Blockchain is a distributed ledger technology that aims to carry out secure yet transparent transactions with cryptocurrencies. One of the most important developments in the blockchain industry has been development of sidechains operating on a 2-way peg system.
What are Sidechains?
A sidechain is also blockchain that runs and operates akin to the main Blockchain network. The basic function of a sidechain is to amplify the functionality of the main blockchain by allowing a friction free transaction network back and forth the main blockchain.
Sidechains are decentralized, peer-to-peer networks that enhance the performance of a given blockchain network by adding features such ashigh security, lower risk, and efficient performance along with minimizing the storage space and operating length of the main blockchain. This enables global systems of value exchange with zero third party interference. And further, it allows developers to come up with new applications without a risk.
What is Two-way Pegging?
A two-way pegging is a system that explains transfer of Bitcoins or cryptocurrencies, in general from the main blockchain to the sidechain and vice-versa.
Well, to your surprise, this transfer is a “mirage” and the currencies are not really transferred from the main chain to the sidechain. How it actually works is that a certain amount of tokens (to be transferred) is blocked in the main blockchain an d the same amount of tokens are unlocked in the sidechain. When the tokens in the main blockchain are unlocked, the one’s in the secondary chain is locked again.
However, this assumption can be correctly realized if certain assumptions are taken into considerations. For instance,
- We need to assume that the participants in a two-way peg are honest.
- The main blockchain has not been censored at all.
- The party that holds the custody of the licked tokens is also honest.
If these assumptions do not hold good, the two-peg will deploy a double-spend which is obviously vindictive.
Sidechains as special case of two-way pegging
When a blockchain does not want to put the bear down to numerous third parties, they administer another blockchain its premises and regard it as sidechain. This sidechain follows a protocol drawn out by solidarity.These sidechains are made tocomprehend the consensus system of main blockchain and can thus are able to autonomously release tokens when given proof of a lock transaction in the main blockchain.
Shortcomings of sidechains
- Public blockchains usually lack settlement finality (directives that apply to final payment and security settlement issues). If this feature stands missing in the sidechains, there is negligible assurance for secure locking of the tokens it them.
- Besides, settlement finality, it requires entanglement (reversal of the lock transaction in the primary blockchain implies the reversal of the unlock transaction in the secondary blockchain)
- Sidechains in Bitcoin requires a soft-fork or hard-fork to add new complex opcodes. Blockstream proposal is currently incomplete and does not address the validation of proof-of-work.
Blockstream and sidechains
Whenever we talk of sidechains, the commendable work by Blockstream definitely calls for applause. This company aims to widen to scope of Bitcoin, basically sidechains.
The firm also extends financial aids to Bitcoin core (network client software), Lightning network (a project that aims to reduce the transaction costs), Elements project (testing environment for sidechains) and Hyperledger (aims to standardize Blockchain-based ledgers globally.
Blockchain-the most fascinating and disruptive invention since the Internet itself
Usecases of Blockchain Technology
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Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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