The plethora of altcoins appearing on the market is unceasing and may even seem endless to some users. And if yesterday’s Bitcoin Conference in New York was anything to go by, the features they provide could allow customers to do almost anything.
There are, however, logical disadvantages to the altcoin scene. The main one is having to potentially use all of them at once in order to get what you want.
Now, however, Bitcoin’s proof-of-work creator Adam Back and co-developer Gregory Maxwell, have designed a scheme, which could do away with altcoins forever and consolidate the market to make complete functionality within easy reach.
His sidechains are an integrated function of Bitcoin providing the function of an add-on while preserving the features which customers would normally require a whole other coin in order to use. Bitcoins could be moved from the original blockchain to a new sidechain in order to use a new feature, without needing to buy an entirely new currency.
Speaking to Let’sTalkBitcoin.com, Adam B. Levine described the project as making Bitcoin “a transactional currency for all the innovation and all the assets."
Sidechains will work based on a system developed by back calling two-way pegging. Coins would be removed from the block chain and transferred to a sidechain optimized for the relevant service. They could then be transferred back to the block chain, should the customer chose to do so. This is an essential reincarnation of the original one-way pegging concept, which meant that once in the side chain, the block chain would lose the transferred bitcoins forever.
Bitcoin’s main issue being security at all times, little additional functionality has been added to the network as any bugs could put a Mt. Gox-style end to the entire system. Adam Back notes that with the sidechains model, any infection could be contained in this micro-system without endangering stability.
While consolidating the market in such a way could spark complaints over lack of market flexibility, it is no surprise that consumers will use the most stable currency. A thousand altcoins, like a thousand dukedoms with their own self-contained economies, would be an unattractive option compared with a central yet segregated mainframe, offering choice and flexibility but maintaining absolute security.
The excited response from the community has predictably been positive, with cryptocoinsnews.com declaring it “deserves the title of Bitcoin 2.0”.
There are implications not just for altcoins, however, but for the completely separate framework Ethereum, for which sidechains would provide serious competition. Writing on reddit, however, Ethereum’s developer Vitalik Buterin said:
“Having a Bitcoinsidechain inside an Ethereum contract can potentially be quite powerful; it allows you to very easily do decentralized exchange between Bitcoin and Ether [Ethereum’s internal currency] (as well as other Ethereum assets)…”
It will be interesting to see how Ethereum challenges the observation of Austin Hill, the Canadian entrepreneur behind the sidechains innovation, who states: “The problem with completely separate altcoins and frameworks is that they are not interoperable. They create new ‘races for scarcity’, with each one representing a new asset in short supply.”
It is fair to say that the altcoin patchwork will now come under additional pressure which is inherent with such a huge variety of functions being dispersed across many coins. Bitcoin expert Daniel Krawisz told The Coin Telegraph: “I don't think there should be any altcoins in any case. I don't think side chains are necessary to end altcoins, but maybe side chains will end them faster”.
Attention will now be focused on the dynamics of the sidechain itself, and the new challenges it will represent. “Coins in a side chain are like bank notes backed by bitcoins,” says Kravisz,“not like bitcoins themselves. This might be a problem, and I'd like to see more work to try to characterize the kinds of problems it might introduce.”
You can listen to the full interview with the developers here
, where they discuss in full the technical aspects of the innovation.