Too many bitcoin proponents get caught up in the world of trading, looking to new altcoin projects in hopes of earning a profit, with very short-sighted interests into what useful features or changes the project might add to cryptocurrency use and adoption in the real world.
That can lead many who are interested in the world of cryptocurrency to overlook some of the most useful and interesting projects out there because they don’t carry with them the potential for big short term gains. Celebrity anonymous “devs” crank out shitcoin after crapcoin, selling the sizzle instead of the steak and abandoning the project a few months after piquing investor interest. In an environment like this, it’s easy for the genuine projects out there to get lost.
Blockstream is working on one such valuable project.
Blockstream has been working for some time now on developing a working implementation of sidechains to the bitcoin blockchain. Blockstream was co-founded by Adam Back, creator of HashCash. HashCash is one of the few digital currency projects prior to bitcoin that received a mention in Satoshi’s original bitcoin whitepaper, and forms the basis of Bitcoin’s proof-of-work mining algorithm.
Blockstream recently released Sidechain Elements, which includes code for the initial version of the sidechains project along with a working testnet. Other developers can utilize the open source code to begin working on their own sidechain implementations.
What Are Sidechains?
But what are sidechains anyway? Sidechains are interactive with, but separate from, the main blockchain for a cryptocurrency. Since Blockstream is working on bitcoin sidechains, their sidechain tokens could be representative of any number of things, and perhaps even be pegged to real-world commodities.
These sidechain tokens are then interchangeable with bitcoin. Tokens can move from sidechains to and from the main blockchain, similar to moving tokens on and off exchanges. The critical difference is that with sidechains, tokens remain on a decentralized, trustless network.
Sidechains are critical to the growth of bitcoin, including its adoption by bigger-money powers like those on Wall Street. Sidechains improve user privacy when using bitcoin. While much of the discussion around anonymous transactions have either focused on criminal uses or mistakenly imbued bitcoin with the power of anonymity, the truth is that quite a bit of legitimate business information must be kept confidential, sometimes to secure business advantage, other times due to legal or fiduciary obligation.
Sidechains can help to obscure the amount of money being moved in any given transaction because the tokens can represent so many different things. It becomes impossible to determine who is moving what simply from blockchain analysis, even though the transaction contains all the data necessary to confirm.
Sidechains allow developers to create new cryptocurrency features without creating an entirely new cryptocurrency. Instead, the new features exist as tokens within the Bitcoin system, on blockchain that exists in tandem with bitcoin and with tokens that are transferable between the two chains.
The development pace for bitcoin is slow by design, and very cautious. After all, bitcoin represents $3.5 billion in assets. Nobody wants a problem, even a hiccup, that could put that in jeopardy.
Sidechains combine the advantage of bitcoin compatibility with an independence that allows more experimentation. With sidechains, users and developers can use the network effect to their advantage. Tokens on sidechains could be exchangeable for bitcoin, and being a sidechain to the most popular cryptocurrency means more people have easier access.
Sidechains could open up a world of possibilities for bitcoin to potentially adopt many of the more interesting features and characteristics that the experimentation in the altcoin space has opened up, without the market and development fragmentation that naturally follows.
Where will sidechains take us? Time will tell.