A new paper released by a company called Blockstream could have the potential to solve many of the issues that are facing the bitcoin protocol today. Some has stated that Blockstream could become the Red Hat of the bitcoin ecosystem, and their current focus is to create a working implementation of a concept known as sidechains.
What are Sidechains?
One of the trends in bitcoin over the past two years has been the proliferation of altcoins. It seems that whenever someone believes they have an idea for improving upon bitcoin, they launch some new kind of cryptocurrency to test out their theories in the real world. Many have noted that a lot of these new altcoins are nothing more than pump and dump scams, although there have also been a few legitimate forks of the bitcoin source code. Most people view the altcoin market as a place for testing out new ideas, and others view it as a sort of casino where people can gamble on the ups and downs of the volatile market.
Sidechains are a proposed solution to the creation of these new currencies. Instead of creating a new coin every time someone thinks of a new feature or use for cryptocurrency, developers will now be able to use sidechains to attach the bitcoin currency to chains other than the main bitcoin blockchain. In other words, sidechains are a way to combine all of the innovation happening in the altcoin space with bitcoin’s powerful network effects. The people behind the concept have stated that new versions of everything from Dogecoin (announced recently about merged mining with Litecoin) to Ethereum (read more: Crypto 2.0: a Historical Look Inside) could be implemented as sidechains in the future.
How Do Sidechains Work?
Sidechains are basically a way to transport bitcoins between different blockchains. This is achieved by locking the bitcoins on one blockchain and unlocking them on another one. The result of this lock process is that the bitcoins are essentially transported to a different ledger. This also means that new units of account cannot exist on a sidechain until someone decides to send some of their bitcoins to that alternative chain. There will no longer be a need to “premine” some altcoin when creating a new blockchain.
What are the Possible Problems with Sidechains?
Although much of the bitcoin community is excited about what will soon be possible through the use of sidechains, there are also some who believe this new system could create a new list of problems. There are a few main issues that have already been publicly voiced by the anti-sidechains crowd, and the main problem they see with the concept is that it could lead to further centralization of bitcoin mining. This is because sidechains are merge-mined with the main bitcoin blockchain. Due to this merge-mining process, some of the sidechains could actually be attacked by the miners of the bitcoin blockchain (the miners who are merge-mining a sidechain could possibly take control of a large share of that sidechain’s network hashrate and would be able to exploit the sidechain through a 51% attack, which is an inherent problem with blockchains based on proof-of-work).
To Be Decided
Whether the Blockstream team is right about sidechains or not, it’s clear that we are about to see this experiment play out over the next few years. The theory seems to be laid out rather clearly right now, but we’ll have to wait to see if this upgrade happens. The bitcoin development process has been known to be a bit sluggish at times in the past, so it will be interesting to see if Blockstream can get the ball rolling on this change relatively soon.
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