Bitcoin Sidechains | Hacker News Reader

Bitcoin Sidechains

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93 pointsamouat40 comments

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.

Prior related invention in 2012 by my co-founder: https://bitcointalk.org/index.php?topic=91843.0

Limitations of this side-chains:

- Can't use proof-of-stake

- It requires many changes in the Bitcoin reference client

- It's not very clear if you can increase the frequency of blocks in the side-chain

Can you please explain why PoS is incompatible with sidechains?

IANA blockchain expert, but this is my understanding:

You need to be able to show a "proof" to the bitcoin main network that the coins are being transferred back to the bitcoin blockchain. This proof needs to be hard to generate, which pretty much makes POW mandatory.

Do you know if that's 1) "must use POW for the transaction that burns the sidecoins", 2) "must have proof of enough total work in the sidechain atop the block in question", or 3) "must only have POW blocks in the sidechain"? Superficially, 2 seems most likely.

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.

Sure, if you consider pump-and-dump scams to be the baseline then any honest business doesn't look economically feasible.

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?

Ethereum is completely separate from the Bitcoin blockchain/network, it's a new cryptocurrency system with a much more expansive scripting system than what Bitcoin has at the moment.

Ethereum could, with relative ease, be created as a Bitcoin sidechain instead of being totally independent from Bitcoin. However, as far as I'm aware - the Ethereum "coins" called ethers couldn't be transferred, which would suck for people who bought ethers in the ether sale.

Etherum will likely continue being its own thing, but someone may also very likely fork it to be a sidechain.

I'm wondering if it's possible to use a sidechain to effectively bind two dissimilar chains together. If that's possible you could use bitcoins to run ethereum contracts and use ether to send money to a bitcoin wallet. Both systems would do well; Bitcoin for its brand recognition for digital finance, Ethereum for its generalized scripting capability.

edit- looks like I found my answer: http://bitcoinmagazine.com/12349/side-chains-challenges-pote...

I think the future will see all of these systems interoperating and we'll no longer be debating popularity.

It's very hard to know whether sidechains will help or hurt ethereum... You could put an ethereum clone in a sidechain, although there'd be downsides to this... It's hard to know how mining would work for such a chain, it would have to work differently than either bitcoin or ethereum mining ("merge mining" alone won't work due to the fact that ethereum has 50x the block rate as bitcoin) and sidechains have extra mining costs that need to be obtained somehow (such as through a "wealth tax" on unused accounts).

On the other side, ethereum itself could host bitcoin sidechains as contracts, adding value to the ethereum network.

My own best guess is that sidechains will be a net positive for ethereum adoption, but a net negative for the ethereum currency market cap.

> My own best guess is that sidechains will be a net positive for ethereum adoption, but a net negative for the ethereum currency market cap.

I don't see how adoption and market cap can go in opposite directions.

Contracts will pull in bitcoin using sidechains, but "gas" will use the ether currency. Ether market cap would decrease because the coins aren't locked down in contracts, but in active circulation.

Basically, it means you're decoupling the "store of value" and "medium of exchange" aspects of money, using bitcoin to "hold value" and ether to do the rest.

Bitcoin subreddit has +140k users, Ethereum has +3k. Despite it seeming super cool and impressive, there just isn't a significant community developing around Ethereum. And you can't make the case that Ethereum is newer as its been around longer than the Dogecoin community and that has 80K users.

I want to care about the alt-coins, especially Dogecoin, I just agree with fredwilson and @cdixon that only Bitcoin has the network effects going for it. Impressive developers being behind the sidechain concept, see e.g., blockstream.com, will only further the gap.

You've got good points, but Ethereum is older than Dogecoin in technicalities only (if that). I think Vitalik Buterin has been working on the concept since November or so of last year, but Dogecoin was out and live in December. Ethereum only had a proof of concept in the early part of this year and won't have a final release until next year.

If Ethereum can release and be everything they say it is, there's plenty of time for a community to build up around it. It is difficult for a community to coalesce around something which isn't running.

