DISCUSSION: Bitcoin’s Integration with The ICP Blockchain

[Pmalek]

A few weeks ago, the user SISAR wrote an interesting post on the Croatian local board. He mentioned the integration of Bitcoin with the ICP blockchain. It sounded interesting, so I checked it out a little bit and decided to create this discussion thread where we can talk about what and if this means anything for Bitcoin.

I found a YouTube video from September 2021. This is a community talk with one of their researchers/engineers where the integration of Bitcoin and the ICP blockchain was introduced to the public.

Here are the most important parts of the clip:

The goal is to integrate Bitcoin on top of the ICP by enabling Bitcoin smart contracts to run in canisters on the Internet Computer (IC). The idea is to make Bitcoin transactions possible from BTC canister smart contracts to the Bitcoin blockchain. The canisters will run smart contracts and can be configured to accept Bitcoin. Using the smart contract logic, one canister can move these coins elsewhere if the smart contract conditions are met. This way, the limited smart contract functionalities of Bitcoin supposedly get improved.

To make all this work, ICP needs to integrate with the Bitcoin network so that blockchain data gets fed into the Internet Computer and knowledge about UTXOs becomes available to the canisters. Canisters need this data to make transactions that could then be submitted to the Bitcoin network and included in blocks. They call this a direct integration because they don’t use bridges or second layers on top of the blockchain. ICP replica nodes communicate with actual Bitcoin nodes, and they will validate all blocks themselves. To fight concerns regarding centralization, each replica node will connect to one random node from the BTC blockchain. The canisters store real Bitcoins, not wrapped tokens that can be swapped for native BTCs, as is the case on some other platforms.

It’s essential to mention that ICP still relies on the throughput of Bitcoin’s blockchain with this approach. The other thing is the way these containers work. IC containers use open-source code, but they are different from Ethereum’s smart contracts. On Ethereum, once a smart contract is live, you can’t change it and modify the code. But on ICP, you should know who the controller of a canister is. It can be a person who is the controller. In that case, changes to the smart contract logic can be made even after a contract has gone live. Theoretically, the code can be changed to move all the coins to an address controlled by this person. There are canisters that aren’t humanly controlled, though, and they are based exclusively on code. In this example, they work similarly to ETH smart contracts and can’t be modified after going live. I don’t know if you can create your own canisters or not, but trusting random people is not a good approach.

The private key for the Bitcoin addresses will not be stored anywhere, according to the ICP engineer. Instead, it will be split up into shares. No single share can be used to retrieve/bruteforce the entire private key (supposedly). Each replica node has access to its share of the private key. The shares from several nodes have to be used to sign a transaction.

My question here is what happens if one or more malicious node operators have access to the private keys, and what kind of “access” do they even have?

Those interested in this proposal's architecture and technical details can fast-forward to 17:15 in the video, which provides more advanced information.   
There is also a second video that deals with the Threshold ECDSA Signing. More about the content of that video in this post.

In May 2022, a tweet said that the Internet Computer can now sign Bitcoin and Ethereum transactions with keys not known to anyone else. More information about the ECDSA signing is available on GitHub.



The last piece of information says that ICP canisters now have access to BTC testnet UTXOs and balances. A Bitcoin integration demo is available on GitHub.



I am curious what everybody thinks about this.


Sources and more info:

1.   https://bitcointalk.org/index.php?topic=1230285.msg60202950#msg60202950
2.   https://twitter.com/ICDevs_org/status/1527728525356281856
3.   https://twitter.com/manudrijvers/status/1531644187631837185
4.   https://github.com/ninegua/ecdsa_example
5.   https://github.com/ielashi/bitcoin-integration-demo
6.   https://www.youtube.com/watch?v=MxBIvPhPzzc
7.   https://www.youtube.com/watch?v=MulbKPwv6_s

[1714751115]

1714751115

[franky1]

gotta love the wording

bitcoin integrating with ICP
bitcoin ontop of ICP

all aimed to push the suggestion that the ICP is the important network and bitcoin is deciding it wants to build into ICP..
.. reality is ICP is a smaller network changing its rules to be able to talk to bitcoin.. not the other way round.

also its a side network or a bridged network, not a 'ontop' thing. again all the times any altnet tries to push visions of "ontop" is to pretend there is a hierarchy of ontop being the best..

seems the topic creator started by making it sound like ICP is the assumed main network, which bitcoin wanted to join as if ICP is important.. whereby bitcoin is changing to "integrate into ICP". then slipped up by saying bitcoin ontop of ICP. whereby ICP is integrating into bitcoin by trying to get ICP to understand and communicate with bitcoin.
..
also their buzzwords of "cannisters" and the private key split into "shares"
seems they are trying to not want to just explain that its multisig locked funds on bitcoin. and offering pegged value tokens on a different network
..
having an altnet that requires other people to control the signing of transactions is a risk.. refusing to sign or holding funds at hostage unless certain users do something the signers want.. is a risk of trust..
but also having the rules change after the funds are locked.. is another risk.

