Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
Transferring from one cryptocurrency token to another token is one thing, but what if the tokens are on different blockchains? Introducing two distinct blockchains results in compatibility issues. Tokens built on Ethereum, a platform on which developers can build different blockchain apps, can be staked in a variety of smart contracts, such as insurance, lending or exchange protocols. This is not the case for the world’s largest cryptocurrency, Bitcoin, which rests solely on the Bitcoin blockchain and cannot be used for anything else.
Enter Ren, a project that aims to enable users to transfer assets across different blockchains.Buy and sell Bitcoin and Ethereum instantly with Wealthsimple. Sign up to trade here.
What is Ren?
Not all blockchains are built equal. Depending on the blockchain on which a token is based, a token could have radically different functionality, and could even be incompatible with other protocols on different blockchains. And in a world as chaotic and decentralized as blockchain, there are plenty of distinct blockchains to go around. Ren, a protocol founded in 2017 by Taiyang Zhang and Loong Wang, intends to overcome these differences. One application of Ren is that it enables Bitcoin to access Ethereum’s decentralized applications. For instance, you could earn interest by lending out (Ren’s version of) Bitcoin on an Ethereum lending protocol.
Ren does this through something called a smart contract. A smart contract is similar to a regular contract in that it is an agreement between two parties to fulfill some kind of deal. This could be a lending agreement, for example, or some kind of insurance. In the real world, a middleman is required to enforce these contracts. This is not so for smart contracts.
Smart contracts are self-enforcing, which means that when certain conditions are meant, the contract will automatically execute. If the conditions are not met, one or both parties will be refunded without having to resort to legal action. The blockchain acts as a de facto third party that stores each party’s contribution separately until the contract can be fulfilled. A simple example is swapping one token for another. One person can send their token to the smart contract, and wait for the other to send theirs. Only when the second token is sent will the contract simultaneously execute for both sides.
One use of Ren is to enable Bitcoin users access to Ethereum applications without having to part ways with their precious Bitcoin. Ren allows Bitcoin to be used on Ethereum smart contracts by locking up Bitcoin in a smart contract, and swapping it for an equivalent amount of an Ethereum-based version of Bitcoin. A user can then use this Ethereum-based Bitcoin, known as renBTC, on the Ethereum network, enabling access to the decentralized finance apps that call Ethereum home. When the user is done, they can swap the renBTC back for actual Bitcoin.
Decentralized finance (DeFi) apps had a breakout year in 2020 and are now a major part of the Ethereum ecosystem. DeFi apps are used to replace traditional intermediaries, such as banks, exchanges, and insurers with tools such as smart contracts. This means fewer middlemen and lower fees, as well as a “trustless” system, as services are carried out by code on the blockchain rather than by people.
There are other services that are similar to Ren, and Ren is far from the largest. As of April, 2021, people have locked up 193,595 Bitcoin in these kinds of smart contracts and converted them to Bitcoin. That’s about 1% of Bitcoin’s total market capitalization. Ren accounts for just 6.5% of that; the largest, by far, is Wrapped Bitcoin, the product of a few crypto companies. It does basically the same thing and makes up about 77% of the Bitcoin-on-Ethereum market. The difference is minor but rests in the way that Bitcoin is stored: whereas a company called BitGo provides the infrastructure for holding and moving (or “custodies”) Bitcoin locked up in the Wrapped Bitcoin smart contracts, Bitcoin staked in Ren is less centralized and the platform also offers various privacy features.
How Ren works
So how does Ren actually work? It uses a virtual machine to manage and execute its smart contracts. A virtual machine is like a physical computer that can carry out computation for a distributed network, avoiding the need for a single physical computer to process everything. This would be against the decentralized principles of blockchain, and also potentially become a security risk.
The virtual machines use a special cryptographic technique called zkSnarks, which is used to protect the privacy of transactions. These have a further hiding mechanism called the Shamir Secret Sharing Technique. This technique breaks up transaction details into tiny pieces, which hides information from the nodes on the network. All this preserves user anonymity, as well as transaction details from being shared with the public.
