Sidechain is a blockchain that runs parallel to the main blockchain. It extends the functionality of interplorable blockchain networks. Interpolable blockchain networks signifies the ability to share data between different computer systems on different machines. It means that data can be sent and received between interconnected networks eliminating the possibility of negative impact to the networks. Sidechain enables this to be done in a decentralised manner to transfer and synchronise tokens between two chains.
Put simply, sidechaining is any mechanism that allows tokens from one blockchain to be securely used within a completely separate blockchain but still moved back to the original chain if necessary. By convention the original chain is normally referred to as the "main chain", while any additional blockchains which allow users to transact within them in the tokens of the main chain are referred to as "sidechains". For example, a private Ethereum-based network that had a linkage allowing ether to be securely moved from the public Ethereum main chain onto it and back would be considered to be a sidechain of the public network.
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Forbes reports that blockchain and biometric eyeball scanning technologies underpin the systems that support food distribution in the Syrian refugee crisis. While there are many further uses of blockchain, at the core of its business functionality is the creation of transparent, stacking “ledgers” of information. This is where private blockchain can prove extremely useful.
Unlike the other two-way peg mechanisms discussed in this article, SPV sidechains do not give direct control of real bitcoins on the main chain to a custodian; however, the ability for a majority of miners to produce and build upon fraudulent SPV proofs gives them indirect control over the funds, including the ability to send to themselves. Having said that, there are ways to mitigate this issue.
Byzantine fault tolerance (BFT) is what keeps the blockchain fundamentally secure. For simplicity, let’s say there were 100 nodes in a blockchain network (there are currently about 10,500 full Bitcoin nodes in the world). What happens when one node wants to tamper with the latest block and say other Bitcoin users sent him a whole bunch of Bitcoin when they really didn’t?
Function Transactions executed between the locks and unlocks of the main chain tokens don't bloat the main chain. As the technology of a side chain is connected to its main chain, it can be used to build on the developments of the main chain and introduce new features to the market. Child chains serve as the transactional chains of the parent-child architecture, as the parent chain retains minimal features.
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This is what, at its core, state channels are. Imagine we wanted to play a game of Starcraft and have a smart contract that pays 1 ETH to the winner. It would be ridiculous for each participant to have to write on the main Ethereum network each time a Zergling was killed by a Zealot, or when a Command Center was upgraded to an Orbital Command. The gas cost (Ethereum gas, not Starcraft gas) and time for each transaction would be prohibitive.
Sometimes separate blocks can be produced concurrently, creating a temporary fork. In addition to a secure hash-based history, any blockchain has a specified algorithm for scoring different versions of the history so that one with a higher value can be selected over others. Blocks not selected for inclusion in the chain are called orphan blocks. Peers supporting the database have different versions of the history from time to time. They keep only the highest-scoring version of the database known to them. Whenever a peer receives a higher-scoring version (usually the old version with a single new block added) they extend or overwrite their own database and retransmit the improvement to their peers. There is never an absolute guarantee that any particular entry will remain in the best version of the history forever. Because blockchains are typically built to add the score of new blocks onto old blocks and because there are incentives to work only on extending with new blocks rather than overwriting old blocks, the probability of an entry becoming superseded goes down exponentially as more blocks are built on top of it, eventually becoming very low.:ch. 08 For example, in a blockchain using the proof-of-work system, the chain with the most cumulative proof-of-work is always considered the valid one by the network. There are a number of methods that can be used to demonstrate a sufficient level of computation. Within a blockchain the computation is carried out redundantly rather than in the traditional segregated and parallel manner.
Since 2008 when Satoshi Nakamoto published a white paper considering Bitcoin and blockchain technology, the latter gained fame as a tool for combating trust issues and bringing transparency to transactions between independent participants. Even though a decade passed, for a lay public, blockchain is still not the easiest concept to deal with. As a rule, people generalize things they don’t understand deeply in detail. Thus, when they hear “blockchain,” they tend to think there’s just one transcendental blockchain that hosts thousands of projects. But it’s a wrong perception as there are numerous blockchains and they differ.
Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin. The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server. The bitcoin design has inspired other applications, and blockchains which are readable by the public are widely used by cryptocurrencies. Private blockchains have been proposed for business use. Some marketing of blockchains has been called "snake oil".
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Sidechain transactions using a two-way peg effectively only allow for intra-chain transactions. A transfer from Bitcoin (parent chain) to Ethereum (sidechain) would allow a user to use the functionality of Ethereum (i.e., fully expressive smart contracts), but the underlying original asset would remain precisely that, Bitcoin. So, a Bitcoin on an Ethereum sidechain technically remains a Bitcoin.