...
all i see is paragraphs of different ways to mention bitcoin integration. but not much detail on what function and features the altnet actually gives users.. in short.. not a great advert and seems not an important network to care about.. just another altnet trying to grab/orffamp some bitcoin users to their altnet, without explaining why its needed

seems this altnet is just another advert to throw in the word bitcoin as much as possible but not actually explaining what users features/benefits and utility will be once they have riskily locked up their bitcoin to play around on the altnet..

[Pmalek]

gotta love the wording

bitcoin integrating with ICP
bitcoin ontop of ICP

all aimed to push the suggestion that the ICP is the important network and bitcoin is deciding it wants to build into ICP.

It's not meant to push any suggestions, and you are free to make any assumptions you see fit as long as you stay on topic.

.. reality is ICP is a smaller network changing its rules to be able to talk to bitcoin.. not the other way round.

That's correct.

seems the topic creator started by making it sound like ICP is the assumed main network, which bitcoin wanted to join as if ICP is important..

ICP is the main network in the ICP ecosystem. ICP wanted to integrate BTC and ETH, not the other way around. Your assumptions are just that, your assumptions.   

also their buzzwords of "cannisters" and the private key split into "shares"
seems they are trying to not want to just explain that its multisig locked funds on bitcoin. and offering pegged value tokens on a different network

I am not sure how it works. Didn't find any mention of multisig in the sources I shared in OP. Whether or not they intentionally don't want to talk about it, I don't know. Feel free to dig deeper and share what you find.

having an altnet that requires other people to control the signing of transactions is a risk.. refusing to sign or holding funds at hostage unless certain users do something the signers want.. is a risk of trust..
but also having the rules change after the funds are locked.. is another risk.

I agree. Canisters where a person is the controller are a two-edged sword. They can make positive changes like correcting vulnerable code in the future, but they can also make malicious and selfish decisions that benefit them personally. 

all i see is paragraphs of different ways to mention bitcoin integration. but not much detail on what function and features the altnet actually gives users.. in short.. not a great advert and seems not an important network to care about..

First of all, it's not an advert. It's a discussion about something I found interesting like onboarding Bitcoin in its native form (if that is trues) into a secondary blockchain. I have no idea what functions, features, or benefits (if any) you get by using ICP nor is that the focus of the discussion. This is exclusively to talk about the integration part. BTC on ICP, BTC with ICP, ICP with/together with BTC... use any wording you like. 

...but not actually explaining what users features/benefits and utility will be once they have riskily locked up their bitcoin to play around on the altnet..

You have to research what ICP is meant for to get the answer to that question. I didn't.

I watched the second video I mentioned in OP that talks about ECDSA signatures. It's another community talk with one of the project’s researchers, who discussed the threshold ECDSA signatures.

For the IC canisters to hold and perform BTC transactions, they need the ability to create ECDSA signatures. To do it securely, a secure and distributed signing protocol is required. Similarly to what was mentioned in the first video, they are talking about a private key that will be divided into several parts and distributed among the Bitcoin replica nodes in the 2nd one as well.

The replica nodes must agree on the ECDSA signature based on an arbitrary policy enforced by the canister. Individual shares are combined to create the signature when they come to an agreement. The ICSs trust model is such that a 1/3 of the replica nodes could go rogue. However, it should still be possible to resume standard network functionality (apparently). The efficiency of getting a signature from a canister must not be affected even with some nodes being offline or malicious. Even if all replica nodes were to go offline, the network must maintain a way to provide signatures for transactions and recover coins. Replica nodes will periodically be shuffled and change places with nodes from other subnets to prevent or minimize the potential of malicious colluding between node operators.

It’s essential to mention that maintaining and holding private keys in canisters will require a certain cost. That’s because they have to be shared among multiple nodes. The shares need to be distributed again in case of canister upgrades, security updates, etc. ICP plans to create a mechanism to recover private keys in case all nodes go down.
 
