Since its inception, Bitcoin has been synonymous with security, decentralization, and censorship resistance. But given the (by design) impossibility of creating complex contracts or programmable finance at Layer 1, Ethereum and EVM networks emerged. However, most Bitcoiners are hesitant to use Ethereum and similar networks. This motivated some pioneers to devise a solution, and thanks to the ability to create smart contracts on Rootstock, a protocol like Money On Chain exists today.

In this article, we’ll see what smart contracts are, why Bitcoin, at its base layer, doesn’t prioritize them, and how Rootstock enables an environment in which decentralized protocols backed by Bitcoin, such as Money On Chain, can be built.

What is a smart contract?

A smart contract is basically software that “lives” and runs on the blockchain. That is, a set of programmed rules that are executed automatically when certain conditions are met.

Let’s look at some characteristics of smart contracts:

  • They execute automatically without intermediaries; there’s no need to fill out paperwork or forms that a specialized agent would have to review.
  • They are transparent and auditable; there’s no “fine print.”
  • They cannot be changed; once deployed, they are immutable.
  • Trust is minimized, as they don’t depend on the decisions of any centralized entity.

In the world of decentralized finance (DeFi), this enables the creation of systems in which issuance, redemption, and asset control occur through code, not promises.

Benefits of using Smart Contracts

In recent years, smart contracts have been increasingly discussed because they offer a key feature in the modern world: the ability to automate agreements without relying on intermediaries. In a global context where trust in institutions, manual processes, and opaque systems is in crisis, smart contracts allow clear rules to be executed automatically, transparently, and verifiably. This not only reduces costs and friction but also enables new financial, organizational, and technological models that were previously unfeasible, from programmable payments to decentralized financial protocols backed by code, not promises.

Main Use Cases for Smart Contracts

Several use cases are detailed below:

  • Decentralized Finance (DeFi): This is the most well-known use case. Smart contracts allow for the creation of loans, stablecoins, trading, derivatives, and other financial products without banks or intermediaries. Protocols like Money On Chain use smart contracts to automatically and transparently issue, redeem, and manage Bitcoin-backed assets.
  • Programmable Payments and Financial Automation: These enable payments to be executed under specific conditions, such as subscriptions, milestone payments, automated salaries, or fund distribution, according to predefined rules. This reduces friction, human error, and dependence on third parties.
  • Stablecoins and alternative monetary systems: Smart contracts enable the creation of collateralized, algorithmic, or hybrid stablecoins, where token issuance and destruction are governed by code. In the Bitcoin ecosystem, this is enhanced by networks like Rootstock, which enable these logics on top of BTC.
  • Collateral management and risk control: Smart contracts can monitor collateral, collateralization ratios, and market prices in real time and execute automated actions when thresholds are crossed. This is key in volatile environments like Bitcoin’s.
  • Oracles and external data consumption: Although smart contracts do not access real-world information on their own, they can be integrated with decentralized oracles to obtain external prices, events, or metrics. This enables financial use cases, parametric insurance, and hedging systems.
  • Decentralized governance (DAO): Smart contracts enable systems in which decisions are made through clear voting rules: who votes, the weight of each vote, and how changes are implemented. This reduces discretion and makes governance auditable and predictable.
  • Tokenization of assets and rights: From financial assets to usage or participation rights, smart contracts allow value to be represented digitally, transferably, and programmably, opening the door to new ownership and access models.

Bitcoin intentionally limited

Bitcoin was designed with a clear priority: to be hard, resilient, and reliable money. Its scripting language is deliberately limited, reducing the attack surface and strengthening security.

This has a direct consequence: it is not designed for complex financial smart contracts, such as collateralized stablecoins, oracle systems, on-chain governance, or automated mechanisms to address extreme volatility.

And that’s not a mistake, it’s a design decision.

So, how do we bring programmability to Bitcoin without compromising its principles?

Rootstock, smart contracts for Bitcoiners

Rootstock is a network specifically designed to run EVM-compatible smart contracts. As a sidechain, it maintains a strong connection with Bitcoin. Its proposition rests on three key pillars:

1. EVM and Solidity Compatibility

Rootstock is compatible with the Ethereum Virtual Machine (EVM), allowing the development of contracts using Solidity, the most widely used language in DeFi.

This is fundamental because:

  • It lowers the barrier to entry for developers.
  • It allows the reuse of existing tools, libraries, and knowledge.
  • It makes it viable to build DeFi on Bitcoin without starting from scratch.

2. rBTC: Bitcoin Usable by Smart Contracts

To interact with smart contracts, you need an asset that can:

  • Be used to pay fees (gas)
  • Be locked, transferred, or used by code

At Rootstock, that asset is rBTC, a representation of BTC on the network. This allows Bitcoin’s value to be at the heart of the system while providing the flexibility that smart contracts require.

3. Security: Merged Mining and PowPeg

Rootstock inherits Bitcoin’s security through merged mining, enabling Bitcoin miners to secure the network at no additional cost.

Furthermore, the BTC ↔ rBTC bridge (PowPeg) is designed to align with Bitcoin’s security model and avoid purely custodial solutions.

Money On Chain and a Smart Contract Use Case

Money On Chain is a real-world use case for smart contracts in Bitcoin and the first protocol development on Rootstock.

Money On Chain uses smart contracts to create a decentralized stablecoin protocol collateralized with Bitcoin.

Thanks to smart contracts, Money On Chain allows you to:

  • Issue DOC, a stablecoin collateralized with BTC.
  • Enable leveraged exposure to Bitcoin through BPRO.
  • Automatically manage collateralization rules.
  • Execute redemptions without intermediaries.
  • Integrate decentralized oracles (OMoCs) to obtain reliable prices.
  • Apply special mechanisms in response to extreme market events.

All of this occurs without depending on a third party or any institution, but rather on rules implemented through code.

If you want to learn more about the protocol’s tokens, you can read:

Risks of Smart Contracts

There are some things to keep in mind when talking about smart contracts. No system is 100% secure. Therefore, especially in decentralized systems, it’s best to follow the golden rule that every Bitcoiner should know: “Don’t trust, verify.”

This doesn’t mean you have to read every smart contract in the protocol, but it does mean you are responsible for your actions.

Don’t have the technical skills to audit code? You can, for example, verify that the smart contracts have been audited by a third party (there are reputable companies that specialize in this).

To keep things grounded and in mind:

  • A bug in a smart contract can be critical.
  • Oracles are a sensitive point in the system.
  • Governance is key to evolving without breaking trust.

In protocols like Money On Chain, smart contracts are fully audited, there’s an active Bug Bounty program, and it hasn’t had any major issues since its 2019 deployment.

Money On Chain developed its own oracles, which the protocol uses and makes available to other projects, and you can also run one yourself if you meet certain requirements. You can read more about MOC oracles.

Governance with the MOC token plays a central role: it allows for decisions on changes, improvements, and parameters without falling into centralized control.

Smart contracts expand Bitcoin’s capabilities. Rootstock demonstrates that it’s possible to build DeFi aligned with Bitcoin’s values, and Money On Chain is a concrete example of this in operation.

If you want to see smart contracts applied to a real-world scenario, we invite you to explore the Money On Chain ecosystem and delve deeper into its blog and wiki: