Bitcoin sidechains and what it means to altcoins

Hi guys

Some of you may have already heard of Bitcoin sidechains. You can find a lot of information online about them, such ash the AMA thread on Reddit and the official whitepaper. It’s a very interesting and important topic to discuss and it could have a lot of implications for the future of all cryptocurrencies in general.

Please feel free to share your thoughts and post questions.

Regards
laudney

Is it possible for Proof Of Stake coins to move to a bitcoin sidechain?

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I remember that I discussed the related topic on reddit two months ago. I guess I can copy my part here for discussion. laudney, my suggestion to reddcoin regarding the open API/platform for reddcoin-sidechains still stands.

Apparently, the Factom project and sidechains ( http://avc.com/2014/10/sidechains/ ) would like to utilize the liquidity, popularity, and other currently nice properties of the bitcoin blockchain to build up certain interesting and potentially important functionalities.

Personally, I am not glad to see these projects built upon bitcoin. The most important reason is that the PoW game of bitcoin won’t last long and the hash power of the bitcoin network has been more or less centralized.

Moreover, perhaps I am wrong. I believe projects of this kind require the dev team of bitcoin to provide support to certain extent such that the extra information can go in and out of the blockchain. And… the bitcoin dev team may or may not be willing to do so because of bitcoin’s own stability or something like that.

Hence, perhaps the reddcoin team may consider adding support of such an infrastructure as a working item on the roadmap after the release of Social X and approaching those teams to express the interests of working with them?

Just a suggestion.


What I was/am thinking is that if reddcoin can provide an open API of some sort to let (perhaps unknown) third parties to embed a small amount of information into the reddcoin blockchain (perhaps at the cost of reddcoin) as an open platform, anyone who would like to utilize the features and capabilities of the underlying blockchain technology can do so freely (not in the expense sense). It could be a win-win situation because reddcoin network can grow outside only the (crypto-)currency scope and many interesting blockchain technology applications can have their service on a ready to use blockchain network. (Just a very rough, vague idea for the time being.)

Not sure what /u/laudney /u/bigreddmachine /u/lionzeye /u/MathV /u/reddcoin /u/userNameNotLongEnough think about such an idea though.

Later Paul Snow ( /u/alanX on reddit ), the main Factom designer, clarified that Factom doesn’t require Bitcoin to be modified, while sidechains do.

I’m a little sceptical of the sidechains concept.

To be clear, my scepticism does not relate to the pure technology involved - I’m not qualified.

I question the motives behind the proposal, particularly in regards to altcoins.

The White Paper begins with listing some problems / areas of innovation with Bitcoin. It then goes on to say (page 5):

“An early solution to these problems with Bitcoin has been the development of alternate blockchains, or altchains, which share the Bitcoin codebase except for modifications to address the above concerns.”

The authors continue to discuss issues with altchains (altcoins), but always within the context of Bitcoin. There is at times a tacit assumption of cohesion within the cryptocurrency space, as if every altcoin dev is on a mission to improve problems with Bitcoin.

At other moments there is an equally odd patronising attitude, writing off altcoins in one fell swoop as dangerous, both to users and to the future of cryptocurrency as a whole.

There are core arguments that are simply taken for granted, such as the argument that Bitcoin has significant network effect and no other cryptocurrency has significant network effect.

I find this tacit attitude and for-granted argumentation misleading. Despite the funding rounds, the news and the hype, Bitcoin is still very very small in the wider scheme of things. A tiny fraction of a percent of the world’s population has used Bitcoin; a fraction of that number actually uses it.

In my opinion all the claims of Bitcoin’s powerful network effects are being made far too early. The space is still wide open. And the fact is, despite the tacit assumption that everyone is willing to work together for the betterment of Bitcoin, there is no acknowledgement made by the blockstream team – made up of core figures within Bitcoin – of the simple nature of competition.

The fact is, the driving force behind a lot of the altcoin development going on is competition, not the altruistic wish to solve problems for the sake of Bitcoin. And this is perfectly normal and healthy.

It is worth remembering that Bitcoin is going through a crisis regarding scalability. Indeed, Greg Maxwell states as much in the AMA: “I’ve expressed a lot of caution loudly and publically [sic] going back years on this, and finding additional alternative ways of scaling Bitcoin is what stared me working on sidechains” At least here, we are getting a sense of the real motivation behind the sidechains proposal: not to save hapless users of altcoins from themselves but to bolster the functionality of Bitcoin, which is looking decidedly clunky compared with some altcoins.