A master private key (a small number of shares of it) will be shared across several subnets. This distributed master private key is supposed to solve the loss of signing capabilities in case all the nodes of one canister go offline. The master keys will only be shared with “high-security” subnets. Not all subnets will work with ECDSA signatures. In case of subnet failure, one master private key will never be reconstructed in one single place. The question is, how do they determine which ones are of the highest security and which ones aren’t?

Those who want to understand the process better can take a look at the video themselves: https://www.youtube.com/watch?v=MulbKPwv6_s

[franky1]

in short its multisig... but not where individuals hand in a public key to a central body or share their public key with the other individuals so they can all combine the public keys to create the multisg address but not reveal their private keys..
.. but instead where a central body creates the multiple keys and hands them out to individuals. whilst the central body keeps a copy of all the private keys incase some nodes go offline...

in very short.. the central body can move funds without the individuals permission.. and do other risky things like change the contract rules at a whim..

.. summary.. not a good network to trust. in any way

as for the feature of bridging networks. thats like 5+year old tech, there are many networks that are bridged to bitcoin, its not complicated to achieve.

its never actually sending bitcoins off the bitcoin network or making bitcoin talk to other networks. its simply locking bitcoin up in a manner which the forms trust that they wont move unintentionally. so that other networks can then reference that lock and use as a representation for creating new funky tokens/value representation in different transactions/contract/payment messages on different networks that do different functions not native to bitcoin

[NeuroticFish]

I watched the second video I mentioned in OP that talks about ECDSA signatures. It's another community talk with one of the project’s researchers, who discussed the threshold ECDSA signatures.

For the IC canisters to hold and perform BTC transactions, they need the ability to create ECDSA signatures. To do it securely, a secure and distributed signing protocol is required. Similarly to what was mentioned in the first video, they are talking about a private key that will be divided into several parts and distributed among the Bitcoin replica nodes in the 2nd one as well.

The replica nodes must agree on the ECDSA signature based on an arbitrary policy enforced by the canister. Individual shares are combined to create the signature when they come to an agreement. The ICSs trust model is such that a 1/3 of the replica nodes could go rogue. However, it should still be possible to resume standard network functionality (apparently). The efficiency of getting a signature from a canister must not be affected even with some nodes being offline or malicious. Even if all replica nodes were to go offline, the network must maintain a way to provide signatures for transactions and recover coins. Replica nodes will periodically be shuffled and change places with nodes from other subnets to prevent or minimize the potential of malicious colluding between node operators.

It’s essential to mention that maintaining and holding private keys in canisters will require a certain cost. That’s because they have to be shared among multiple nodes. The shares need to be distributed again in case of canister upgrades, security updates, etc. ICP plans to create a mechanism to recover private keys in case all nodes go down.
 
A master private key (a small number of shares of it) will be shared across several subnets. This distributed master private key is supposed to solve the loss of signing capabilities in case all the nodes of one canister go offline. The master keys will only be shared with “high-security” subnets. Not all subnets will work with ECDSA signatures. In case of subnet failure, one master private key will never be reconstructed in one single place. The question is, how do they determine which ones are of the highest security and which ones aren’t?

I am happy that somebody takes the time and see/try to debunk whether this IC is something good indeed or not really.
Until now it looks dangerous/exploitable. Possibly a bit overcomplicated too (but it's just a feeling.

From what I see:
* Ill intended smart contract owner can get too much power if he wants to and nobody can stop him.
* We have to trust that the private key doesn't get recomposed by malicious actors
* We have to trust that there won't be too many rogue nodes
* We have to trust that the distributed master private key doesn't get recomposed/used by bad actors

I won't say yet that it's a bad concept, but I fear that are too many points where something can go wrong (and as usual, I would be happy to see I was wrong and worried for nothing).

[Wind_FURY]

It’s essential to mention that ICP still relies on the throughput of Bitcoin’s blockchain with this approach.

OP, or anyone who's smart, from a technical standpoint, what would the net-positive of this "integration" be for Bitcoin? Plus why "Bitcoin"? Why can't they simply be "ICP"? Call me cynical, but this is the kind of clout-chasing some altcoin developers do to attract attention, and bring "legitimacy" towards their own network. There are probably developers from other networks who truly want to bring a net-positive for Bitcoin, and reciprocally to their own coin, but I don't know if it's ICP.