Sidechain is a chain of blocks based on the main parental blockchain. Sidechains realize the new financial ecosystems via integration into Bitcoin. Relatively new to Bitcoin, the sidechain is an extension that enables the ability both to build a link between BTC and an altcoin and to create new independent services that work via the main Bitcoin blockchain. Using sidechains allows for the creation of various types of smart contracts, stocks, derivatives, etc. It is possible to develop a limitless number of Bitcoin or Ethereum-based sidechains with different tasks and features, assets of which will depend on the main blockchain’s volatility. It allows traditional blockchains to support several kinds of assets, payments, smart contracts and also to increase the level of security and anonymity of transactions.
Decentralization and distribution are seen by many to be a major benefit of public blockchains, but not everybody shares this ethos. But this is not the only benefit of public blockchains, of course. Perhaps most importantly, their transparency makes them very secure: because they can be audited by anybody, it is easy to detect fraud on the chain. Security-via-openness is a principle well known in the open source world, and this strategy is also popular among some in the digital currency community. For example, all of the tools and content produced by the Ethereum team is open source. This helps to make Ethereum widely accessible and more secure.
That is however not all. Sidechains also have some specific use cases, unique to a certain blockchain. One example is the usage of sidechains in EOS. EOS is currently facing a RAM problem. RAM is too expensive and developers are complaining. Sidechains could compete with the EOS mainchain by having lower RAM prices, this would lead to competition, incentivizing both the EOS mainchain block producers and sidechain block producers (mainchain and sidechains of EOS are maintained by the same group of block producers) to keep the RAM price as low as possible. This also means there is more RAM available, so the RAM price will go down as a result.
In October 2014, the MIT Bitcoin Club, with funding from MIT alumni, provided undergraduate students at the Massachusetts Institute of Technology access to $100 of bitcoin. The adoption rates, as studied by Catalini and Tucker (2016), revealed that when people who typically adopt technologies early are given delayed access, they tend to reject the technology.
A company called Blockstream has been focusing on these developments and has announced the release of Sidechain Elements, which is an open-sourced framework for sidechain development. It includes a functioning code and a testing environment for working with sidechains with several components: the core network software to build an initial testing sidechain, eight new features not currently supported by bitcoin, a basic wallet and the code for moving coins between blockchains.
What if we could run heavy computations in a more centralized fashion, say on a single server, and then periodically integrate the results onto the main blockchain for posterity. We temporarily expose some vulnerability while the parallel server runs the heavy computation, but we get a massive benefit in that we don’t have to run the computation on chain, and simply need to store the results for future verification. This is the general premise behind Truebit. We won’t get into all the details of Truebit but there is a concept of challengers, who check to see the computations that were made have high fidelity.
The sidechains vision of the future is of a vast globe-spanning decentralized network of many blockchains, an intertwined cable rather than a single strand, each with its own protocol, rules, and features — but all of them backed by Bitcoin, and protected by the Bitcoin mining network, as the US dollar was once backed by gold. Sidechains can also be used to prototype changes to the fundamental Bitcoin blockchain. One catch, though: this will require a small tweak to the existing Bitcoin protocol.
As an engineer and an entrepreneur, I truly believe blockchain technology is going to revolutionize the world. One of the biggest hurdles we need to tackle in the blockchain industry is scalability. Ethereum can only handle 15 transactions per second. I previously wrote about why that will prevent blockchain from going mainstream and how DAG could potentially be a winner.
As you can see, several of these real-world demands for the evolution of the initial Bitcoin implementation are still highly relevant. Trade-offs between scalability and decentralization are demonstrated with Ethereum’s focus on decentralization first and resulting complexities in developing scalable solutions. The increased emphasis on smart contract functionality, pegging real-world assets to blockchains, and experimentation of altcoins that are currently ongoing also represent the forward-thinking ideas outlined in the paper.
Public blockchains: a public blockchain is a blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process - the process for determining what blocks get added to the chain and what the current state is. As a substitute for centralized or quasi-centralized trust, public blockchains are secured by cryptoeconomics - the combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following a general principle that the degree to which someone can have an influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear. These blockchains are generally considered to be "fully decentralized".
Always there is a balance in nature, even in blockchains. If you want to have extra features, you need to make a sacrifice from your current features. For example to have high speed and volume; you need to give some from your security & immutability by doing consensus with smaller groups or you need to use different methods in consensus like POS / PBFT. (Proof of Stake / Practical Byzantine Fault Tolerance)
In some cases, these advantages are unneeded, but in others they are quite powerful - powerful enough to be worth 3x longer confirmation times and paying $0.03 for a transaction (or, once scalability technology comes into play, $0.0003 for a transaction). Note that by creating privately administered smart contracts on public blockchains, or cross-chain exchange layers between public and private blockchains, one can achieve many kinds of hybrid combinations of these properties. The solution that is optimal for a particular industry depends very heavily on what your exact industry is. In some cases, public is clearly better; in others, some degree of private control is simply necessary. As is often the case in the real world, it depends.
