I want you to imagine you’re my grandpa and you’re just learning about cryptocurrencies. You’ve heard about bitcoin on the news and think it’s a great project since it’s the first of it’s kind and only offers a limited supply. Being so old you’ve been able to see the effects of the government just printing infinite money in the past.
But the more I sit down at lunch with him and explain to him what Ethereum is, he starts to like it even more as well. He would relate Ethereum with the computer boom, where owning Ethereum is like owning a bit of this world’s supercomputer. Even more so, he would always relate Ethereum with banks back in the day, giving out loans a lot easier, and allowing lenders to earn high interest.
So at this point he loves both Bitcoin and Ethereum but doesn’t quite understand why he can’t lend out his Bitcoin on the Ethereum network to earn interest. He asks why there would be two separate currencies that don't mingle with each other’s perks?
What if he could have the best of both worlds? What if he could have a bitcoin that he could use to lend on the Ethereum blockchain to earn interest? Maybe he can.
What is the Ren Protocol in Crypto?
The ren project’s main goal is to provide access to inter-blockchain operability by allowing trust-less over-the-counter trades. This means they want to try to be a bridge between a bunch of blockchains, without you having to trust someone with your funds.
Now, we’ve already created a video and article on blockchain bridges. They are bridges that allow you to move funds from one blockchain to another blockchain. However, this is used specifically for blockchains that have smart contracts and the inherent ability to create tokens on their network.
Bitcoin, for example, does not have smart contracts, so it cannot be moved to the Ethereum or Solana networks with a standard blockchain bridge. So how does Ren do it?
Ren works as a bridge between two cryptocurrencies to bring a coin without smart contracts to another coin that does have smart contracts so that you can do more with it. Right now, Ren can bring Bitcoin, Bitcoin Cash, and Zecash from their networks to Ethereum.
How do they do it?
Ren created something called the RenVM, which is a special piece of technology they have designed that accepts true bitcoin, and then spits out an ethereum token that is a representation of that bitcoin they created. This way the Bitcoin token on the Ethereum network has the same value. Whenever someone wants to, they can take their renBTC, give it to the RenVM and it’ll give them back their true BTC. So they are practically the same thing, however the ethereum token renBTC is just a representation of true BTC redeemable at any time.
This is very similar to how Tether wants to work with the United States Dollar and the Tether token, where you give them a USD and they give you a Tether Token, and at any time you can swap back and forth. However, there are some nuances to this, as well as some drama, and if you want to learn more about the Tether token, check out our full video on it.
The renVM is operated by a network full of what ren calls “DarkNodes”. In reality, these are very similar to Bitcoin miners or Ethereum miners that participate in the network to add security and confirm transactions.
They are called darknodes because the people running them can’t actually see how much cryptocurrency is being converted and validated, or where it’s being sent through their machines.
The way this happens secretly is quite complicated, but they use an algorithm called Shamir’s Secret Sharing algorithm if you want to look it up. If you’re quite curious, we can explain it here on the channel, but it is quite technical and we’d need a decent amount of comments inquiring about it.
Anyone can become a renVM validator, or miner, as they use the proof-of-stake consensus module, but you must lock up 100,000 ren, which is a decent sum of money at the moment. Because of this, ren’s largest downfall is probably centralization. And not in the traditional way where one company can control all the decisions, but in the way that there are only around 2000 darknodes online, and that a small portion of them do a large majority of the work. With that being the largest downfall, let’s go over some of the benefits.
Benefits of renBTC
The first benefit is security. Instead of going through an exchange, which you would have to trust that the exchange didn’t steal your funds and would actually give you the tokens you wanted to convert, renBTC is trustless and done through code. Another pitfall you don’t have to worry about is a central company creating a ton of free renBTC for themselves - similarly to how Tether works, which the Coinbase, Gemini, and Binance stable coins could probably all do if they wanted.
An alternative to renBTC is wBTC, which is a company that requires you to give them your ssn, profile pics, all the KYC info you might want to keep private. Along with this, they hold the BTC in BitGo, a company operated by people not immune to theft. renBTC is essentially run by code, essentially avoiding all these problems.
The second benefit is being anonymous. In terms of taxes, I do not think the IRS has thought about, and then approved, a way for you to explain how you traded your BTC for ETH through a network. I guess you would say you bought renBTC and sold BTC, although technically you still own the original BTC, so maybe it’s a loan? What would you tell them, let us know in the comments below? In short, you can trade your BTC for ETH without having to explain yourself, pay taxes based on government records, or answer any questions.
Right now, ren works on a few blockchains like Ethereum, Polkadot, Binance Smart Chain, and Solana. However, they have not created a system to swap all of these together. In the future, they want to allow you to swap your renBTC from Ethereum to Binance Smart Chain networks easily. Right now, you must take your Ethereum renBTC, redeem it for true BTC, then give it back to the renVM and tell it you want the Binance Smart Chain version of renBTC.
Ren is also looking into a form of insurance for all the tokens in the VM, which is quite interesting as token insurance is a new idea, especially for such a large project.
Ren certainly is an interesting idea and I’m they’ve been working hard for years to solve many problems, so it goes without saying that they deserved an explanation video on our channel because when we checked on Youtube, there were hardly any good videos about them.