A Simple Explanation of the Awesomeness of Bitcoin Sidechains

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Global exchangeThe publication of the long-awaited sidechains whitepaper last week and the Reddit AMA with its authors took the Bitcoin world by storm and generated significant enthusiasm. At the same time, the whitepaper is quite technical and not easy to understand without a careful study, and most of the questions and answers on Reddit were deeply technical as well. Now Richard Brown of IBM UK offers a simple but deep explanation of just what sidechains are, what they can be used for and why they are so awesome.

After recalling how transactions on the Bitcoin blockchain work, Brown moves to what happens if you send bitcoins to a centralized wallet such as Circle.

What happens is that you send the bitcoins to a standard Bitcoin address (provided by Circle), but all of a sudden the bitcoins appear inside your circle wallet and are out of your control on the blockchain. You can send them to another Circle user, in which case the bitcoins are still out of anyone’s control on the blockchain, but can be used by their new owner via Circle.

At some point, (part) of the bitcoins can be sent back to a normal (that is, not controlled by an off-chain service) Bitcoin address, at which point they will be again controlled by someone on the blockchain.

From the perspective of the Bitcoin network, the bitcoins were sent from the blockchain to a black box, stuff happened, and at some point the bitcoins appeared on the blockchain again. Strictly speaking, the bitcoins were always there (all bitcoins are) but out of anyone’s control on the blockchain.

“It’s as if those coins had been moved from Bitcoin to somewhere else and then back again.”

We Can Move Bitcoins to a Sidechain and Move Them Back Again

Brown’s insight is that the same thing happens with sidechains. Bitcoins can be “moved” from the blockchain to somewhere else, but that “somewhere else” is another blockchain that has agreed to be a Bitcoin sidechain. The sidechain will create an equivalent number of bitcoins, which will be controlled by users of the sidechain while the original bitcoins are “immobilised” on the main blockchain.

“[A]t any point, whoever is holding these coins on the sidechain can send them back to the Bitcoin network by creating a special transaction on the sidechain that immobilises the bitcoins on the sidechain. They’ll disappear from the sidechain and become available again on the Bitcoin network, under the control of whoever last owned them on the sidechain.”

The new blockchain, the sidechain, can have all sorts of features that are missing or not yet implemented on the main Bitcoin blockchain. For example, it can support fully anonymous and untraceable transactions, or implement sophisticated scripting and smart contract. These features are found, respectively, in Zerocash and Etrereum, and there have been suggestions to implement them in sidechains.

Also read: Bitcoin 2.0 Will Be a Very Big Deal

So, you can move your bitcoins to a sidechain that implements some specific features that you require (such as privacy or flexibility), do what you need to do, and then transfer the unused bitcoins back to the main blockchain. All that without having to go through the trouble and risk of converting your bitcoins to unknown, useless and possibly unsafe altcoins. Isn’t that awesome? I am sure that at this moment we can only imagine the visible tip of the iceberg, and all sorts of useful and creative applications will emerge.

What do you think? Comment below!

Images from Shutterstock.

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