The virtual machine that powers Ren is supported by a network of computers. These networks are called DarkNodes. DarkNodes are Ren’s version of crypto mining, where a user can use a token or computing power to help maintain a network. Any computer can be a DarkNode, although it needs spare bandwidth and a user must have a certain amount of Ren’s eponymous token, REN, held in smart contracts. These DarkNodes lend computing power and storage capacity to the Ren network. DarkNodes don’t go unrewarded, as they are given additional REN tokens to incentivize contributions to the network.
Ren offers all of these services through its platform, RenBridges. These RenBridges are the front-end system that’s used to swap tokens from one blockchain to another. The RenBridges accept the token from one blockchain, then create a new, dummy coin on the other blockchain that it then gives to the user. The dummy coin has the same value as the original one. As well as renBTC, there’s renZEC and renBCH—Ren versions of Zcash and Bitcoin Cash.
How is Ren different than Bitcoin?
Ren is different than Bitcoin in a number of ways. Bitcoin is the first ever cryptocurrency, created to carry out peer-to-peer transactions on a blockchain network. Recently, it has also been considered a store of value, similar to gold. This is due to the mining protocol which is used to mint more Bitcoin. Computers do the work, solving complex mathematical problems and consuming a lot of value in the process. This effort is comparable to the effort a miner might undertake to extract gold from a mineral vein. This effort is what gives Bitcoin its value.
Ren is not a replacement for Bitcoin, and does not attempt to compete with it. Instead, it could be considered as complementary to Bitcoin. This is because it adds additional functionality to Bitcoin by enabling cross-chain compatibility. And without Bitcoin, Ren would lose a considerable amount of value, since Bitcoin is the world’s largest cryptocurrency by market cap.
The REN token is also very different than Bitcoin. It’s not really a currency for buying things like groceries, even though you could, theoretically. It’s instead an integral part of the Ren platform, as it is effectively the fee paid by users to unlock this cross-chain functionality. Without REN, it would be much harder to pay the system for holding your Bitcoin and swap it for Ether. REN is therefore a critical part of the smart contract, as those running DarkNodes can ultimately be paid out with REN.
REN also derives its value from the fragmented nature of blockchain. If all crypto was on a single blockchain, there would be no need for REN at all. Concentration on a single blockchain, whether that be Bitcoin or the ever popular Ethereum, would reduce the value of REN, and this should be a consideration for any prospective investor.
REN is a fundamentally very different investment when compared to Bitcoin. A Bitcoin investor might expect that Bitcoin will become an ever more widely used system of payment, or that it will be a globally recognized store of value. REN is a different proposition. Its value is associated with its use. If blockchain becomes increasingly concentrated on Ethereum for example, or other solutions materialize for cross-chain transfers, then REN’s value would drastically reduce.
REN’s value is also correlated with the success of REN and its competition. Other projects are trying to do the same thing, with slightly different value propositions. Wrapped Bitcoin is the most popular way to transport Bitcoin to Ethereum. But instead of locking it up in a decentralized smart contract, you lock it up with BitGo, a major Silicon Valley crypto prime brokerage firm. And REN’s not as decentralized as some other platforms (yet, the company claims); tBTC, a competitor, promises greater decentralization.
How can you buy Ren?
REN itself can be bought on a traditional cryptocurrency exchange, such as Coinbase and Binanne, two of the world’s largest. On these platforms, it can be traded against stablecoins representing the US Dollar or against other cryptocurrencies, such as Bitcoin. Once bought on an exchange, it can be transferred off the platform onto a hardware or software wallet. While hardware wallets are more expensive, they also offer a stronger form of protection as they are less likely to be hacked and can be “switched off” when they’re not connected to the internet. Another way of receiving REN is earning it when using a computer as a DarkNode, as this form of staking will give a user additional REN.
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