[Pmalek]

in very short.. the central body can move funds without the individuals permission.. and do other risky things like change the contract rules at a whim..

.. summary.. not a good network to trust. in any way

It does seem to rely a lot on trust and the notion that the central body (as you call it) won't or can't abuse their position and simply steal all the coins from a container or the entire subnet that handles Bitcoin transactions. ICP is open-source, I would love to see the thoughts of someone who knows how to read code explain exactly who has access to what? Is there a central body or organization that knows all the private keys and who has the means to recover shares to reconstruct private keys?

I haven't checked if ICP has any kind of presence on the forum, but inviting someone from their development team could be interesting as well. I will see what I can find.

* We have to trust that there won't be too many rogue nodes

Some questions remain unanswered. For example, they talk about a functional network even if 1/3 of the nodes were to go offline/become malicious. But then the same person says that even if an entire subnet were to be destroyed, that wouldn't cause the loss of funds because master private keys can be reconstructed from shares spared out among nodes in other subnets.   

OP, or anyone who's smart, from a technical standpoint, what would the net-positive of this "integration" be for Bitcoin?

I am sure their goal is not to make Bitcoin better, but to increase the use of their network by adding popular coins like Bitcoin and Ethereum to it.

Wouldn't it break immutability on their network?

No, I don't think so. A confirmed transaction remains a confirmed transaction. They can't revert anything that happened on Bitcoin's blockchain. I think that an example was given in one of the videos to highlight possible dangers of human-controlled containers. So they talked about lending and borrowing use-cases for Bitcoin. A malicious human-controller could perhaps change the smart contract logic so that withdrawals could only be done to a specific BTC address (one that belongs to them). Since they have both human and non-human controlled containers, and they will make the decision which of them will be allowed to work with Bitcoin based on some security standards, the human-controlled group should never have access in the first place. 

[franky1]

in very short.. the central body can move funds without the individuals permission.. and do other risky things like change the contract rules at a whim..

.. summary.. not a good network to trust. in any way

It does seem to rely a lot on trust and the notion that the central body (as you call it) won't or can't abuse their position and simply steal all the coins from a container or the entire subnet that handles Bitcoin transactions. ICP is open-source, I would love to see the thoughts of someone who knows how to read code explain exactly who has access to what? Is there a central body or organization that knows all the private keys and who has the means to recover shares to reconstruct private keys?

tl:dr; version
there is what id describe a bit of multilevel marketing scheme going on involving the voting to create new subnets which involve locking funds up on bitcoin to an 'upstream manager' that creates the icp tokens for the downstream where the down stream then get to use/vote with.. and then hand out to users below them



waffle version:
i had a glance

trying to simplify it back into common tongue..
custodians,   agents and   users are my words to translate from the
canisters,     subnets and  icp users.. or the
masternode  nodes  and   litewallets generally used in blockchain definitions

in ICP there are layers, where its pretty much PoS using multisig(smart contracts)

when a bitcoin custodian creates a multisig and gets users to deposit and lock btc on the bitcoin network.
the custodian has the keys. not the users.
on the altnet. the custodian has agents(subnet managers[masternodes]) that it agrees with the custodian to have a key each of the ICP reserve token address.
imagine there are 2 subnets(for easy explanation)
imagine there are 3 agents per subnet(for easy explanation)
(6 agents total)
imagine 1btc was deposited and locked (exchange/peg rate currently 1btc=450k icp

inshort (master reserve(the initial pegging from bitcoin locks))
icpcustodian 450,000icp -> icpsubnet1 225,000icp
                                        icpsubnet2 225,000icp
signed: agent1, agent2.., .., agent6
(note custodian has all 6 keys, he didnt sign this time. but has keys to do so)

the ICPsubnet1 utxo address is another multisig created by custodian where it gives individual keys (1 per agent) to the 3 agents that will manage /launch the subnet

within this the agents can use the reserve tx above's UTXO of the ICPsubnet they want to manage. to create a new tx which will be deemed as the [premine genesis] of the subnet blockchain they want to manage/open/initiate

inshort (subnet1 reserve)
icpsubnet1 225,000icp -> icpagent1 75000icp
                                      icpagent2 75000icp
                                      icpagent3 75000icp
signed: agent1, agent2, agent3 (note custodian has all 3 keys, agents ahve 1 each and users have none)

this altnet tx is the genesis transaction that starts the subnet1 blockchain

the agents. then can do whatever they please in their subnet. agents 123 are separated from the agents 456 as they are 2 distinct networks.. how they pay the users or what data is on the blockchain for users to use is upto the agents within that subnet.

