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Blockstream Moves Ahead with Sidechain Elements, the First Implementation of Sidechains

The authors of the much-discussed Bitcoin Sidechains paper “Enabling Blockchain Innovations with Pegged Sidechains,” released in October, formed the company Blockstream to implement sidechains and accelerate innovation in digital currencies. In November, Blockstream closed a $21 million seed funding round with nearly 40 high-profile investors.

The Bitcoin Sidechains paper envisages an ecosystem of “sidechains” separate from the main Bitcoin blockchain but interoperable with it by means of two-way pegs, allowing for the transfer of assets between sidechains and the main blockchain. A sidechain can implement changes from Bitcoin Core, for example, more powerful scripting features or more watertight privacy. According to Blockstream, sidechains enable innovators to safely develop new applications without jeopardizing Bitcoin’s core code and putting billions of dollars worth of digital currency at risk.

For a readable explanation of sidechains, see “A simple explanation of Bitcoin ‘Sidechains,” by Richard Gendal Brown, executive architect for banking innovation at IBM UK. Despite the considerable interest in sidechains, the enthusiasm of developers has been so far dampened by the lack of actual implementations of sidechains.

Now Blockstream has announced Sidechain Elements, a sidechain development framework with open source code and developer sidechains.

“We’re excited to announce the release of Sidechain Elements,” says Adam Back, co-founder and president of Blockstream. “Sidechains extend Bitcoin functionality through interoperable blockchain networks and today’s open source release includes an experimental sidechain that has a number of new working capabilities. With the release of Sidechain Elements, Blockstream is moving this effort into the community.”

Sidechain Elements includes 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.Blockstream's CTO and Bitcoin Core developer Gregory Maxwell explains Sidechain Elements in a video on the Blockstream website.

As open-source, protocol-level technology, developers can use Sidechain Elements to extend the functionality of Bitcoin and explore new applications of the Blockchain. "Although both are ultimately needed, sidechains are true innovation and value add in contrast to merely increasing the block size and kicking a larger can," said early Bitcoin investor Trace Mayer.

“We’re inviting developers to work with us, to test and use the code for their projects, and to share their proposals and code for additional capabilities,” says Back. The new features not currently supported by Bitcoin Core include Confidential Transactions, Basic Asset Issuance, Relative Lock Time and several others.

One of the most powerful new features being explored in Elements is Confidential Transactions, a cryptographic tool to improve the privacy and security of Bitcoin. This feature keeps the amounts transferred visible only to participants in the transaction (and those they designate). A detailed explanation of Confidential Transactions by Maxwell is available here.

With Basic Asset Issuance, users can issue their own assets via newly created units that represent fungible ownership of an underlying asset type. These tokens can theoretically represent any asset including vouchers, coupons, currencies, deposits, bonds, shares, etc.

With Relative Lock Time, the consensus-enforced semantics of the sequence number field is modified to enable a signed transaction input to remain invalid for a defined period of time after confirmation of its corresponding output, for the purpose of supporting consensus-enforced transaction replacement features. This feature is also useful for efficient implementation of blockchain secured off-chain layers like the Lightning Network, where related transactions can take place instantly on “micropayment channels” off-chain, and only the final settlement is processed by the blockchain.

Blockstream will seek to provide Sidechain Elements as a base for the nearly 30 blockchain innovation initiatives that have been announced by major financial institutions in the past few months. Since the deployment of sidechains interoperable with Bitcoin requires the implementation of suitable tweaks to Bitcoin Core, Blockstream is working to draft a Bitcoin Improvement Proposal for a fully decentralized two-way peg and merge-mined sidechains.

Once fully implemented, sidechains will probably have a disruptive impact on the Bitcoin ecosystem. For example, it seems likely that the useful features of some altcoins, such as improved scripting, transaction times and privacy, could be replicated in a sidechain without losing interoperability with Bitcoin. 

Image via Blockstream.

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