridge contract can receive those BTC and release Rootcoins. So the bridge actually has a Bitcoin wallet, a copy of the Bitcoin blockchain, and a Rootstock account to unlock the Rootcoins. This Rootstock account initally has 21 million "BTC" locked in an account.

Here's another diagram of how the federation works. There are several fednodes running connected to both networks. The other one is a fallback system which could take control of the mining operation if the mining hashrate goes below some threshold. This could be fooled, that's true.

So what is needed to implement the two-way peg? We need new opcodes on the Bitcoin side, to do either a sidechain or drivechain. This could be done with a soft-fork or a hard-fork. We are sponsoring an approach to this, called Bit2, which will bring these opcodes to the community to consider which path is the right way to go. We would like the Bitcoin community to decide. Soon we will have much debate over how to extend Bitcoin. I think Blockstream will be very interested in participating in Bit2.

Another thing is the checkpoint protection provided by the federation, which allows for nodes to prevent Sybil attacks or at least check that they are being attacked.

Rootstock uses merged mining. We have 10 second block intervals. We have tested and simulated this. It works pretty well. We have no loss in pool efficiency for Bitcoin mining. This is important to us. We are paying fees to the bridge contract using the SPV proof, the proof-of-work that Rootstock uses. This diagram shows how a proof-of-work of Rootstock... it contains... the SHA.... you can embed the tag and a hash of the Rootstock blockchain header in the last part of the ... and you don't have to transmit the full .. transaction.. just the mid state, the tail of the coinbase transaction which has a hash and that hash maps to the Rootstock header, and you also transmit of course the different nodes in the merkle tree to be able to map that into the Bitcoin header.

One of the other things we have been working on is the integration with the most known and used mining pool softwares because we wanted the miners to be able to run our nodes on merged mining. So we created pladdings for these three implementations, ckpool, and another stratum mining pool. These will be available when we are ready. CoiniumServ, ckpool, eloipool (python).

So what's new in terms of network? The network we aim to low-latency. We tested, we can have 300 transactions/second at 10 block sec interval. We have implemented mostly known tricks about how the network can operate. We have two-stage block propagation, we first propagate the header of the blocks in kind of a algorithm where the header propagates as fast as possible so that miners can mine only on top of the header. Miners have a timeout where they switch away from what they were doing, if the header does not come with block information.

We have some local optimizations in each node. Some local route optimizations can be made to embed into the network, a graph that is more friendly to block propagation. Local Route Optimization (LRO). You can find the near minimum path between miners using the network itself, and you don't have to have another low-latency centralizing network like in Bitcoin.

We are implementing the GHOST protocol. We are implementing the DECOR+ protocol, for reward sharding between competing blocks. The selfish mining problem completely disappears. The competition for latency goes away. We can have much higher block rates because of this.

This is an explanation of how DECOR and GHOST work together. This is a case where we have 3 competing blocks. Block X, block W, block Q. The miners can include reference to these other headers. They can receive a reward for including those other headers. The block reward of block X is divided almost evenly between all of the competing miners. There is some extra reward that some miners will get. There is a punishment fee for having uncles, which pushes the network to optimization rather than having everyone trying to create uncles.

In the future, this will come in the first hard-fork maybe, we are doing the optimization in blockchain sharding, probabilistic verification, fraud proofs, we will be implementing Schnorr signatures. We will have agility. You can use whatever signature algorithm you can think of. Also we will be doing special proof-of-stake voting. Users can use that key to vote with their Rootstock stake, but prevent the ... to have two different key lifetimes, one for the monetary asset protection, and another just for voting, which is useful for proof-of-stake.

This is a comparison between Counterparty, Ethereum, Rootstock VM implementations. We have tried to improve every feature of the network, like average confirmation time, mining security threshold, denial of service protection, incentivizing mining, etc.

Talking about distributed applications, moving from the technical part to the community part, micropayment channels, hub-and-spoke networks, peer-to-peer decentralized exchanges, issued assets, asset securitization, fiat-pegged assets with BTC collateral (using oracles), IP protection and registration like NameCoin and DNS, supply chain traceability. The whole network can be implemented with like 100 lines of smart contracting code. Lightning network will therefore be much easier to implement on Rootstock. We also want to support fair gambling over the internet, we want to implement crowdfunding, and also voting, prediction markets, these are all applications that have been widely discussed in the community.

HOw is the project going? RSK labs. In November we published a whitepaper, in December we started coding, in January we founded a company to have funding, we received seedfunding from a very strategic partners like ... digital currency group, I don't know if they are here. Thanks. We have received more than, in funding... we are sure that we will get to our goals. In February we hired 6 senior developers, 3 which are internal to Rootstock, 3 which are outsourcing. We are developing industry partnerships and with companies that want to work with us.

In March we are on schedule for first alpha release in April. How are we able to do this? We took the improvements from Bitcoin, we took code already written, we don't want to write anything from scratch. We took ethereumj, and bitcoinj, we brought that code into Rootstock. Qixcoin.

In April, we are doing a private testnet for a few partners please ask us if you want to participate. In July we are deploying our first public testnet. In August, we will establish a federation. In September we want the RSK launch. In December, we are going to test release 2 of the platform. In January, we will have a governance body established to take positions on how the protocol should be improved in a more democratic more contentious way. And in Q1 2017 we will have our first hard-fork.

Rootstock is a combination of 4 years of blockchain tech improvement. It's from the entire community, it's not just our own work that we are reusing here. This is the benefit of being second. We want the Bitcoin miners to participate in the smart contract revolution. We've got excellent support from them. That's very important to us. Also, we managed to get ethereum applications running on our platform without problem. Most improtantly, and since I come from the third world, we are working with the third world companies to develop applications for the unbanked. They are developing their pilot use cases over Rootstock. The whitepaper is available on our website, thank you.