sidechain talk
TRANSCRIPT
Sidechains
Joris VALETTE
December 11, 2014
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TABLE OF CONTENTS
Limits to innovationImproving BitcoinAltcoinsLayers on top of BitcoinOne-size-fits-all is not enough
SidechainsIntroduction to sidechainsHow they workPossible applicationsDrawbacks
Conclusion
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IMPROVING BITCOIN
Improving the protocol is slowI A lot of testing and acknowledgment requiredI Some changes require soft-fork or hard-fork (e.g.
increasing block size)I Major redesigns are likely to be rejected (e.g. Treechains)I Near-impossibility to change economic rules
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ALTCOINS
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THEIR LIMITS
I Few innovate; many scamsI Fragment the market and the effortI Lack network effect
I Increased volatilityI Decreased securityI Poor number and poor quality of exchange markets
I Bitcoin still is 95% of total market
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LAYERS ON TOP OF BITCOIN
Sometimes called ”Crypto 2.0”, they combine the blockchaintechnology with innovative ideas on topSome also need an altcoin:
I MastercoinI CounterpartyI ...
Some don’t:I Open-TransactionsI Colored CoinsI ...
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ONE-SIZE-FITS-ALL IS NOT ENOUGH
I The unique Bitcoin blockchain cannot suit every needI Currently, if you have other use cases, you either:
1. Use or create a new cryptocurrency (altcoin)2. Use or create a centralized service (top layers)
Here comes a fourth option.
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INTRODUCTION TO SIDECHAINS
”One Currency to rule them all”
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INTRODUCTION TO SIDECHAINS
”One Currency to rule them all”
I Separating Bitcoin the technology and bitcoin the currencyI An ecosystem of alternative chains carrying bitcoinsI Innovation can happen in sidechainsI The main chain cannot be impacted by a sidechain’s
wrongdoing
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BLOCKSTREAM
They founded a company around this idea, with:
I Adam Back – HashCashI Matt CoralloI Mark Friedenbach – FreicoinI Gregory Maxwell – Commit
access – The beardy geniusI Jorge Timon – Ripple and
FreicoinI Pieter Wuille – Commit accessI And others...
Their motto is ”Can’t be evil.”
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HOW THEY WORK
1. Lock bitcoins with a special address
2. Wait for confirmation period (1-2 days)3. Create a transaction on the sidechain that proves your
bitcoins were locked on the parent chain and buried undersufficient PoW
4. Wait for contest period (1-2 days)5. You can now use your Bitcoins on the sidechains, with
whatever the new rules are
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Limits to innovation Sidechains Conclusion
HOW THEY WORK
1. Lock bitcoins with a special address2. Wait for confirmation period (1-2 days)
3. Create a transaction on the sidechain that proves yourbitcoins were locked on the parent chain and buried undersufficient PoW
4. Wait for contest period (1-2 days)5. You can now use your Bitcoins on the sidechains, with
whatever the new rules are
10/16
Limits to innovation Sidechains Conclusion
HOW THEY WORK
1. Lock bitcoins with a special address2. Wait for confirmation period (1-2 days)3. Create a transaction on the sidechain that proves your
bitcoins were locked on the parent chain and buried undersufficient PoW
4. Wait for contest period (1-2 days)5. You can now use your Bitcoins on the sidechains, with
whatever the new rules are
10/16
Limits to innovation Sidechains Conclusion
HOW THEY WORK
1. Lock bitcoins with a special address2. Wait for confirmation period (1-2 days)3. Create a transaction on the sidechain that proves your
bitcoins were locked on the parent chain and buried undersufficient PoW
4. Wait for contest period (1-2 days)
5. You can now use your Bitcoins on the sidechains, withwhatever the new rules are
10/16
Limits to innovation Sidechains Conclusion
HOW THEY WORK
1. Lock bitcoins with a special address2. Wait for confirmation period (1-2 days)3. Create a transaction on the sidechain that proves your
bitcoins were locked on the parent chain and buried undersufficient PoW
4. Wait for contest period (1-2 days)5. You can now use your Bitcoins on the sidechains, with
whatever the new rules are
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Limits to innovation Sidechains Conclusion
HOW THEY WORK
I Process is symmetricI One rule will especially be enforced on Bitcoin : There can
only be as many bitcoins that come back from thesidechain as there were sent to it.
I Possibility of ”atomic swaps”I Sidechains can be recursive
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POSSIBLE APPLICATIONS
I Beta (with real value unlike Testnet)I R&D, experimentation, bleeding-edge cryptographyI Faster blocks (like Litecoin, Dogecoin)I Alternative proof-of-work algorithms (Scrypt instead of
SHA256, etc.)I Alternative consensus algorithms (like Peercoin,
Primecoin)I Microtransactions
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POSSIBLE APPLICATIONS
I Fully anonymous and untraceable transactions (likeZerocoin)
I Demurrage (like Freicoin)I Sophisticated scripting and smart contracts (like Ethereum)I Possibility to peg an existing altcoin (Namecoin would be
awesome)I Useless/gambling/high-risk sidechains: ”lottochain”[5],
etc.I And many ideas we haven’t thought of yet!
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A NEW PARADIGM
Now this picture makes more sense[2]
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DRAWBACKS
I Increase complexity of the network; more complex walletsneeded
I Centralisation risksI Soft-fork required
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DRAWBACKS
51% attacks on a sidechain may be easyI → Attacker rewrites the history of the sidechain at will,
allowing him to steal bitcoinsI Sidechain becomes a fractional reserve → possibility of
”bank run”I or Sidechain lowers its exchange rate, putting every owner
of the sidecoins at a disadvantage (a little better)This risk can be reduced via merge-mining, or totally removedwith zk-SNARKs (bleeding-edge cryptography)
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CONCLUSION
I Ground for innovationI Nobody is forced to use sidechainsI They do not offer the same level of security as Bitcoin as
currently designed
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REFERENCES I
Blockstream team.Blockstream’s github.https://github.com/blockstream.
Blockstream team.Nice Sidechains picture.http://www.blockstream.com/.
Blockstream team.Sidechain paper.http://www.blockstream.com/sidechains.pdf.
Richard Gendal Brown.A simple explanation of Bitcoin “Sidechains”.http://gendal.wordpress.com/2014/10/26/a-simple-explanation-of-bitcoin-sidechains/.
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REFERENCES II
/u/socrates1024.Lottochain idea.http://www.reddit.com/r/IAmA/comments/2k3u97/we_are_bitcoin_sidechain_paper_authors_adam_back/clhnvwk.