BRC-42: A Cross-Chain Standard For BRC-20 Tokens

Proposal for a fully decentralized protocol to bridge BRC-20 and similar tokens to other chains

Version 0.1 - May 11th 2023

Introduction

This proposal outlines an extension to the BRC-20 standard that allows bridging BRC-20 tokens to chains with smart contract support, such as Ethereum, Interlay, Solana, Polkadot, etc.

The proposed method does not require trust in any 3rd party.

While the proposed protocol is specified for BRC-20 tokens, it can be extended to support any other token standard that is built on top of Bitcoin, including inscriptions, colored coins, and Taro.

Technical Requirements

• Custom indexer that validates the BRC-20 cross-chain "bridge-out" and "bridge-in" operations on Bitcoin, as well as the contract state on the destination chain. Indexers track the total amount of "bridged out" tokens for each tracked BRC-20 token.

• Destination chain contract that handles bridge-out and bridge-in operations on the destination chain.

• BTC-Relay: a BTC-light client implemented as a smart contract on the destination chain, capable of verifying the mainchain inclusion of BTC transactions and parsing them. See e.g. here for a specification, here for a PoC implementation on Ethereum, and here for an audited production implementation in Rust on Interlay.

Use Cases

The main use case for BRC-20 tokens is to unlock access to decentralized financial protocols. Trading on decentralized AMMs, using them as collateral in lending protocols, creating auctions, etc.

Building decentralized financial primitives is difficult on Bitcoin and often limited to very basic products like atomic swaps. Allowing BRC-20s to be used on other chains that have smart contract support and advanced DeFi ecosystems can be beneficial for the growth of BRC-20s and future experiments.

Definitions

• CHAIN: the destination chain, e.g. Ethereum or Interlay

• COIN: BRC-20 token, to be minted on the destination chain

• wCOIN: "wrapped" representation of the BRC-20 token on the destination chain, e.g. an ERC-20 token on Ethereum

• CONTRACT: smart contact on CHAIN that handles mint and redeem operations of wCOIN on CHAIN

• BTC-RELAY: smart contract on CHAIN that is capable of verifying the Bitcoin main chain (incl. difficulty adjustments), verifying transaction inclusion, and parsing transaction data (specifically, extracting the BRC-20 witness data from P2TR transactions).

Protocol

This proposal introduces two new operations to the BRC-20 standard:

• Bridge-out: burns COINBRC-20 tokens on Bitcoin and mints the equivalent amount on the destination chain CHAIN.

• Bridge-in: burns wCOIN wrapped BRC-20 tokens on the destination chain CHAINand mints the equivalent amount of COIN tokens on Bitcoin

No changes are needed to the deploy, mint, and transfer operations.

Deploy on destination chain

The deployment procedure depends on the implementation of the source chain. Requirements of the CONTRACT smart contract are:

• Mint wCOIN tokens if and only if a valid transaction inclusion proof was received for a "bridge-out" operation of X COIN tokens on Bitcoin. Use BTC-RELAY to verify and validate (i.e. parse) the corresponding Bitcoin transaction.

• If an account that owns Y wCOIN tokens requests to bridge back X wCOINto Bitcoin, such that $X \leq Y$: Burn (remove from circulation) X wCOIN tokens and emit a "bridge-in" event.

This assumes a BTC-RELAY contract is already deployed on CHAIN or that CHAIN has built-in Bitcoin light client functionality. For requirements, see here.

Bridge-out

Locks ("bridges-out") X COIN BRC-20 tokens on Bitcoin and mints X wCOIN on CHAIN.

The "bridge-out" operation is defined as follows:

{ 
"p": "brc-21", 
"op": "bridge-out", 
"tick": "COIN", 
"amt": "1000",
“dest”: “CHAIN”,
“acc”: “account-on-CHAIN” 
}

Key	Required?	Description
p	Yes	Protocol: Helps other systems identify and process brc-20 events
op	Yes	Operation: Type of event (Deploy, Mint, Transfer, Bridge-out, Bridge-in)
tick	Yes	Ticker: 4 letter identifier of the brc-20
amt	Yes	Amount to transfer: States the amount of the brc-20 to bridge-out.
dest	Yes	Identifier specifying the destination chain CHAIN. Format: tbd. Can be verbose (e.g. "Interlay") or an integer specified in a global registry agreed upon by indexers.
acc	Yes	Account on the destination chain CHAIN, in the respective format. Max. length: tbd (32 bytes?)

1. Inscribe “bridge-out” operation on Bitcoin, specifying amt, dest and acc.

2. Submit BTC transaction and transaction inclusion proof ("SPV proof") to CONTRACT which in turn calls BTC-RELAY to complete the verification.

3. If BTC-Relay returns "true" (i.e., the transaction is verifiably included in the Bitcoin main chain), the CONTRACT mints X wCOIN to the account specified in the acc field, and emits a "Mint" event.

Indexer behavior

• Indexers MUST verify that the "Mint" event emitted by the CONTRACT on CHAIN matches the amt, dest, and acc fields of the bridge-out operation

• Indexers MUST mark the X COIN tokens as "bridged-out" and increase the total amount of COIN BRC-20 tokens marked as "bridged-out" by X

• Indexers MUST NOT allow transfer (or any other) operations of BRC-20 tokens marked as "bridged-out"

• Consideration for future versions of BRC-20 tokens: Indexers MUST NOT remove the X COIN tokens from the total supply of COIN

Bridge-in

Burns X wCOIN tokens on CHAIN and mints ("bridges-in") X COIN BRC-20 tokens on Bitcoin - if and only if X is less or equal to the total amount of COIN tokens tracked as "bridged-out".

The "bridge-out" operation is defined as follows:

{ 
"p": "brc-20", 
"op": "bridge-in", 
"tick": "COIN", 
"amt": "1000",
“src”: “CHAIN”
}

Key	Required?	Description
p	Yes	Protocol: Helps other systems identify and process brc-20 events
op	Yes	Operation: Type of event (Deploy, Mint, Transfer, Bridge-out, Bridge-in)
tick	Yes	Ticker: 4 letter identifier of the brc-20
amt	Yes	Amount to transfer: States the amount of the brc-20 to bridge-in.
src	Yes	Identifier specifying the "source" chain CHAIN = the "destination" chain of a previous bridge-out operation. Format: same as the dest field in the bridge-out operation.

1. Inscribe “bridge-in” operation on Bitcoin, specifying amt and dest.

2. Lock X wCOIN tokens on in the CONTRACT on CHAIN and pass the inscription or transaction ID of the transaction containing the "bridge-in" operation performed in step (1). The CONTRACT verifies that X =amt. If correct, emits a "bridge-in" event and burns the wCOIN tokens at the end of the operation, removing them from circulation.

Indexer behavior

• Indexers MUST verify that the event emitted by the CONTRACT on CHAIN matches the amt and src fields of the bridge-in operations

• Indexers MUST set the COIN balance of the address associated with the bridge-in txid to X

• Indexers MUST reduce the tracked total amount of "bridged-out" COIN tokens by X

Changelog

• May 11th 2023 23:50 UTC: version 0.1 completed