Let the blockchain wars continue, I say.

laudney sorry to make a non-technical post in the Academy :). I would be really interested to hear your opinions on sidechains, and on the implications you could envisage for altcoins and Reddcoin in particular.

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livefromheaven No, it’s impossible, at least not directly, for PoS coins to become sidechains of Bitcoin. So far the sidechain proposal only assumes PoW sidechains. There are some non-trivial changes required in the official Bitcoin code base to support PoW sidechains. To support PoS sidechains, a different set of non-trivial changes to Bitcoin code base is required. Given the fairly hostile and/or skeptical attitude to PoS among Bitcoin community and developers, there is pretty much zero chance that Bitcoin will support PoS sidechains directly. So the only possibility is for one PoW sidechain to implement this support so that PoS sidechains can live off this one particular PoW sidechain… Yeah, sidechains on sidechains… But all these complexities for what, exactly? Are they justified? I’ll talk about it tomorrow.

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laudney Very interesting, that’s sort of what I thought. I think that puts a damper on the “side-chains will kill alt-coins” argument.

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laudney Do you foresee any situation in which Reddcoin might develop sidechains of it’s own? Maybe for testing purposes?

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laudney said:

livefromheaven No, it’s impossible, at least not directly, for PoS coins to become sidechains of Bitcoin. So far the sidechain proposal only assumes PoW sidechains. There are some non-trivial changes required in the official Bitcoin code base to support PoW sidechains. To support PoS sidechains, a different set of non-trivial changes to Bitcoin code base is required. Given the fairly hostile and/or skeptical attitude to PoS among Bitcoin community and developers, there is pretty much zero chance that Bitcoin will support PoS sidechains directly. So the only possibility is for one PoW sidechain to implement this support so that PoS sidechains can live off this one particular PoW sidechain… Yeah, sidechains on sidechains… But all these complexities for what, exactly? Are they justified? I’ll talk about it tomorrow.

Dont think we forgot :P, Look forward to reading you’re opinion when you get to it

Naro The sidechain proposal supposedly offers one big benefit to altcoin developers: peg the price of your altcoins to Bitcoin and just focus on innovation in technology. This is based on the assumption that Bitcoin price is more stable and will increase astronomically over time through total world domination. Ever since the proposal came out, the price of Bitcoin has crashed more than 60% and daily price is as volatile as the biggest altcoins.

On the other hand, I’d imagine almost all the altcoin developers would desire price independence, either due to the ambition to replace Bitcoin or the expectation to be rewarded financially if good innovative work is delivered. So overall I’m skeptical that this “price-stabiliby-by-pegging-with-Bitcoin” benefit is attractive.

Also a sidechain still has to attract its own PoW miners to keep its network alive, but this would be very difficult because miners no longer see any particular financial upside in mining a sidechain coin if its price is simply pegged to Bitcoin. Note that sidechain is totally different from merge-mining. In this regard, Bitcoin’s hash rate is a much more attractive offering than its price.

There are also implications in terms of economics. When people buy a sidechain coin with Bitcoin, they actually increase the money supply of the sidechain coin, i.e. inflation. When people sell a sidechain coin for Bitcoin, they decrease the money supply of the sidechain coin, i.e. deflation. This is totally different from the normal scenarios where trading altcoins simply involves transfer of ownership with no change in money supply. As a result, sidechain coins will suffer extreme swings in inflation and deflation depending on the flow of trading, therefore totally unsuitable for any real-life commercial purpose.

In short, I find the sidechain proposal technically interesting but infeasible in practice.

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GrayPhoenix Although it could be interesting to make Reddcoin the first to support PoS sidechains, for reasons I discussed in my earlier post, I find the whole idea infeasible in practice. As for sidechains for testing purpose, I don’t believe people are willing to use real money to test stuff with real risks of losing them all.

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laudney Your conclusion makes a lot of sense to me.

If digital currencies are to achieve mainstream adoption more focus will have to be placed on making the user experience simpler and easier. Reddcoin is making strides in this area (HD wallets, Redd-ID), whereas sidechains seem add another layer of unwanted complexity.

Being pegged to bitcoin has drawbacks as well. It’s dangerous to tie the future of all cryptocurrencies to bitcoin. What happens if BTC fails? Why rely on PoW for long-term coin distribution when the economic incentives are clearly not functioning as intended?

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