Exclusive: Rootstock’s Innovations and Bitcoin’s DeFi Evolution, Insights from CEO Daniel Fogg

At Consensus 2024, Rachel from Cryptonews had an engaging conversation with Daniel Fogg, the CEO of Rootstock Labs, shedding light on Rootstock’s innovative contributions to the Bitcoin ecosystem and the broader implications for the future of decentralized finance (DeFi) on Bitcoin.

Rootstock Labs developed the first Bitcoin sidechain and Layer 2 solution, a concept initially proposed by Satoshi Nakamoto. This innovation leverages Bitcoin’s hashing power for network security and introduces a two-way peg between Bitcoin and the Rootstock network.

With over five years in the crypto industry and nearly two decades in emerging technologies, Fogg has been instrumental in shaping Rootstock’s vision.

“We see Rootstock as the most secure, permissionless, and censorship-resistant smart contract platform because it’s anchored to Bitcoin.”

As of May 2024, Bitcoin’s market capitalization was approximately $600 billion, maintaining its position as the leading cryptocurrency by market value. Despite its market dominance, only about 2% of Bitcoin is actively used in transactions. The vast majority remains in long-term storage or on centralized exchanges, making Bitcoin Layer 2s the way for more regular use of Bitcoin.

Rootstock’s Unique Position in the Bitcoin Layer 2 Landscape

Fogg explained how Rootstock differentiates itself from other Bitcoin Layer 2 solutions. Unlike Ethereum’s Layer 2s, which focus on scaling while maintaining full smart contract capabilities, Bitcoin Layer 2s encompass a broader range of scaling solutions.

Rootstock is specifically designed as a Bitcoin sidechain . It aims to enhance scalability, reduce costs, and increase transaction speeds while maintaining a cryptographic link to Bitcoin. This makes Rootstock a unique player in the Bitcoin Layer 2 space, offering a comprehensive DeFi ecosystem anchored in Bitcoin.

A significant portion of Bitcoin holders view it as a store of value rather than a medium of exchange. This is reflected in the substantial increase in institutional investments in Bitcoin, with institutions holding nearly 6% of all Bitcoin circulation. According to Blockchain.com, the number of Bitcoin addresses holding at least 0.1 BTC has reached an all-time high of over 10 million, indicating growing retail interest and adoption, but majorly for cold storage.

While Bitcoin could offer more than what it’s been seen as currently, Layer 2s are the only ones to that realization and let us make the most of the complete decentralization of Bitcoin.

Among Fogg’s notable points was his highlight of the persistent “ blockchain trilemma ” of decentralization, security, and scalability.

Bitcoin is highly decentralized and secure, but it faces significant scalability challenges. Rootstock addresses these challenges by enabling smart contracts and fostering a vibrant DeFi ecosystem. Fogg emphasized,

“Rootstock brings smart contract functionality to Bitcoin, creating a vibrant DeFi ecosystem.”

With over 132 partners and protocols, 3,000 BTC locked in a two-way peg, and over $200 million in native and bridged tokens, Rootstock is making substantial strides in the Bitcoin DeFi space. Fogg noted,

“We are seeing a significant increase in transaction volumes and user engagement. The Bitcoin community is realizing the potential of DeFi on Bitcoin, and Rootstock is at the forefront of this transformation.”

Bitcoin Layer 2 solutions, such as the Lightning Network , have grown significantly. According to the Block, 2024, the total value locked (TVL) in the Lightning Network has surpassed $150 million , with over 17,000 active nodes and 65,000 channels facilitating faster and cheaper transactions.

The Appeal of Building on Bitcoin

Daniel Fogg, the CEO of Rootstock Labs, emphasized the advantages of building on Bitcoin compared to Ethereum. Bitcoin’s widespread adoption and distribution make it a highly valuable asset that many crypto enthusiasts hold but do not actively use.

According to Grayscale, only 2% of Bitcoin is actively utilized, with the remainder held in storage or on centralized exchanges. Rootstock aims to unlock Bitcoin’s potential by integrating it into a DeFi ecosystem, thus leveraging its inherent value and broad adoption.

Usability remains a significant challenge for Bitcoin Layer 2s. Fogg pointed out that immature networks often lack the necessary tools, wallets, and exchange integrations, resulting in a poor user experience (UX).

Rootstock, however, has been building its ecosystem for six and a half years, integrating with major exchanges like Uniswap and providing a seamless UX comparable to Ethereum’s DeFi platforms. This long-term development effort has positioned Rootstock to address and overcome these usability challenges.

Fogg also expressed optimism about the future of the Bitcoin Layer 2 ecosystem. He expects new Bitcoin Layer 2 projects to launch in the next 6 to 12 months, bringing more developers and capital into the space. He also discussed the potential of BitVM, a proposed optimistic rollup connected to Bitcoin, and Rootstock’s initiative, BitVMX. BitVMX aims to create more efficient and cost-effective solutions, enhancing interoperability and security within the Bitcoin network.

Rootstock plans to implement a secondary bridge between Rootstock and Bitcoin, further enhancing the network’s capabilities. This open-source initiative will allow other Bitcoin Layer 2 projects to build upon Rootstock’s advancements and develop safer bridges to Bitcoin. Fogg concluded,

“We believe in collaboration and open innovation. Our secondary bridge will be a game-changer, setting new standards for security and efficiency in the Bitcoin ecosystem.”

Consensus 2024

Cryptonews reporters Rachel Wolfson and Matt Zahab were on the ground at Consensus 2024. Talking with industry leaders and pioneers, as well as prominent analysts, they bring you the latest updates from one of the biggest crypto events globally.