I do recognize the technicalities of Ethereum vs. Dogecoin trajectories. It just seems that like Dogecoin, most succesful things get into the wild fast and there is an MVP for people to interact with. The two year wait for Ethereum isn't ideal and with the sure rise of Sidechains (because powerful people are behind it), the deck is increasingly stacking against them.

It just seems like were talking Opera vs. Chrome, which if you remember Opera gave up and implemented webkit.

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?

---

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.

---

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?

Well, you also can always trade them directly for bitcoin, like anything else, at whatever rate you can find a counterparty to trade at.

But having 2-way pegs to a sidechain would mean that you would never need to trade Sidecoins for Bitcoins on a 3rd party exchange... the system itself does that for you, right?

Isn't that the whole point?

To be honest, I'm not entirely sure of the point.

This Sidecoin sidechain has a different block reward.

It seems like sidechains can't have a block reward at all, because that would allow creating new BTC outside Bitcoin. Or perhaps the block reward would have to be paid in a different currency than BTC which would have a floating exchange rate.

But without a block reward there would be no incentive to verify and secure the transactions of these Sidecoins, right?

The system that you're describing related to a block reward being in some "different currency having a floating exchange rate" is so foreign to me that I can't even begin to ask any questions!

> So if only a total of 5 Bitcoin were ever sent/frozen to the sidechain, then only 5 Bitcoin can ever be retrieved/unlocked?

Yes; anything else would be madness. (If you got back less than 5btc, it would be a huge tax on any usage of creation of sidechains; if you got back more than 5btc, well, there's gonna be problems.)

> So for Sidecoins to be economically viable and therefor functional, someone would need to be constantly injecting Bitcoin in to the sidechain, right?

Yeah, assuming the sidecoins aren't being used up by miners somewhere. You have to pay for the security somehow; miners aren't charities - the transaction fees have to come from somewhere. In Bitcoin, the transaction fees currently come in the form of inflation+transaction fees, but probably different sidechains will pick different forms of payment depending on their goals.

I'm not sure what you mean by "assuming the sidecoins aren't being used up by miners somewhere". Could you go in to detail?

What do you mean by "different sidechains picking different forms of payment?".

Doesn't all of this basically guarantee that the mining rewards of Sidecoin need to be exactly matched to Bitcoin? If so, what's the point of sidechains at all?

http://www.blockstream.com/sidechains.pdf

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?

The security of Bitcoin itself/the blockchain won't change at all if the functionality for sidechains is implemented.

However, the sidechains themselves (and the Bitcoins pegged to them) will only be as secure or vulnerable as their implementation and usage is. The security of a sidechain, is as far as I'm aware, the exact same as it would be if the sidechain was an independent altcoin.

It is correct on first order that Bitcoins is isolated from bugs in sidechains. However, a good case can be made that sidechains could lead to more mining centralization, which is always the elephant in the room with Bitcoin.

Wouldn't it be the exact same centralization situation if the sidechains in question instead were developed as altcoins? The altcoins/sidecoins that use merge-mining may lead to centralization while the ones that do seperate mining probably won't?

Or is there any difference?

The problem is that bitcoin mining has very slim margins now, and if sidechains happen, "mining difficulty" will go even hight and mining sidechains will be pretty much be mandatory for ROI.

However, mining many sidechains requires significant computing resources.

Are there any clients that support 0 BTC transactions?

Is one satoshi (0.00000001 BTC) close enough?

Sure. Is that widely supported?

Doesn't seem like it's widely supported, but if you can find a miner willing to include a one-satoshi transaction (or be that miner), it's possible: https://bitcointalk.org/index.php?topic=516276.0

No. This is to prevent DoS attacks on the network. Each transaction must include a fee.

Transactions are not required to include a fee. Zero fee transactions are fine, and will make it into blocks rather quickly if they have a sufficiently high priority (input age).

The DoS prevention measures are enacted by the enforcing the dust limit (min transaction relay fee), based on the cost to the network to spend the coins.

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-...

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