Why Bitcoin side-chains might be good for Peercoin

I don’t know when, but believe that we will see Bitcoin side-chains being implemented, launched and adopted by the overall Bitcoin community. Why? Because really motivated and experienced people are funded to work on it.

Though bitcoins are virtual tokens on the Bitcoin blockchain (one could compare this to tokens in Maidsafe where, if I’m not mistaken, the tokens are actually real tokens), they will most likely be spendable back and forth between the chains. The implications are huge.

All of these coins that have been able to compete with Bitcoin by introducing features that Bitcoin, for one or the other reason have not implemented, will suddenly be competing with Bitcoin side-chains that will be able to offer the very same thing. Do you want anonymous tokens, probably a side-chain will be able to offer that and since Bitcoin has the network effect going for it, resistance is likely futile.

One way to think of the crypto currency landscape, is to view it as a purchasing power sink. So much money is being spent on betting on the coins that offers that which Bitcoin does not. Think of all of these coins as a big pool to which money is flowing. When Bitcoin suddenly offers these very same features, there will be little point holding these other coins and the purchasing power will flow to bitcoins instead. Everyone holding coins that no longer has anything to offer, will sell and buy bitcoins.

One has to remember, while a plethora of new side-chains will spring up from nowhere, the bitcoins themselves will move between the side-chains, so even though there will be more chains there will not be more bitcoins.

This is going to push bitcoins to even greater heights, which will make speculators even more eager to sell their coins and join the bitcoins rally. Fundamentally it will be the sound thing to do and since the AltCoins will be crashing in value, it will make perfectly sense to do so from a purely speculative point of view.

What about Peercoin?
Well, one feature that Peercoin offers that Bitcoin does not, is Proof-of-Stake. I don’t expect to see a Bitcoin side-chain offering PoS of stake, at least not as implemented in Peercoin. I could be wrong, but I simply don’t see it right now. Bitcoin believers and devs are against it and well, that’s a bad argument because someone else could do it but if the side-chains are implemented in such a way that Bitcoin requires Proof-of-Work to move then coins, the odds of it happening even less so.

If (and only if the above is true) then suddenly Bitcoin might out compete every other coins besides the PoS coins. This will eliminate much of the Peercoin competition which should push up the price of peercoins, because Peercoin is in my view the best hedge/bet against PoW.

Nice analysis This same thing has gone through my mind as well. I don’t see Bitcoin sidechains harming proof-of-stake coins. As long as Bitcoin continues to rely on proof-of-work to power its blockchain and sidechains, it will meet its end at some point when proof-of-work begins to fail. That will give an opportunity to proof-of-stake coins like Peercoin and NuBits/NuShares (Though NuBits is relying more on its price stability for its advantage, rather than waiting for the failure of proof-of-work like Peercoin is).

My question though is about Bitcoin’s implementation of sidechains. What are the implications of bitcoins being able to pass through the different sidechains? What sorts of things would that setup allow for?

Also, keep in mind that Sunny has previously said that his focus is not on being able to pass peercoins through sidechains, so does that mean that Peercoin sidechains would be less useful? Is it possible that whatever setup Sunny implements, that it could be modified to allow for peercoins to pass through different chains? Emeth seems to understand some of this. Maybe he has an answer to these questions.

Interesting analyses. I think from a functional perspective sidechains vs Bitcoin may come really close to alt-coins vs Bitcoin as we know now.
The main difference will be that a side chain enables cross chain movements of tokens and with alt-coins you exchange tokens outside the chains. Both can have a market in between eventually and from an end-user perspective i t might be seamless either way (see e.g. shapeshift.io).

I think the whole ecosystem will eventually evolve in millions of sidechains or islands of connected sidechains which are somehow connected to each other.

I think Peercoin and NuBits ecosystem should be one of those islands of chains adding many other types of chains where tokens can be moved cross chain without external exchanges.

Just my view of the future 8)

Im not sure I know of all the implications, but some of them are that more experiments can be done without risking the main chaiN. A lot of experimenTS have been financed by devs figuring they could make a buck of the coin succeed, with Bitcoin side -chains financing is less clear. Maybe lighthouse or something like that? Maybe business requirements demands something else (like more anonymous coins or less anonymous coins) And will pay for it. I don’t know. But if it is two way cross transfer, it implies that while side chains might compete with eachowther, the coins on the side chains should be worth as much as the coins on the main chain (a small drift might be possible). This implies that bitcoins will gain an even greater foothold because of the network effecT. It also means that whenever Bitcoin isn’t good enough, a side -chain might be develop developed that is without any harm to the original Bitcoin (because the value of the coins should stay the same). Since Bitcoin tokens can represent "anything " and the block chain used for a whole lot, it means that bitcoins could find its way into all the cracks in society and totally soak the whole financial system. In a sense the value of a Bitcoin would now be separated from the Bitcoin protocol, ie the value of bitcoins would not be limited by the limited feature set of the Bitcoin protocol. Because as long as a new side chain can be created, those missing features can be added. Im used to thinking of bitcoins value being tired to the Bitcoin protocol and network, but in the future I might have to start valuing not the Bitcoin protocol itself but instead the actual bitcoins. Ie If bitcoins can be used for _everything _ (because the feature set will be able to extended to fit the need/requirements of what ever) then how many of those coins do we actually have (21) and what is the ratio of "everything "/21 which should be the coins implicit value. In my opinion side chains with two way crossing is more interesting then ethereum and stuff like that, because that technology can be created on a side chain which would then be ethereum + bitcoins.

