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Blockstream Releases Sidechain Elements

Blockstream has released the alpha version of Sidechain Elements, an open source project designed to greatly extend the bitcoin network and its' functionality.

Blockstream recently released their long-anticipated, initial version, of a sidechain protocol called Sidechain Elements. This project has the potential to greatly extend the usability of Bitcoin, perhaps even solving major problems like the infamous transaction limit that threatens Bitcoin’s scalability.

The company, and talented staff, received $21 Million in Venture Capital funding last November. Many bitcoin professionals and enthusiasts have been anxiously waiting to hear more about the resulting sidechain project, previously hinted at in their whitepaper.

The announcement coincided with a blog post, a new website, and even a 47-minute long in depth video by developer Gregory Maxwell explaining the whole system. The vision of how exactly sidechains are going to work and benefit us all is starting to become clear.

A useful way to visualize a sidechain is to imagine an off-blockchain service, such as an exchange like Coinbase, that holds your bitcoins and lets you use a platform. Off-blockchain services can move transactions away from the Bitcoin blockchain, avoiding a range of issues including blockchain bloat.

Sidechains are essentially smart contracts, or computer protocols that can facilitate and enforce the fulfilment of an agreement. Sidechains can lock up your bitcoins in exchange for tokens on a secondary blockchain, and can be retrieved by returning the tokens. These alternative blockchains can behave very differently than the Bitcoin blockchain. This negates the use of Proof of Burn, often seen in crowdsales, which can make Bitcoins permanently unusable.

Although it’s tempting to think of a sidechain as an altcoin that is backed by bitcoin, the tokens on the sidechain aren’t independent of Bitcoin, and don’t even exist when bitcoin isn’t locked in. A major reason that many altcoins were created, according to their creators, was to improve upon the shortfalls of Bitcoin. Many were designed with faster confirmation times, while citing bitcoin’s ten-minute confirmations as being too slow for practical use. Others power decentralized applications, such as social media platforms and financial services, while some even offset carbon emissions and reward solar power producers.

Sidechain Elements is a protocol, that once fully developed, will allow many different vendors and projects to make their own sidechains. One day we may see thousands of sidechains, or perhaps not see any of them at all, calling all of it simply Bitcoin.

The proposed uses for sidechains don’t seem to ever stop coming in. They could address a range of issues, and add an even bigger range of features:

  • Far higher transaction (TPS) bandwidth: Solving one of the largest problem bitcoin faces today.
  • More divisibility: Smaller-than-satoshi units.
  • Super-duper-smart contracts: Allowing functionality we can’t imagine yet.
  • Advanced privacy features: A truly anonymous coin could be possible.
  • Reversible transactions: Allowing chargebacks finally.
  • Credit: Bitcoin deposits could act as collateral for a credit account on the sidechain.
  • Blockchain size relief: Wallets on a sidechain could be full clients, that are tiny.
  • Faster confirmation times: The sidechain could have any conceivable confirmation rate.
  • Legacy banking instruments: Banks could keep control over their own digital currencies.

With so many uses it’s no wonder that a half dozen Bitcoin core developers, and many other talented people, were attracted to this project. Sidechain Elements could conceivably become a standard inclusion of Bitcoin itself one day, if it is found to be universally useful.

While Sidechain Elements is still in Alpha, the protocol is unavailable for general consumption. The alpha testing tokens are created when Testnet bitcoins are held in a specific smart contract known, as a two-way peg. Pegged bitcoins are held in exchange for tokens on the alpha testing sidechain. Using a two-way peg also means that pre-mining, a practice often associated with scams, can be avoided.

It is perfectly reasonable to expect many altcoins, specifically those that have functionality that sidechains can replace, will die off in rapid succession after the full release of Sidechain Elements, whenever that comes. Some altcoins are truly unique though, and we have yet to see which ones will survive this potentially massive upgrade to the ecosystem.

A common questions about sidechains is why colored coins can’t simply be used for these new functions, without the peg. They are, after all, smart contracts themselves. It turns out that colored coins are incompatible with Bitcoin’s Simplified Payment Verification (SPV). It wasn’t always that way, but this problem was the result of a trade-off that bitcoin developers had to make during a previous version upgrade.

Sidechain Elements alpha release is currently based completely around a group of centralized servers. In future versions the protocol will run on a more decentralized network, but for now there are just seven servers. When users enter into a Sidechain Elements contract they’ll be sending testnet bitcoins to a 5-of-7 multisignature address, with one key stored on each server.

These servers also double as the mining network for the Sidechain Elements blockchain, and are the only nodes that can mine it. All of this is done with smart contracts, making it impossible for humans to interfere with the storage or release of bitcoins.

The future for Sidechain Elements looks bright, but not yet certain. Developers are being encouraged to download the Alpha Elements Client, gets some bitcoin Testnet coins, and start creating and testing as much as possible. Blockstream’s president, Dr. Adam Back, the inventor of the mining process Satoshi used to create bitcoin, hashcash, recently expressed his desire that the release of Sidechain Elements would drive the bitcoin community to contribute to the open source project. There is no target date set yet for a fully-developed, production-ready client, but with the working alpha client now in the community’s hands the development time should be greatly reduced.


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