Content sponsored by IOVLabs
Bitcoin sidechains have their history. The process for implementing a new technology is long: from the initial formulation of the idea to the formalization of the proposal in a white paper to its development, implementation and further development, not to mention the different variants of the same technology.
There are many historical details that help us get a better overview of the current status of these solutions and how they could change in the future.
What is a sidechain and what is it for?
A side chain or side chain is a blockchain that works with a parallel and independent protocol to a base chain (like Bitcoin), but allows coins to be transferred between both chains without compromising the security of the base chain.
So, Sidechains make it possible to improve the functions of BitcoinHowever, if a vulnerability in the sidechain code is exploited, this only affects the sidechain itself and not Bitcoin. The opposite is also true.
For this reason, sidechains are a tool to implement and test innovations in a productive way outside the experimental space of the test networks, without these innovations having to be discussed and accepted in the basic chain by consensus, and also to protect their integrity.
Among the most important Applications that a sidechain can have highlights the creation of smart contracts that are more complex than Bitcoin (which allow the issue of securities or utility tokens and other decentralized financial instruments); Increase the scalability and speed of transactions through tokens anchored in the price of BTC; Conducting confidential transactions to improve online privacy; Interconnectivity with intermediaries that increase the efficiency of exchanges and reduce the need for trust in third-party custody; amongst other things.
Background history of the sidechains on Bitcoin
Like many things in these open source communities, it is difficult to determine when or who has formulated a rough idea that others will then incorporate into technical documents.
All in all, thanks to discussions in forums, especially on BitcoinTalk, you can be sure that the term is almost as old as Bitcoin and even his own Satoshi Nakamoto said Sidechains in December 2010.
Satoshi thought about a domain name system in Bitcoin (then called BitDNS and later the first Altcoin, Namecoin). He anticipated the concept of combined mining that exists in Sidechains as RSK:
“I think it could be possible for BitDNS Be a completely separate network and blockchain and share CPU performance with Bitcoin. The only overlap is to do this so that miners can simultaneously look for evidence of work for the two networks. Networks would not need coordination. The miners would subscribe to the two networks in parallel. They would search a SHA so that they can solve both (puzzles) at the same time if they find the right one. A solution could be fair for only one chain if it has less difficulty. “
Satoshi also argued why it would be better to protect multiple parallel chains with the processing power of one base chain than multiple independent chains:
“Instead of fragmenting, networks share and increase each other’s overall CPU performance. This could solve the problem that multiple networks could put others at risk if the available CPU power is concentrated in one. Conversely, when all networks in the world share the combined CPU power, they increase the overall strength. This would make it easier for small networks to first enter a finished miner base. “
It was a response to these comments from Satoshi that the user Nanotube –Creator of the first Bitcoin OTC market in 2010– first wrote the term Side chainand asked, “What would be the incentive for miners to include bitDNS (and others)?” Side chain)”In his mining operation. To which Satoshi replied: “The incentive is to get rewards from additional side chains for the same job“; Receive domain names for the BitDNS example.
What Satoshi said could be more related to combined mining or combined mining merged mining as a sidechain as we know it today. This is because a bi-directional connector system is mentioned or not 2-way pen, So that the funds locked in the base chain can use a representation of the coins in the side chain, the coins in the base chain can be unlocked again after the side chain markers have been burned.
This is one of the reasons why networks like Counterparty, although they use Bitcoin’s hashrate, enable the development of non-fungible tokens like rare Pepes and, thanks to the integration of the virtual machine, even allow dApps to operate, they are not really side chains, because they do not allow coins sent from the base chain to the side chain to later return to the base chain.
However The name of the side chain would persist in later studies over time. In 2011, developers like former Bitcoin Core employee Mike Hearn came up with the idea that independent networks can use the same hashing performance and unlock used BTCs.
In 2013 Alex Mizrahi, CTO of Chomaway, better known by his pseudonym, Killer storm, proposed a distinction between combination dismantling and side chains in a time stamp proposal outlined by Peter Todd in 2012.
One of the problems that has arisen from this proposal is that the reorganizations in Bitcoin would immediately trigger the reorganization in the side chain. With that in mind, Mizrahi found that the chains that worked with combined mining rather than timestamps were more independent.