Contrary to popular belief, aided by deceptive blockchain marketing, blockchains are not a good solution for storing data. Each piece of information that you store in the blockchain sits in hundreds or more nodes (more than 100,000 in the case of Bitcoin) making it an extremely costly solution. This is why the Iryo Network doesn’t store data on blockchain but instead, uses blockchain to ensure the transparency of transactions. As a disclaimer, competitors also don’t save medical data on the chain itself (even those who use private chains). Instead, only the fingerprint aspect of a medical record file or a hash is stored on the blockchain.
Blockstream believes that to be secure, blockchain systems must be built with open source technology. Towards that goal, we've created the Elements Project, a community of people extending and improving the Bitcoin codebase. As open source, protocol-level technology, developers can use Elements to extend the functionality of Bitcoin and explore new applications of the blockchain. Join the expanding group of individual and corporate developers using Elements to build robust, advanced, and innovative blockchains.
“Such brazen theft would indicate  that Bitcoin would be (in the near future) without sidechains of any kind, and  that Bitcoin itself may be in danger from the miners (and we may need to consider using an alternate proof-of-work hash function),” he explained the impact of this setup in his original post on the topic. Like SPV sidechains, drivechains require a soft-forking change to Bitcoin.
Ardor is a blockchain platform predicated on childchains (sidechains) that use proof of stake (PoS) consensus. It uses the primary chain as a security chain and the childchains for processing transactions to increase scalability. Their design is specifically focused on speed and efficiency through PoS consensus and removing blockchain bloat through pruning.
Por ello, con este escenario sobre la mesa y con el objetivo de aunar esfuerzos, algunos se han preguntado: ¿Sería posible crear blockchains que sean utilizadas para casos de usos concretos, pero conectadas en todo momento a la de Bitcoin? ¿Podemos crear piezas de software que desde una blockchain se pueda saltar a otra de manera transparente, segura y descentralizada? Esto generaría, para que te hagas una imagen mental, algo así como las ruedas dentadas interconectadas de un motor, cada rueda una blockchain, todas trabajando juntas.
My take is that the Bitcoin architecture is a solution to the problem of how to maintain consensus about a ledger when the participants are unknown and many of them are adversarial (I know this is loose language… computer scientists working in the consensus space are more precise but I think this captures the essence…. i.e. we’re explicitly in a world where there is no “leader” and no identities for those providing the consensus services).
I have a hard time swallowing that Bitcoin “isn’t a ledger”. That’s like saying “Bitcoin isn’t the blockchain”, and if you take the blockchain away from Bitcoin, you aren’t really left with much (including, sidechains). Perhaps Bitcoin isn’t a ledger *from the perspective* of individual transactions, but by the same logic, nothing that isn’t transaction data is.
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There has been tremendous interest in blockchain, the technology on which Bitcoin functions. Nakamoto developed the blockchain as an acceptable solution to the game theory puzzle – Byzantine General’s Problem. This lead to a number of firms adopting the technology in different ways to solve real world issues, wherever there was an element of trust involved. Majority of them could be relating to the ability to provide proof of ownership – for documents, software modules/licenses, voting etc.
Private institutions like banks realized that they could use the core idea of blockchain as a distributed ledger technology (DLT), and create a permissioned blockchain (private or federated), where the validator is a member of a consortium or separate legal entities of the same organization. The term blockchain in the context of permissioned private ledger is highly controversial and disputed. This is why the term distributed ledger technologies emerged as a more general term.
Consider a proof-of-existence application, where you want to authenticate your document in the Ethereum (for example) network, but you do not need your document to be online. So, you will store the hash generated from your document in the blockchain, but the document itself will be in your local machine, out of any blockchain-related structured, being off-chain.
What Bitcoin’s development team is essentially doing through feature-creep is forcing everyone in the non-tech world to use Bitcoin through commercial proxies to avoid all this complexity (crypto-what? security? sidechain?), which effectively results in the loss of security, relative anonymity and decentralized properties that helped to make it interesting in the first place.
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There are many critics of payment channels. Finding the quickest path between unconnected nodes is no trivial exercise. This is a classic “traveling salesman” problem that has been worked on by top computer scientists for decades. Critics argue that it is highly unlikely payment channels like Bitcoin’s Lightning and Ethereum’s Raiden will work as expected in practice due to complexities like the traveling salesman problem. The key for you is just to know that these projects and potential solutions to blockchain scalability issues exist. Many of the smartest minds in the industry are working actively to bring them to life.
“Further, contribution is weighted by computational power rather than one threshold signature contribution per party, which allows anonymous membership without risk of a Sybil attack (when one party joins many times and has disproportionate input into the signature). For this reason, the DMMS has also been described as a solution to the Byzantine Generals Problem[AJK05].”
New organizational structures will emerge that will make inside/outside much less clear. These clear boundaries started to erode with the extranets in the 90s, then with the multi-tenant cloud platforms, and lately with the smartphones and the IoT. As we move forward we will see value chains where participants have multiple roles and affiliations. We will be designing token based systems that produce gains for any participants, internal or external.
Consortium blockchains: a consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants, and there are also hybrid routes such as the root hashes of the blocks being public together with an API that allows members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains may be considered "partially decentralized".