users can buy or be handed down ICP from the agents. and then they can stake their ICP and become 'neurons' [PoS staker nodes] with voting power over what rules change or not by majority following a new software update or not to bring it into consensus or not by tallying the votes to activate the rules

.. if any agent or 'neuron' [masternode or node] messes up or the subnet breaks or something goes wrong. the premiss is that it doesnt matter because the custodian or the other agents of the other subnets just invalidate the bad agent/broke subnet from being allowed to change the subnet1 utxo value inside the master reserve top transaction(the first 'inshort" above)

anyone can get a bitcoin deposit address to lock funds up(from the network(custodian)) and then create their own subnet with a group of people to help manage it
they are not the custodian. they are sub-custodians(which i describe as agents(subnet managers)
those agents subnet managers offer voting rights and such to users at the layers below them within their subnet blockchain they design and adapt

the subnets and subnets of subnets are kind of like a multilevel marketing scheme. where by if a downstream recruit doesnt meet targets or follow the upstream managers rules, they are just ignored and the upstream managers just find a new recruit to add to their split of the pyramid/tree root

[Pmalek]

@franky1
I appreciate you taking the time to explain all this.

If I understood you properly, Bitcoin isn't being moved around within these canisters. It gets locked up and then cansiters, subnets, and regular users deal only with ICP tokens. Why would this be interesting for the end user? What new possibilities open up with this integration? DeFi, staking, maybe NFTs? And you have to prey that the value of the ICP tokens doesn't crash so you can get your initial BTC deposit back and not just a 1/4 of it.

You explained a different hierarchy. I thought subnets were on top and that each subnet had multiple canisters. The Bitcoin deposited by the users end up in these canisters. But according to you, it's regular users > subnets > canisters.   

[franky1]

@franky1
I appreciate you taking the time to explain all this.

If I understood you properly, Bitcoin isn't being moved around within these canisters. It gets locked up and then cansiters, subnets, and regular users deal only with ICP tokens. Why would this be interesting for the end user? What new possibilities open up with this integration? DeFi, staking, maybe NFTs? And you have to prey that the value of the ICP tokens doesn't crash so you can get your initial BTC deposit back and not just a 1/4 of it.

You explained a different hierarchy. I thought subnets were on top and that each subnet had multiple canisters. The Bitcoin deposited by the users end up in these canisters. But according to you, it's regular users > subnets > canisters.    

to explain just the network pyramid..

if you are to zoom in on the 3 level pyramid of whatever instance(subnet) of the IC network you are looking at:
cainisters are ontop. they are the "funding lock"(LN buzzword) or the coin pegging contract.
this becomes the genesis transaction for new blockchains (subnets) below them

yes there is canisters below them. but that bottom canister is not the one funding the current network above it, it is infact the opening genesis transaction(funding/peg tx) for the next NEW subnet below them. which that bottom canister is infact at the the top of that next subnet below the previous

when the hierarchy have users(at their bottom level) who want to create a subnet, the users stake some icp coin as 'neuron units' the managers (upstream) see the vote on the neurons of if a action should take place based on how much neuron is staked and signing which version of a new proposed code that either includes a new subnet or not
the managers implement it if it passes and activates the subnet below by the managers creating the multisig(canister/pegged address) for the user

where by the mangers of the above subnet become custodians of the below subnet.
the neuron approving users of the above subnet become the managers of the below subnet.
and the users of the above subnet(managers of the below subnet) get to recruit new users for the below subnet

the purpose seems to be so that people can create new networks(communities/subnets) within the IC network. where each subnet(community(3 level pyramid)) might offer different features or the blockchain does different things. where the unit of measure is using the ICP token to represent whatever that network chooses. eg 1 icp could represent the purchase of 1gb of space on some cloud service to upload media/images. . or whatever that community networks function is

.. i personally think its less about creating new networks that have different functionality. its more about having multilevel marketing of locking up bitcoin to give ICP to the downstream users of the downstream canister, where each time its passed down they value the ICP at more to their downstream user. to cost that user more to get the ICP.

as for the pyramid scheme of the coin/token .. ill save that for another post

[Pmalek]

<Snip>

Nothing of what I read seems appealing to me so far. It looked more promising in the beginning.