In the end, the name of the side chain was still used to describe side chains independently of the base chain, regardless of whether they would work with combined mining (like RSK) or not (like Liquid).
The white paper of the side chains
Research on sidechains continued to gain momentum in late 2013 and early 2014 as the debate over Bitcoin’s scalability problems began to intensify and alternatives were sought to respond to the proposal to enlarge blocks.
One of these scalability suggestions was sidechains. But these took a new turn when the idea of a bidirectional connector or Two way pen that would allow interoperability between chains. The proposal was made in October 2013 by HashCash inventor and blockstream founder Adam Back on the Bitcoin developers’ mailing list, referring to previous research results published by developer Gregory Maxwell.
It should be 2-way pen when both currencies can be exchanged freely, automatically, without paying more than transaction fees and without price negotiation between chains.
The bidirectional pen does not restrict the side chain to the issue of its own tokens. It also does not rule out that this token with collateral in the base chain can also be represented in other chains with which the side chain maintains interoperability without changing the supply of the base chain. What it does is that the peer token can be unlocked to be redeemed into the base chain once its side chain representations have been burned.
Back, Back already advocated what the future of side chain interoperability could look like:
“You can have multiple side chains that compete with each other at the bitcoin level. Perhaps one optimized for micro payments. You can move bitcoins to the micropayment sidechain and then back to bitcoin for later sending to a smart contract sidechain. “
The discussion of the proposal spanned much of 2014, as evidenced by the responses and comments from Jeff Garzik, Gregory Maxwell, and Andrew Poelstra. Even Greg Sanders, who developed software at GreenAddress before it was acquired by Blockstream, and who was exactly the sidechain engineer of that company, Liquid, wrote about sidechains and treechains (the latter proposal was mainly edited by Peter Todd).
Finally in October 2014, these ideas were formalized and published in the Side chains of white paper. The authors of the paper were primarily participants in the mailing list discussion and blockstream developers (Adam Back, Pieter Wuille, Matt Corallo, Luke Dashjr, Mark Friedenbach, Andrew Poelstra, Jorge Timón, Andrew Miller and Gregory Maxwell).
Implementation of sidechains
It took almost three years from the publication of the white paper to the effective introduction of the first sidechains. After subsequent discussions on the Bitcoin developer mailing list Security risks identified in the sidechain model without trustworthy third parties suspended in the white paper.
The original proposal was based on an SPV (Simplified Payment Verification) system for the two-way pin. The SPV is known for its use in the custodian’s Bitcoin wallets, where the user does not have to run his own node and check compliance with the chain rules.
The game theory behind the SPV-based design offered little incentive to avoid attacks. According to Poelstra, they found that “the more money you have for the sidechain, the greater the incentives for someone to reorganize the blockchain.”
For this reason, from the original idea of sidechains without trusted third partiesBlockstream turned to a federation-based system. Blockstream was the first to launch a sidechain, liquid, in beta in May 2017. RSK’s production followed in January 2018, selecting a mixed system to reduce the need for trust. This hybrid mixes a dressing with an SPV test system that uses combined mining. All in all, both sidechains plan to reduce confidence in future updates.
The architecture and purpose of these two side chains have some differences, although both correspond to the basic assumptions of a side chain (bidirectionality and atomicity in the transfer of tokens between chains; autonomy of the owner of the tokens; independence of the operation of both chains).
The peculiarities of each network are the product of the focus that was taken into account in the development: liquid in retailers and on the market and RSK in decentralized applications, developers and users.
Liquid is a platform that provides shared liquidity to the exchanges. It focuses on protocol simplification, security and data protection. RSK is a side chain that focuses on dApps and decentralized finance (DeFi). Therefore, RSK’s intent is to solve a much wider range of use cases, while Liquid focuses on being efficient in one case.
The above regarding its goals. How do their architectures differ?
Like RSK, Liquid manages a native token that represents BTC in 1: 1 parity, Liquid Bitcoin or L-BTC. The system 2-way pen It is similar to that of RSK in that the L-BTC circulating in liquid correspond to the BTC blocked in the Bitcoin network. No new currencies are created.
In order for BTCs to be converted to L-BTC, the transaction in the base chain must reach at least 102 confirmations to ensure the solvency of the side chain for block reorganizations in the base chain.