I still believe PoW is flawed thoug, because it leads to centralization which is exactly what Bitcoin was w an attempt to solve.

Edit: if side chain works and people/biz will create new chain chains the value of bitcoins … … … well they would be worth much more then we can even dream of. Trillion dollar market no problem and perhaps even The world reserve Currency … (don’t know how long it would take though ))

Bitcoin’s sidechain implementation will only allow for PoW coins. The security of the side-chains will be maintained by merged mining - yet the mining will give no rewards to the miners.

It is expected that miners will do it to support sidechains they like, because it cost them nothing extra to do so. That’s a lie though - it costs miners both initial setup time and extra storage space / bandwidth to keep the sidechain up to date.

Because of that, there will never be hundreds of Bitcoin sidechains. There simply cannot be. To be secure, a significant majority of Bitcoin hashpower must agree to help secure a sidechain for no benefit. If a sidechain has less than that, a malicious miner can attack a sidechain and steal all coins pegged to that sidechain, releasing them to himself on the mainchain.

So expect to see 1-3 super popular sidechains that a large number of miners agree to merge mine, while all others fade into dust. This will not spark innovation in Bitcoin. This will merely increase the speed into which it runs into a brick wall - gives miners an incentive to go to the dark side faster than would happen otherwise.

Peercoin sidechains solve a completely different purpose. See Sunny’s description here:
https://bitcointalk.org/index.php?topic=113615.msg1227489#msg1227489

Basically, Sunny’s idea of sidechains will solve the question of where to store data in apps like Peermessage. Currently, when a message is posted, we store a unique key (hash) on the Peercoin sidechain, and that key points to an external data store (e.g. tinyurl) that expands to the data payload.

With Sunny’s sidechains, that key/hash can point to a specific transaction in the sidechain where the data is stored instead. The sidechain will be run by whoever is interested in the app using it (e.g. anyone using Peermessage would download/propogate the Peermessage sidechain). Since a lot of data would be stored in the sidechain, it has to be recycled - and thus stuff in the sidechain is essentially deleted after 2 weeks. Security doesn’t need to be nearly as strong in the sidechain as in the mainchain, since there’s no currency involved - just data - double spending attacks aren’t a big attack vector.

So peercoins would not flow into and out of peercoin’s sidechains. Rather, peercoin’s sidechains would store data that is linked to transactions in the mainchain.

Peercoin’s sidechains will allow all sorts of data-apps to be completely decentralized, of the type I dream of (PeerMessage, PeerBlogs, PeerDNS, PeerMarkets, etc.). Bitcoin’s sidechains will allow altcoins to be created without premines.

Thanks for the explanation emeth!

I understand it a bit differently. In the whitepaper it says (http://blockstream.com/wp-content/uploads/2014/10/sidechains.pdf):

Miners that provide work for a subset of blockchains are compensated less than those 350 which provide work for every possible blockchain.

Which I interpreter as though mining for a reward only on subsets is possible to do for a reward.

The issue with PoW and centralization does however become even more relevant, and I quote:

We note however that it is possible for miners to delegate validation and transaction selection of any subset of the blockchains that they provide work for... However such delegation comes at the cost of centralising validation and transaction selection for the blockchain, even if the work generation itself remains distributed. Miners might also choose instead to not provide work for blockchains that they are still in the process of validating, thus voluntarily giving up some compensation in 360 exchange for increased validation decentralisation.

So if you’re running a unique biz with kind of your own side chain, then you might have to secure your own chain and be willing to pay for it (one should probably note that there might be other side-chains offering kind of the same thing and that those mining on that side-chain could possible attack weaker once (say “Cola Cola” company attacks “Peipls” to get some kind of biz advantage).

Well, no matter how one twist it - for sure PoW is troublesome and the guys at blockstreams knows about this. One way to protect against centralization would be to create some kind of cryptographic protection so that mining machines on a remote island that is been rented by some dude in some other country paying for some cloud mining stuff kind of actually is able to control what the actual physical mining machine is doing for kind of work. This I think is very much the beginning of the end and it will turn out to be a “trust based” thing where you have to trust that the protection is not overridden, backdoors, closed mining facility that can be compromised physically.

But how could this be possible without a hardfork? If the reward is issued on the sidechain, it can’t be convertible to BTC, which means it creates the altcoin problem (sidechain’s altcoin reward) that it purports to solve. The reward cannot be issued on the mainchain without a hardfork that modifies the BTC generation schedule.

I don’t see how to secure BTC sidechains without one of these: a BTC hard fork, altruistic security through merge-mining, or alternative tokens.