Bitcoin sidechain with a bigger block size limit may soon be a reality

Bitcoin’s block size debate is seeping into the mainstream press, the Wall Street Journal states that the “bitter split in the developer community behind the virtual currency threatened to literally break it in two.” The article echoes statements made by investors such as Vinny Lingham, the Civic CEO and Gyft co-founder, who states “I’ve been very surprised with the amount of vocal support for a Bitcoin Hard Fork.”

A fork happens when developers take a copy of source code from one software package and start independent development on it, creating a distinct and separate piece of software. The term often implies not merely a development branch, but also a split in the developer community.

The scaling debate revolves around the size of Bitcoin blocks, which hold the networks transactions. Bitcoin Unlimited is a hard-fork of Bitcoin that raises the block size, but isn’t backwards compatible with the current source code. Lingham is concerned that a hard-fork in Bitcoin will result in two competing cryptocurrencies, or “altcoins.”

”In the event that 35–50% of miners broke away and created an altcoin, in this case — Bitcoin Unlimited, we would essentially then have 2 coins, Bitcoin (BTC) & Bitcoin Unlimited (BTU).”
— – Vinny Lingham, Civic CEO and Gyft Co-Founder

Previous attempts to increase the block size limit by way of a hard-fork, such as Bitcoin Classic and Bitcoin XT, have all failed. Bitcoin Unlimited is the latest such attempt, but 18 bitcoin exchanges released a statement last week indicating they will list Bitcoin Unlimited tokens as an alternative asset.

“While a contentious forking event may be inevitable, and may ultimately provide a path forward for on-chain capacity increases, we have an obligation to our customers to provide a clear and consistent plan to minimize potential confusion surrounding such an event,” the announcement states. “In the case of a Bitcoin hardfork, we cannot suspend operations and wait for a winner to emerge.”

However, a proposed soft-fork, Segregated Witness (SegWit), may increase the block size limit to over 2.1 megabytes, according to Bitfury’s Alex Petrov, based on current user activity. A soft-fork alters the current implementation of Bitcoin, maintaining a single cryptocurrency.

According to the associated Bitcoin Improvement Proposal (BIP), the protocol change is scheduled to activate after 95 percent of the Bitcoin network’s hashrate signals support, which is the deployment process outlined in BIP 9. Roughly 25 percent of miners are currently signaling readiness for Segregated Witness. According to Coin Dance, every major exchange and wallet provider is currently implementing or plans to implement Segregated Witness.

That said, a team of developers believe they have a second solution that will keep everyone on the same network. Paul Sztorc, who is an economist at enterprise blockchain startup Bloq, first introduced Drivechain late in 2015. The concept builds on sidechains, and promises to make altcoins, “obsolete.”

“The use of sidechains would indirectly remove the blocksize limit altogether.”
— – Paul Sztorc, Drivechain Creator

Sidechains themselves are not new. The idea, and how to build them, has been discussed since 2014. The key idea revolves around sending a cryptocurrency to another blockchain. R3 Chief Technology Officer Richard Gendal Brown describes these blockchains as, “a Bitcoin-like system out there that you’d like to use.”

“Perhaps it’s litecoin or ethereum or perhaps it’s something brand new,” Gendal Brown presupposes. “Maybe it has a faster block confirmation interval and a richer scripting language. It doesn’t matter. The point is: you’d like to use it but would rather not have to go through the risk and effort of buying the native tokens for that platform.”

Sztorc explains how that process might work in drivechains, “You could take 3 BTC, use them to purchase 3 side-Litecoin at a fixed 1:1 exchange rate, send those Litecoin to a friend on the Litecoin-chain, and then this friend can then redeem them at the same same 1:1 exchange rate (for exactly 3 BTC, which re-appears on the Bitcoin chain).”

“It would take me all of five minutes to change the block size on a bitcoin fork,” Bitcoin developer Patrick Murphy tells BraveNewCoin. “I bet it would take an hour to get it all finished on the slow side.” Murphy is currently finalizing an implementation of drivechains.

“Sidechains are alternate chains of Bitcoin (‘Alt-chains’) which do not have their own token.”
— – Drivechain

Sztorc tells BraveNewCoin he has been working on a new website explaining the drivechain concept, and a variety of alternative blockchain projects are already listed on the site. The project that will catch the eye of big block supporters is known as Extended Bitcoin.

The project is simply the current version of Bitcoin Core with Bitcoin Improvement Proposal (BIP) 101 implemented on top of it. BIP 101 is the hard-fork block size increase implemented in former bitcoin developer Mike Hearn’s Bitcoin XT software client.

According to Sztorc’s original post on the subject, he does not think drivechains can do anything bad to bitcoin; however, there are some concerns among the greater technical community. Miners have to agree to start merged mining on the various blockchain chains, where two or more different cryptocurrencies based on the same algorithm are mined simultaneously.

“Lot’s of people hate merged mining and lots of people hate miners having power,” Murphy told BraveNewCoin. Bitcoin Core contributor Peter Todd has stated that merge mined sidechains are, “much less secure,” and could lead to further centralization of the mining industry.

However, Sztorc believes he has "risen to the challenge" of these technical concerns through the use of what he calls blind merged mining. "When I describe sidechains to people, most people think ‘it’s too good to be true’…it’s​ a kind of reverse wishful thinking," Sztorc explains. "Well, they’re good, and they’re true. And they’re almost finished."

A third iteration of a drivechain implementation is currently being completed, and will be presented to the greater technical community for feedback and bug testing. “We’re trying to get something finished enough to prove the idea, and then we’ll have the developer community tear apart everything and go from there,” Murphy told BraveNewCoin.

After further technical review, it will then be up to the greater community to decide whether this is something they’d like to see in bitcoin. However, enabling each new sidechain in bitcoin would, according to Murphy, require a separate soft-fork change to bitcoin’s consensus rules.

“I think a fork to fix something actually broken would even be controversial right now. I’m biased, obviously, but I think sidechains of some form have at least the potential to make most people happy and possibly get majority consensus that it is a good idea.”

• Patrick Murphy, Drivechain developer