Bitcoin has been critiqued by those in the altcoin community for the past few years over its inability to host smart contracts. But recent work from developers at Suredbits, Crypto Garage and Atomic Loans — along with efforts from some independent contributors — on Discreet Log Contracts (DLCs) is bringing smart contracting to Bitcoin and will quell some of these critics. DLCs are uniquely positioned to bring smart contracting to Bitcoin using oracle contracts that are much more private and scalable than previously thought possible.
What Are DLCs?
DLCs are Bitcoin-based contracts that use one or many oracle signatures for enforcement. The original proposal for DLCs was made by Tadge Dryja in 2017 and later redesigned to make them more scalable and private by using something called adaptor signatures. DLC oracle contracts allow for users to make a Bitcoin transaction contingent on an oracle’s signature. Using DLCs, Bitcoiners can make bets based on events to which the oracle is attesting. Last week, we saw one of the first of these done by Suredbits Founder Chris Stewart and creator of BTCPay Server Nicolas Dorier, betting on the result of the U.S. election.
After a recent DLC redesign, they were changed to use a 2-of-2 multisig that pays out directly to a user’s wallet instead of paying to a tweaked public key. This old design required a penalty mechanism similar to that of the Lightning Network, which made it take more block space and be less private. This redesign is made possible by using adaptor signatures and making the adaptor point based on the oracle’s expected signature. What this basically means is that each party gives each other invalid transaction signatures that can only be made valid in conjunction with