Who Holds the Keys in iBTC?

In many of our sales meetings, we’re asked, "Who holds the keys in iBTC?" This question is crucial because it touches on the core of what makes iBTC secure and innovative.

Understanding iBTC's key model is essential for anyone considering locking their Bitcoin (BTC) to mint iBTC for DeFi participation. By clearly explaining how our key model works, we highlight the security, trust, and control that our solution offers.

This article delves into the specifics of iBTC's key management and why it stands out from traditional custodial solutions.

Understanding iBTC's Key Management Model

iBTC is a decentralized, self-wrapped Bitcoin solution that enables users to mint iBTC for use in DeFi ecosystems such as Ethereum, Arbitrum, Optimism, Base, and XRPL.

Unlike traditional custodial models, iBTC secures BTC on Bitcoin Layer 1 using a 2-of-2 multisig vault system, ensuring that Bitcoin remains under the control of its rightful owner. The iBTC protocol eliminates the need for bridges or centralized custodians, offering a trust-minimized approach to Bitcoin DeFi integration.

The 2-of-2 multisig configuration requires two signatures: one from the merchant (a KYB-verified entity locking BTC) and one from the decentralized Attestor Network. The Attestor Network uses FROST (Flexible Round-Optimized Schnorr Threshold Signatures) to achieve consensus, requiring a quorum (e.g., 10-of-15 attestors) to co-sign transactions. This setup enhances security by ensuring no single party can access the locked Bitcoin unilaterally.

iBTC's Key Management Model

1. Merchant Signature

iBTC merchants—KYB-verified entities such as trading firms, market makers, or asset managers—are the liquidity engines of the iBTC ecosystem. They retain full control over their Bitcoin assets by holding a single private key required for the 2-of-2 multisig vault. This key is used to authorize minting (locking BTC to mint iBTC) and burning (burning iBTC to redeem BTC) transactions.

Key aspects of the merchant’s role include:

• Personal Key: Held directly by the merchant, ensuring complete control over their BTC

• No Custodial Reliance: Merchants self-wrap their Bitcoin into 2-of-2 multisig vaults on Bitcoin Layer 1, eliminating the need for third-party custodians.

• Secure Backup: Merchants are encouraged to store key backups securely (e.g., in hardware wallets or safe deposit boxes) to prevent loss, though this is not enforced by the protocol.

This model prioritizes simplicity and sovereignty, making iBTC suitable for institutional users while maintaining robust security.

2. Attestor Network

The Attestor Network is a decentralized coalition of institutional-grade node operators, DeFi participants, and security researchers that ensures that the iBTC network functions without hiccups. Attestors validate transactions, co-sign movements, and maintain transparency using Chainlink Proof of Reserve (PoR).

Key features of the attestor network include:

• Transaction Verification: Attestors monitor the Bitcoin blockchain for vault deposits and confirm iBTC burn events on supported chains, ensuring compliance with protocol standards.

• FROST Threshold Signatures: A quorum (e.g., 10-of-15 attestors) must co-sign transactions using FROST and VSS

• No Custodial Control: Attestors cannot access the locked BTC; their role is limited to validation and co-signing the vault transactions.

• Security Measures: Attestors operate globally distributed nodes with hardware security modules (HSMs) and undergo regular audits to prevent breaches.

The attestor network’s decentralized design ensures resilience and eliminates single points of failure, enhancing the security of the iBTC ecosystem.

Benefits of the iBTC Multisig Model

iBTC’s 2-of-2 multisig model offers significant advantages:

Enhanced Security

By requiring signatures from both the merchant and a quorum of attestors, iBTC minimizes the risk of fraud, seizure, or hacking. The decentralized attestor network, combined with Chainlink PoR audits, ensures transparency and prevents manipulation.

Unlike bridge-based solutions, which have lost $2.8 billion to exploits to date, iBTC keeps BTC on Bitcoin Layer 1, leveraging its robust security.

User-Controlled Fund Access

Funds in the 2-of-2 multisig vault can only be unlocked and returned to the merchant’s Bitcoin address, requiring the merchant’s private key. This self-custody model ensures that only the rightful owner can access their Bitcoin, eliminating reliance on third parties and enhancing user sovereignty.

Fast and Efficient Transactions

Minting and redemption processes are streamlined, completing in 30-60 minutes compared to 3-12 hours for traditional wrapped BTC. The use of VSS and FROST signatures optimizes transaction efficiency and reduces costs.

Comparison with Traditional Custodial Solutions

Traditional custodial solutions, such as wBTC, pose several risks:

• Vulnerability to Hacks and Seizure: Centralized custodians are single points of failure, making them targets for hackers. For example, the Poly Network hack in 2021 resulted in a $612M loss. Centralized custody is also susceptible to government seizures.

• Trust Issues: Users must rely on the custodian’s security and integrity, risking losses if the custodian is breached or mismanaged. The 2023 Silicon Valley Bank insolvency, which caused a temporary USDC depeg, underscores these risks.

In contrast, iBTC’s key model empowers users with self-custody while leveraging decentralized attestation for validation. By keeping BTC on Bitcoin Layer 1 and avoiding bridges, iBTC eliminates the vulnerabilities of centralized systems, offering a safer and more reliable solution.

Risks and Considerations

While iBTC prioritizes security, users should be aware of potential risks:

• Loss of Private Keys: If a merchant loses their private key, they cannot unlock their Bitcoin. Secure key management practices are essential.

• Insolvency of Merchants: If a merchant becomes insolvent, locked Bitcoin may become illiquid during bankruptcy proceedings, though ownership remains with the merchant.

• Attestor Network Reliability: The system depends on the availability and honesty of attestors, but the quorum-based FROST mechanism and global node distribution mitigate risks of failure or collusion.

Integration with DeFi

iBTC is integrated into DeFi platforms like Garden Finance, where users can swap for iBTC, provide liquidity (earning up to 10% APY), or use iBTC in trading venues. Institutional merchants enhance liquidity, while KYB verification via Fractl ensures compliance. Individual users can acquire iBTC through decentralized exchanges, while institutions can mint iBTC directly after KYB verification.

Final Thoughts

iBTC redefines Bitcoin key management by combining a 2-of-2 multisig vault system with a decentralized Attestor network using FROST threshold signatures and VSS. This trust-minimized approach ensures security, transparency, and user control, eliminating the risks of centralized custody and vulnerable bridges.

With fast transactions, institutional-grade compliance, and seamless DeFi integration, iBTC is a compelling choice for merchants and investors looking to unlock Bitcoin’s DeFi potential. Join the iBTC ecosystem to experience a safer way to engage in BitcoinFi.

About iBTC

iBTC Network's decentralized wrapped Bitcoin is a safer way to access DeFi with your Bitcoin. iBTC is backed by a network of leading node operators and merchants who self-wrap BTC into vaults on Bitcoin Layer 1 to provide liquidity to the iBTC Network. The merchant's signature on the multisig vault prevents network misuse without user consent, making iBTC the most secure wrapped BTC token.

iBTC can be acquired by individual users by swapping for it on popular decentralized exchanges such as Curve, Uniswap, and Balancer. Institutional users, on the other hand, can swap into iBTC through a trusted merchant in the iBTC network or mint iBTC following KYB.

Join us as we make BitcoinFi safe again. Follow our socials and become part of the iBTC community:

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Disclaimer: Cryptocurrency investments carry significant risks due to price volatility and potential loss of private keys. Always conduct thorough research before investing.