Bitcoin, long recognized for its stability and security, tends to falls short when it comes to newer innovations. Meanwhile, smart contracts platform ethereum is drawing increasingly more attention.

But what if you could combine those two networks and come up with the best of both worlds? That is what blockchain startup RSK Labs has long sought to do.

The company’s blockchain solution, RSK (or Rootstock), aims to draw on the strengths of the bitcoin network, while bringing new options, like flexible smart contracts, into the picture.

A little more than a year ago, the Buenos Aires-based company received $1m in seed funding to create a functioning testnet. But, to move forward with its technical plans, more cash was needed.

Development funds

To that end, RSK Labs announced today at Consensus 2017, that it has received an additional $3.5m in pre-Series A funding.

This latest round comes in the form of contributions from a long list of supporters, including, Anthony Di Iorio, CEO of Decentral and Jaxx, and bitcoin mining firms such as Bitfury and Bitmain.

According to RSK executives, the company plans to put that money toward R&D, increasing the network's security and deploying a mainnet in a few months. Also during Consensus, the company announced that it will be opening its production testnet (called Ginger) to the public, so that more users can begin building and testing out their own smart contracts on the platform.

Gabriel Kurman, co-founder of RSK, told CoinDesk:

At this point, you're probably wondering how the platform works.

Put simply, RSK is a two-way pegged sidechain that grafts smart contract functionality onto the bitcoin network. It also introduces an off-chain protocol for claimed "near-instant" payments.

As an idea, sidechains were originally put forth in a proposal by cryptographer and Blockstream CEO Adam Back and others in 2014 as a bid to extend the functions of bitcoin.

That proposal came at a time when many were frustrated with bitcoin’s inability to keep up with newer innovations.

So, as a sidechain, RSK is an independent blockchain. However, it does not have its own token, relying instead on bitcoin for its currency.

RSK does this by pegging, or matching, its smart token to bitcoin, so that the value of an RSK token is exactly that of a bitcoin. Also, users (and this is the 'two-way' part) can freely move their tokens back and forth between the two chains.

Essentially, a user's bitcoin goes into a type of reserve where it is locked up, and then used to back the RSK token, known as smartBTC. You can think of it as putting your bitcoin into a checking account, and then using the RSK network to spend that money.

But RSK goes further than simply giving users a new set of tokens to spend – it also adds smart contract capabilities to bitcoin.

Bitcoin already allows users to create simple smart contracts, like multisig, which requires two or more users to sign off on a payment before it can be released. But RSK takes that to another level, with Turing-complete smart contract capabilities that go head-to-head with ethereum's offerings.

RSK also addresses another short coming of the bitcoin network: its ability to scale.

According to the company's website, RSK currently achieves 400 payment transactions per second, compared to bitcoin, which only handles only around seven.

However, the goal is to eventually push that to 2,000 transactions per second using a second layer technology, which the company calls Lumino. Outlined in this white paper, the Lumino Network is an off-chain payment system that relies a protocol known as the Lumino Transaction Compression Protocol (LTCP).

Lumino is touted as being similar to the Lightning Network, a popular scaling solution originally designed for bitcoin, currently being tested on litecoin.

Moving forward, the company faces two main challenges.

One is how it will peg its token to the bitcoin blockchain. Tether, another sidechain company, made news earlier this year when it lost its peg to the US dollar, creating a large price spread between exchanges that quote actual dollars and those that quote tether tokens.

So, RSK will need to prove to the community that it can hold onto its peg and not undermine the value of its token.

Securing the network is another issue.

In order for the RSK chain to be secure, a majority of bitcoin miners need to 'merge mine' the chain. And that requires the permission and active assistance of 50% of all the bitcoin mining pools.

Merge mining is a technology that allows a miner to mine more than one blockchain at a time. The miner’s computing power contributes to the total hashrate of both cryptocurrencies, and the miner gains block rewards for both networks.

According to RSK, its network is currently supported by bitcoin miners representing more than 55% of bitcoin's total hashing power. In addition, the company claims that more miners, accounting for 30% of the hashrate, have expressed their support for RSK and will start merge mining within the next few months.

If RSK can overcome those challenges, it stands to introduce some much-needed features to bitcoin, as well as help build a worthy alternative to the ethereum virtual machine.

Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in RSK Labs.

RSK image via YouTube