Exclusive: RSK Labs CEO Diego Gutiérrez Zaldívar on Bitcoin Smart Contracts Sidechain and Crypto Industry Challenges

Opinion
16.07.2018

Formerly known as Rootstock, RSK Labs is an Argentinian startup building the first open-source smart contract platform with a 2-way peg to Bitcoin that also rewards the miners through merge-mining.

The company says its goal is to add value and functionality to the Bitcoin ecosystem by enabling Ethereum-like smart-contracts, near instant payments and higher-scalability, and this past January after almost two years of development its mainnet dubbed Bamboo was finally launched.

Even though at this point of time the 2-way peg security of the RSK blockchain is still relying on a group of third parties called ‘Federation’, in the future the developers promise to bring a “trustless” automatic peg. How fast this happens to some degree depends on the overall miners support.

Back in May at the Consensus 2018 conference in New York the company claimed it had 10 percent of the miners’ support coming from over 80 percent of the total Bitcoin network hash rate, and as RSK representatives told ForkLog in the end of June, by today this number grew to almost 18 percent.

At recent UNCHAIN Convention in Hamburg we had a chance to talk to the person behind this exciting new technology, RSK Labs CEO Diego Gutiérrez Zaldívar. During the interview he spoke about the startup’s philosophy, what it has already achieved and its future goals, also we discussed the general state of the crypto industry and the challenges it faces these days.

 

ForkLog: Speaking of the latest release, why did you actually choose this name, Bamboo?

Diego: Initially our project was called Rootstock. If you look from the outside, rootstock looks like separate plants but their roots are all connected. The rootstocks spread from the root, and a new plant is born from that root. So Bamboo is another plant coming from that rootstock, and each RSK release has its own ‘plant’ name.

ForkLog: What’s happening today with RSK development and what are your next steps after the Bamboo launch?

Diego: Each year we promote the next step in RSK development, and the biggest step so far this year was launching Bamboo, our public network. Reaching this stage was definitely a new milestone for us, but we still say that out network is in beta, because we think we need to stay conservative in the way we do this.

So now the companies are onboarding with their projects, but we only have 18 percent of the Bitcoin hashrate securing the RSK network. Therefore everything that is happening within the RSK network is as secure as, say, Litecoin or Bitcoin Cash, and when we get to 25 percent we are almost equal to the security of the Ethereum network.

It is important to understand that security of the sidechain is different to the security of the [Bitcoin’s] main network, because the sidechain is controlled by a federation. So what we are doing is securing the federation, which includes improving and giving more diversity to hardware solutions and security modules. The idea is to harden the peg [to Bitcoin] and give it more tests. Since we are the first ones implementing sidechain to Bitcoin, we need to test security and to explore new areas.

Also we are working with others to set standards for drivechain that will be a complimentary element where miners are releasing the funds to the Bitcoin network. So, if we have the drivechain plus the federation we have something that is quite trust-minimized. The idea is to try to improve decentralization and minimize the levels of trust, but that requires implementation of a softfork in Bitcoin network.

ForkLog: How hard will it be to accomplish the task of getting the desired miner support and to guarantee that level of security you aim at?

Diego: That’s what we’ve been doing for the past two years and today we already have 85 percent of the mining pools in terms of hashing power who have implemented our software. It’s just not activated yet and that’s exactly what we put our efforts at.

ForkLog: What stops them from activating the software?

Diego: Well, I think it’s a mixture of things. There’s a bootstrap in a new network, and if there’s not enough economic incentives for them things get more difficult. Miners need to do some work to start merged mining and there’s some risk for them. We have been testing this in the testnet for the last year and technically they are ready. So what we are doing is working one on one with miners helping them to do the switch and it’s very likely that in the next few months we will have some positive news and surprises from really big pools.

But basically, as I’ve already said, all the big pools have implemented RSK merged mining and are ready to do this on the mainnet. I think all this will happen already this year.

ForkLog: What other incentives you could offer miners to convince them to activate the RSK software?

Diego: At the moment it’s only merged mining, but we also want to create our own infrastructure services with miners being owners of those projects. And the same goes with federation: we are working on creating these incentive models so it’s a self-sustained economy per se. There are many services you can provide within the federation and during the last two years we have been working with many companies and organizations to make smart contracts useful. A lot of times the information you need to make a decision on a smart contract is not living on blockchain so you need somebody to take that information reliably into blockchain.