But I did create a support ticket with DFINITY, the company behind the ICP project. I sent them a link to this thread and asked if someone from their team would be interested in joining the conversation, answering a few questions, and maybe making corrections if some of the information is not correct or up-to-date. I am curious if they will reply back.

[Pmalek]

A customer service representative has replied back to my email where I asked them if a developer or other team representative would be interested in taking part in this discussion. They have turned down the offer, saying they are grateful for the interest, bla, bla, but because they get many similar requests from other people they can unfortunately not fulfill them.   

[franky1]

you will find most scheming, shamcoins and crap coins never want to do a free-bie open 'AMA' where they risk being asked negative stuff they cant answer..
.. what they prefer is controlled PR events like paid to attend conferences where they get paid and also they can control the questions.. (remember "bitconnect")

..
though a network has a mechanism to create new blockchains within blockchains. which could be a utility. the way its mentioned of the hierarchy of controls and the pegging of coins leans heavily more into a pyramid push. (when you translate their jargon into common words)
hardly any talk about what each subnet can do beyond create new subnets
(which technically even bitcoin could do. but thats not its main utility factor, which is why its not mentioned as much, where bitcoin actually does mention and promotes its actual use cases)

[Pmalek]

you will find most scheming, shamcoins and crap coins never want to do a free-bie open 'AMA' where they risk being asked negative stuff they cant answer..
.. what they prefer is controlled PR events like paid to attend conferences where they get paid and also they can control the questions.. (remember "bitconnect")

I believe that they took a quick look and scanned this thread to see how the general mode was and if the comments were going in a direction that favors them. Since that isn't the case, they don't want to get themselves involved. On the other hand, if your comments and the majority of other people only had good things to say about the project, they might have been willing to share a few words with their new supporters.

[OgNasty]

you will find most scheming, shamcoins and crap coins never want to do a free-bie open 'AMA' where they risk being asked negative stuff they cant answer..
.. what they prefer is controlled PR events like paid to attend conferences where they get paid and also they can control the questions.. (remember "bitconnect")

I believe that they took a quick look and scanned this thread to see how the general mode was and if the comments were going in a direction that favors them. Since that isn't the case, they don't want to get themselves involved. On the other hand, if your comments and the majority of other people only had good things to say about the project, they might have been willing to share a few words with their new supporters.

I'm not sure how true that is.  I don't know much about ICP, other than it was pumped by Coinbase to be one of the largest cryptos out of nowhere, then crashed and burned everyone who touched it.  I've never heard anyone saying anything about it other than that it was a scam, so I'm a bit surprised to see someone on these forums pushing it like it's some sort of addition to Bitcoin.

Should we take ICP seriously?  Does it solve some issue or add value to Bitcoin in a way that I am not understanding? 

[franky1]

no point wasting any more time on this. just add it to the pile of other schemes and crapcoins over the years and move on

[Pmalek]

...so I'm a bit surprised to see someone on these forums pushing it like it's some sort of addition to Bitcoin.

Who is doing the pushing in your opinion? Me? This is a forum to discuss anything and everything related to Bitcoin and there is no pushing of anything. Like I told Franky at the beginning, the idea of having Bitcoin in what I though was in its native form (but it isn't) move around on an alternative chain seemed interesting and worth discussing. But after the assessment he made, there doesn't seem to be anything there that has any real value for Bitcoin.

Or to sum it up:

just add it to the pile of other schemes and crapcoins over the years and move on

   

[franky1]

bitcoin for years now has had the ability to put funds into a multisig.

where by.. for years now anyone using any coding language can make another network with any rule /function/utility they like whereby they can atleast form a modicum of trust that the bitcoin funds cant move unless the full multisig parties all sign.. whereby on the other network they can all create a message and sign a message to validate the collateral exists within the parties. as a sort of contract/certificate of trusted ownership..  and they can then create their own token on the other network to represent the locked collateral on the bitcoin network confirmed transaction..

its not complicated, its not rocket science. its so easy anyone can do it in any coding language or level of ability, or contract/genesis/pre-mine format they please. they can create any network they like that has any function/utility they like. it doesnt require some special language interpreter that needs to translate things, nor anything which requires bitcoin to change to function with the new network..

yep people since 2014 could have put funds into a multisig and then created something like a NFT blockchain where the tokens were BTC collateral backed tokens.