Bitcoin Sidechains
This is not really a new idea.
If you take this a bit broader, you could not just link other crypto currencies to Bitcoin, but can use it to timestamp any types of data. For example, in mid-2013 I created a "public ledger" service based on Bitcoin: https://vog.github.io/bitcoinproof/ (HN discussion: https://news.ycombinator.com/item?id=5796935).
And even that wasn't really new. It dates back to forum entries and similar projects from 2011 and possibly earlier.
So while I like the basic idea of Sidechains, I don't like their presentation in the article as something totally new, without giving any credit to the history they build upon.
This is a great, yet simple, explanation of sidechains: http://gendal.wordpress.com/2014/10/26/a-simple-explanation-...
I don't understand how sidechains will be economically feasible given there is no monetary incentive for anyone to work on a sidechain, as opposed to an alt-coin, where speculators "invest" in X new currency and early adopters (aka. developers) benefit.
I'm curious what this means for Ethereum. Although admittedly I've never really understood what Ethereum was planning to do. But I assumed it was the same idea as sidechains?
Couldn't agree more. I would add that the many cryptocurrencies that have been created since Bitcoin (Litecoin, Dogecoin, Peercoin, etc.) are evidence of widespread unmet demand for sidechains, which fulfill the need for cryptocurrencies that:
* have global mining infrastructure, liquidity, and network effects comparable to Bitcoin; and
* allow for fail-fast, iterative, distributed experimentation, which is necessary for rapid innovation.
A lot of people want this!
Step through this with me...
I've got 5 Bitcoins. I transfer all of them to a brand new sidechain for an initial 50 Sidecoins. This Sidecoin sidechain has a different block reward. Let's say 3 weeks go by. Now there are 10,000 total Sidecoins. Let's say I've got 2,000 of those Sidecoins. How do I convert them back to Bitcoins? Can I only transfer 50 back? Can I transfer all 2,000 back? What are they worth in Bitcoin now?
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jdmichal's response:
You freeze your 2000 Sidecoins. That is then converted into some number of Bitcoins, the conversion of which is entirely dependent on how the Sidecoins work. (Likely the ratio of the number of Bitcoins dedicated to the sidechain to the number of existant Sidecoins.) A transaction is then submitted to the main chain, submitting the required proofs that you have frozen / destroyed the appropriate amount of Sidecoins to unfreeze a number of Bitcoins.
If the number of Bitcoins trying to be created exceeds the number committed to the sidechain, the transaction will fail. Otherwise, it will succeed.
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So the main Bitcoin network needs to be aware of and to be able to analyze the entire Sidecoin sidechain?
So if only a total of 5 Bitcoin were ever sent/frozen to the sidechain, then only 5 Bitcoin can ever be retrieved/unlocked?
So when the Sidecoin sidechain was first created each Sidecoin was worth 0.1 Bitcoin. So after three weeks there are now 10,000 Sidecoins, each worth 0.0005 Bitcoin? Is this a general rule for sidechains? Why did you say "likely"? Is that because none of the details of sidechains have been worked out?
Transactions on sidechains are mined in to blocks, right? So if someone mined 8,000 Sidecoins of those 10,000, they've now got 4 Bitcoin? If someone then sent/froze an additional 5 Bitcoin to the Sidecoin sidechain, then that would generate 10,000 new Sidechains?
So the incentives to mine Sidecoins would correspond to the total number of Bitcoin that has been sent to the sidechain? If 5 Bitcoin were only ever sent to Sidecoin, then all the mining in the world could only ever lead to a total of 5 Bitcoins?
So for Sidecoins to be economically viable and therefor functional, someone would need to be constantly injecting Bitcoin in to the sidechain, right?
How do sidechains affect the security of Bitcoin and/or the sidechains themselves? Will Bitcoin open itself to a much wider range of attacks once it accepts sidechains? Will the sidechains be inherently much less secure than Bitcoin's blockchain?
Are there any clients that support 0 BTC transactions?
I really don't get what's the big fuss about sidechains. It's a totally obvious next step in blockchain technology. The implementation is what's important.
An acute interest in blockchain-based securities trading led to my modifying a short Python script that would label fractions of a bitcoin as company stock. This was years ago, but I’ve kept watching for developments in this space ever since. I was convinced someone would eventually do it better.
Sidechains have been on my radar for about six months. What you should know about sidechains is it’s being developed by a company called Blockstream, and that it faces real security challenges compared to other approaches. Sidechains is seemingly marketing itself as a panacaea to everything Bitcoin wants to do but can't. However, for me, this has always meant blockchain-based stock trading. I personally doubt Bitcoin needs faster block times or ring signatures for additional privacy. In my opinion, sidechains and Blockstream is mostly a Bitcoin 2.0 startup.
The fact is, you can send BTC to Havelock.com today, which is a shady off-chain Bitcoin stock exhange. Everyone is perfectly capable of depositing BTC at Havelock or a futures exchange. Your money may get stolen, or the site may suddenly close its doors. Problems such as this are what sidechains, and other projects some of which I’ll delve into below, are attempting to solve. That is:
1. There is nascent demand for Bitcoin stock trading, futures, options and derivatives.
2. Off-chain service operators who provide these services today too often steal the money.
3. Off-chain services are forced to operate in the clear to develop trust in the marketplace, under their real identities, which invites regulators to shut them down.
Open Transactions (OT) is competing with sidechains to solve this. Specifically, OT voting pools prevent off-chain service operators from stealing all the money. Since they can’t steal the money, services like Havelock.com could safely operate over Tor, and it wouldn’t matter as much who was behind the website.
With OT, you can use basic web development skills to launch a trustless Bitcoin stock exchange platform without restriction. The only downside is users still ultimately need to trust the web service developers not to be corrupt, which is a sticking point. Society isn’t ready to trust stock and futures exchanges operating over Tor for example, because there would be too much room for games. You could launch clearnet services with OT integration, though, it’s just that you couldn’t do anything innovative without the SEC shutting you down.
Sidechains at its core solves the service operator trust issue, but it has new trust issues of its own doing. The basic idea of sidechains is, instead of creating Havelock.com, you bake Havelock.com into a blockchain, and then you would peg that new blockchain to Bitcoin’s blockchain so that Bitcoiners can use your service without having to buy an altcoin. Compared to OT, it’s quite frankly rocket science, which is a downside. In addition, sidechains don’t share Bitcoin’s security model, so they may actually offer less security than a traditional web service with OT integration.
51% attacking Bitcoin doesn’t allow you to steal BTC. But with sidechains, from what I understand, 51% attacking _does_ allow you to steal BTC. [1]
As much as I want sidechains to work, I’m not convinced Bitcoin miners are altruistic, which is a hand-wavey assumption Blockstream makes about sidechain security. They think Bitcoin miners won’t attack sidechains because the miners will know they make more money over the long term by being honest. We have heard this before about large mining pools in Bitcoin. We’ve been told a desire to maximize long term profits is the reason no Bitcoin mining pool would ever exceed 51% of the network, but GHash.io has proven this theory definitively false.
As such, I’m relegating sidechains to the same place in my heart as Open Transactions. I’m waiting to see both approaches launch before I’m convinced you don’t need something like Counterparty to do a blockchain-based NASDAQ or Intrade. [2]
[1]: https://pay.reddit.com/r/Bitcoin/comments/2k01du/peter_todd_...
[2]: http://www.wired.com/2014/10/overstock-com-assembles-coders-...