ForkLog: There’s also Liquid, another sidechain solution for Bitcoin network developed by Blockstream. It’s still rather different from what your team is doing since initially it was designed for providing liquidity to cryptocurrency exchanges. Will it be correct to call Liquid a direct competitor to Bamboo?

Diego: I haven’t explored Liquid too deep, but yes, its objective is to create trust, or a network of trusted entities to have a certain method of bitcoin transactions settlement. They work exclusively with Bitcoin, they are based on a secure hardware and it’s a private sidechain. So conceptually it’s a big difference because in our case anybody can participate, while with Liquid you are improving the existing inefficiencies between exchanges.

ForkLog: What real life use cases can RSK technology be applied to?

Diego: Well, one example that we are working with is an Argentinian Bitcoin NGO, basically creating an inclusive financial ecosystem. To do this you need both the technology and collaboration of organizations.

Apart from that we are working with the government of the city of Buenos Aires who will issue land titles so that people who live on those lands will have usage rights for them. Also we are working with a cash-in/cash-out network for convenience stores, and they will be doing conversion between digital money and physical money.

This is an important thing because many people still fear new technologies feeling like it’s too early for them. In this way they can go to a convenience store, put the money into physical form and get its representation in digital form, like a digital peso. This allows them to buy goods with a sort of safety bolt, to protect their money and to have more incentives to make savings.

And finally, we consider creating an open marketplace where all organizations and institutions and even individuals in the future can provide financial services to each other. The idea is that we are not trying to create a bank but a rather a system with reputational identity. There’s information, and if you want to give someone a loan you can understand people’s behavior and you lend based on that without charging maximum fees like banks when they are being approached. By doing this you create fair conditions and that’s the key element to help people get out of the poverty and out of financial exclusion.

The important thing with all this is that we are putting the people in charge of their data. People themselves choose what information to share and with whom.

ForkLog: What about the cost of transactions within the RSK network?

Diego: One thing that RSK is bringing to the table is low transaction fees. To make a transaction today will cost you $0.04, it’s a fixed price so far, but we want to find equilibrium and the idea is to use the third layer that we are building on top of RSK blockchain similar to Lightning Network for Bitcoin. It’s called Lumino and it’s an offchain payment system that can take transaction costs 10 or 15 times lower, maybe down to one or cents, or maybe even fractions of cents per transaction. So basically you can have an account, and combining such things as no need to pay monthly fees, no credit scores and truly low fees we make financial inclusion possible.

Actually the reason why so many people around the world are financially excluded is because banking services are too expensive, and they have to pay monthly fees. So what we are trying to achieve is to solve all these problems at once.

ForkLog: More financial inclusion would probably mean more widespread adoption of cryptocurrencies, Bitcoin specifically. What do you think are the biggest challenges Bitcoin faces today and what would help make it more popular on global scale?

Diego: One problem is scaling, then it’s also about simplifying access to these technologies, and when I talk about simplifying I mean the developers, not the end users. What I want to say that if you are a traditional developer it’s still very difficult, too complex for you to access all these things. The learning curve even for seasoned developers, like Java or Android developers, is too hard. To understand the technology they need to learn a lot before they can be proactive. So if we simplify things, if we create libraries so that any developer in the world can get access to them and start using decentralized infrastructure without having to learn all the underlying technology that would be a really great deal. What we need to make is to make it simple for the developers to incorporate these technologies in what they are already doing.

That’s the main challenge to reach mainstream and before we create disruption we need to have critical mass. Of course, we need to continue building disruptive technologies and keep the dream alive but at the same time you want to focus on how to bring these technologies to the companies and organizations that already have users. And once there’s a critical mass then we can create disruption.

ForkLog: Even though states and their governments talk pretty much in recent times about potential advantages of blockchain technologies, there are enough reasons to believe they have declared war on cryptocurrencies which they obviously see as threat to the existing financial system. Will there be a day when the wider crypto community makes the governments finally surrender?

Diego: Governments are made of politicians, and the politicians’ customers are the voters. And as long as we provide value to the people, people will start defending these new technologies and will start asking the politicians to protect them. Therefore our focus should be on creating value for the end users, and in the end the politicians will make decisions based on what their voters say. It’s as simple as that because no politician will commit career suicide by rejecting people’s demand.

Diego Gutiérrez Zaldívar was interviewed by Andrew Asmakov

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