There is also a Federation that mainly consists of exchangeswho is responsible for the execution of the nodes that secure the blocked money. But at consensus level, unlike RSK that uses PoW, Liquid is the Federation official who manages it.
Since the Federation is responsible for both functions, it has been divided into two types of officials: Block signer, responsible for signing the transaction blocks in the sidechain; and the Guardian, responsible for the validation of the exchange between the base chain and the side chain. This work is done by running servers that run both Bitcoin and Liquid nodes with special chain interaction software that processes the cryptographic keys that sign the transactions.
With a prefixed number of signature nodes that interact in a multi-signature contract, the transaction confirmation is faster than Bitcoin, where the number of signers is dynamic and open. If the security of one of the keys is compromised, the system is not compromised thanks to the security of the information that is distributed to the other nodes.
Liquid was developed based on the Elements Code, an open source platform that Blockstream also developed for that Building block chains compatible with side chains.
Thanks to the functions of Elements, it is possible to issue custom assets via Liquid for various purposes, e.g. B. for stocks, utilities or collectibles. Taking advantage of this opportunity, the Liquid Securities platform for issuing security tokens was set up and the Liquid Swaps Tool was provided, with which the atomic exchange between the tokens executed in the sidechain can be carried out.
One of the strongest properties of Liquid is its native support for confidential transactions (CT) both for L-BTC and for issued assets. This is also a technology developed by Blockstream that hides the amounts of the transactions from the eyes of the rest of the people on the network, except for those involved in the exchange, although the departure and arrival addresses are still visible and are therefore subject to traffic analysis.
De Liquid also highlights his experimental integration with Lightning Networkand Blockstream’s satellite messaging API. In this way, with the right configuration and operation of Bitcoin nodes, users can make micro payments in L-BTC and send messages via satellite without being dependent on the Internet.
Currently, only Blockstream’s Green and Liquid Core wallets offer support for interacting with the Liquid network.
RSK, a project funded by IOV Labs, defines itself as the “Bitcoin Smart Contracts Platform”. It’s a side chain that combines the robustness and security of Bitcoin’s consensus protocol with the flexibility of Ethereum’s full virtual Turing machine, the fork of which is the RSK Virtual Machine (RVM).
Since its inception, RSK has focused on harnessing RSK’s potential intelligent contracts and decentralized applications for the Bitcoin network. To do this, they use the same Ethereum programming language, Solidity, and the standard Web3 library, making RSK Ethereum compatible and allowing developers to interact with their smart contracts and tools.
RSK has anchored Smart Bitcoin (RBTC) 1: 1 as a native token at the price of BTC and its delivery, which means that there can only be 21 million RBTCs that are created only when BTC is blocked in a multi-signature wallet the Bitcoin network. The RBTC is used to pay for the gas required to carry out transactions in the RSK network and can be used as security for DeFi (decentralized finance) applications.
In RSK, consensus is achieved through so-called merged mining, which is based on a VPS system that uses the basic chain block header to connect the side chain. Because both chains use the same SHA256 consensus algorithm, miners can validate Bitcoin and RSK transactions with the same computing power and at no additional cost. This increases the profitability of mining as miners receive 80% of the gas paid in RSK transactions.
The RSK white paper states that if Bitcoin had native full Turing-Smart contracts, the two-way pin with RSK could be free of third parties. However, since the required operational codes are not available, the RSK Federation must participate to ensure that cryptocurrencies are blocked.
So to release the blocked funds The signature of the majority of the fifteen members of the Federation is required. This does not mean human intervention. The process is carried out automatically via the software of each member’s node, which is executed in the Hardware Security Module (HSM).
It also automates the changing of federation members, and any member can accept or reject a change. This process is carried out through an intelligent contract so that it is accessible to the public. The RSK community has suggested using a drivechain model that allows miners to participate in pin securing (peg), reducing the need for the federation. RSK is working on the migration to a hybrid model.
Compared to Bitcoin, RSK can increase the confirmation rate to an average of up to 25 transactions per second. In addition, Lumino, a payment channel system similar to the Lightning Network, was developed by RSK, which enables checks and tokens made by BTC to be issued on RSK that are issued without the need for confirmations.
