Introduction to Bitcoin smart contracts

Bitcoin is complex cash with features like smart contracts. When discussing smart contracts, most people think of Ethereum, Solana or other blockchain systems rather than Bitcoin itself. However, Bitcoin offers everything in its original form – the BSV blockchain.

Bitcoin entrepreneur and developer Xiaohui Liu, founder and CEO of sCrypt Inc., has spent his precious time explaining Bitcoin smart contracts in a two-part video lesson on his YouTube channel.

Xiaohui Liu recently introduced the Ethereum to Bitcoin transpiler, allowing ETH developers to write smart contracts on the BSV blockchain without any problems. Blockchain expert Jerry Chan described the transpiler as a tool to easily transfer smart contract code written in Solidity into the original Bitcoin script.

Part 1: Bitcoin smart contracts, UTXO model and more

Liu starts his video presentation by saying that Bitcoin was meant to have smart contracts from the beginning. As evidence for that claim, Liu cites Satoshi Nakamoto, who stated:

The design supports a huge variety of possible transaction types that I designed many years ago. Escrow transactions, tied contracts, third-party arbitration, multi-party signature, etc. If Bitcoin catches on in a big way, these are things we will explore in the future, but they all had to be designed in the beginning to make sure they would be possible later.

The presentation then focuses on the UTXO model of Bitcoin, also in comparison to the account-based system of Ethereum. Liu explains that the digital transaction system of Bitcoin works much like analog cash does. Once a Bitcoin is authorized to be sent, it is sent only once, just as one can only use cash once. When it comes to smart contracts, Liu says there is a misconception that Bitcoin is primitive in terms of code and therefore unsuitable for multi-layer computational tasks. However, Bitcoin is fully programmable.

Not only is Bitcoin not primitive, it is the most powerful smart contract platform out there. What do I mean? It basically means that Bitcoin is Turing complete. Turing complete – in layman’s terms – means whatever smart contract can be implemented on other blockchains, all run on all computers (…). Any program you can run on any computer out there, you can run it on Bitcoin.

When Liu describes these programmable features of Bitcoin, he talks about Bitcoin SV (BSV) as in the BSV blockchain. In the presentation, Liu explains that BTC cannot run smart contracts due to changes to the code made by the protocol developers after Satoshi left the project. According to Liu, BTC developers have disabled almost all virtual machine instructions.

The lesson then covers fascinating features of Bitcoin smart contracts, such as the outsourcing of calculations. Liu gives many examples of that idea, all of which have in common that whoever delivers a computational task will be paid via Bitcoin without having to trust the other party. Liu also explains how AI/Machine Learning works on and with Bitcoin smart contracts. An advantage of this area is how Bitcoin can hide certain information in transactions, maintaining the privacy of Bitcoin users at scale while automated processes collect data.

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Part 2: Comparison of Bitcoin smart contracts with other blockchains

In the second course, Liu explains that in the fake version of Bitcoin – known as BTC – the Taproot implementation is celebrated as a breakthrough technology. However, Liu demonstrates that Taproot is unnecessarily complex and can be coded onto the original Bitcoin in less than 20 minutes by a single developer. Furthermore, the “next big thing in BTC,” called Graftroot, is also discussed by Liu.

What I’m showing here is that you don’t have to wait years and hundreds of developers to develop this thing. You can already code this (…) you can do it today.

As for Taproot, Liu mentions the Schnorr Signature update and describes how this would not have needed a change to Bitcoin, but could have been coded into Bitcoin in a simpler way. Bitcoin inventor Dr. Craig Wright commented on Schnorr Signatures in one of his articles:

Which brings us to the endless push for changes to Bitcoin, such as the eponymous Schnorr signature. It is consistently if somewhat dishonestly pushed as the solution to privacy concerns. The truth is that it is not a privacy nor a scaling solution.

This “endless push for changes in Bitcoin” is a serious topic because when you have a Bitcoin smart contract going, you want to be sure that it will still last a few years from now. Changing Bitcoin is a risk to everything built on it – therefore the BSV blockchain strongly advocates a set protocol.

In the presentation, Liu compares Bitcoin SV with other blockchain systems such as BCH, Zcash and Monero. At his company sCrypt, Liu is developing options to basically run everything other blockchains are capable of directly on the original Bitcoin. The key is to understand that Bitcoin is a “one coin to rule them all” system, which works diametrically with how many digital assets are traded in the so-called ‘cryptocurrency’ markets today.

The large number of blockchain projects out there are the result of code changes that have corrupted BTC. If users and developers of digital assets would have stuck with the original Bitcoin from the beginning, there would be no need for any blockchain other than Bitcoin. With the BSV blockchain, we have the original Bitcoin back and have no use left for other blockchains at all.

Liu ends the presentation by saying that the “more practical” courses will be released soon. These two videos are only an introduction to the topic of Bitcoin smart contracts. We can expect to see more informative lectures like this on his YouTube channel.

Watch: Xiaohui Liu’s Lesson 1: Introduction to Bitcoin Smart Contracts (Part 2)

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