In terms of transaction privacy, RSK can deploy almost any system through integration through user-level contracts developed by third parties. Some existing examples are Zether, Mobius and AZTEC. With protocols similar to zCash over RSK, it is even possible to achieve the greatest possible degree of anonymity.
The RSK Domain Name Service (RNS) currently works in RSK, which converts the public addresses of Bitcoin wallets from an alphanumeric sequence into an address that is human-readable. On the other hand, an ecosystem of products connected to DeFI has been introduced in its network to take advantage of the volatility of Bitcoin and at the same time issue a stable coin that is anchored at the price of the dollar and secured with Bitcoins: Money on Chain. RSK has several use cases for blockchain technology.
The RSK network can be navigated via wallets such as MyCrypto, MyEtherWallet, Cobo, Edge, Portis, MelloWallet, Ledger and Trezor.
All in all, the design of this type of side chain is still perfect. The RSK research team has identified potential for improvement that could make the platform more efficient and secure, and since 2016 has begun to show shortcomings in the current sidechain approach for Bitcoin. This investigation eventually led to one New sidechain proposal that RSK could migrate to: the SyncChain.
SyncChain enables tokens to enter and exit between chains much faster without compromising security against double-spending attacks. The incoming connection is reduced from 16 hours to only 30 minutes, while the outgoing connection is reduced from 16 hours to 1.6 hours. The importance of this improvement is understood when you consider that existing sidechains require hundreds of block commits.
Although the SyncChain can have different variants, there are three essential components for this architecture:: deferred double paternity; the Connector transaction link; y Coin base anchor.
The calling deferred double paternity Pillars the idea that sidechain blocks must specify both a sidechain parent and a parent. The inherited state before processing the block in the side chain corresponds to a state after both parents have been processed, and reversing one parent causes the child block of the side chain to be reversed. However, by shifting the connection between the side chain block and the base chain block, it would be necessary to reset a larger number of blocks in the main chain before blocks in the side chain can be reset.
To distinguish themselves in this way, SyncChains require a special consensus algorithm called “Checkpoint Selection Algorithm”, which selects a checkpoint in the main chain and uses its decision to confirm whether it has been properly validated or not blocking time stamps.
The Connector transaction link refers to the connection between all peg in or inbound transactions and peg out or outbound transactions. This is done to reduce the area of double expenditure when entering or leaving the side chain.
In the case of SyncChain, a transaction in RSK is created to transfer tokens from RSK to Bitcoin, which is referred to as an outgoing connector request and transfers the RBTC to the smart contract of the inter-chain bridge. After a certain number of block commits in RSK, the bridge creates an outgoing transaction template that contains placeholders for compound officers to insert their signatures.
Then the bridge asks the Federation officials to sign it. This event is called an exit request. The exit transaction must contain a special data exit that includes an OP_RETURN, the block hash for block A, and the block number of A. We call this data loading access from the side chain checkpoint. Side chain control points in conjunction with main chain control points generate reciprocal control point references.
Once most of the functional signatures for the outbound transaction have been collected, the transaction will be transferred and is expected to be added to the Bitcoin blockchain soon.
Finally, in terms of Coin base anchorThe easiest way to anchor transactions in a particular block is to add a new opcode to the Bitcoin protocol. Without adding this opcode, which can affect coin fungibility, anchoring can be accomplished by consuming an issue of a coinbase transaction for the outgoing connector transaction between the issue transaction blocks. If the block is reset, the outgoing transaction becomes invalid.
SyncChain is one of the newest suggestions for sidechains, and it can be said to be the most recent phase in this short history of sidechains.
We have seen how long it can take from the germination of an idea to its formulation in a technical sheet and finally its implementation. It is also clear that the story does not end when the network is deployed, but is continuously examined for improvements in efficiency and security.
With SyncChain, this is no exception. Yeah well RSK plans to switch to this proposalThere are not a few challenges they still face. Although SyncChain offers many advantages over an SPV sidechain, it is still too early to say when and how RSK could become SyncChain. There are advantages, but there are also risks associated with migration. Coding, tests, simulations and security audits must validate every design decision.
This original proposal is likely to change over the course of the investigation, just as it did when Blockstream proposed its sidechains white paper until they were implemented.
Once the research and development phase is complete, the discussion will receive comments from the community on the migration. RSK estimates that this will happen by 2021.