Good diagram.  Really helps to clearly understand your perspective and whats guiding it.  Couple thoughts that I think may materially impact the degree of centralization differently than what you drew.

1. Why would a company making the best (most efficient cost per hash) sell that for less than what they would make mining themselves?  The trend so far has been get public support to raise start up capital.  If successful phase out public to maximize profits.
2. Assuming the best hardware is commoditzed and sold to the public; mining would still centralize around cheap power and cooling.  Anyone paying $0.15+ in a hot climate is not going to be viable against someone paying $0.05 or even lower if subsidized like it is in some countries.  http://en.wikipedia.org/wiki/Electricity_pricing

So basically the BTC mining companies take the money from their other revenue streams and throw it into a bottomless pit, right?

Doge could make it but I think Bitcoin is still a way better bet; Gold is a very good conservative (compared to Bitcoin) bet as well

I very much like that quote from Greg, but I think you missed my point. Specifically, 1:1 fixed pegs may not be the dominant exchange-rate specification. It's wide open how this stuff may be instantiated, as smooth and I have been saying.

I think there can therefore be plenty of sidechain formulations that DO "create something that competes with the bitcoin currency". Thus, I think some of the "innovation-without-currency-competition" marketing may turn out to be false-hope.

I know next to nothing about dogecoin (or any alt really) because they don't interest me much, but judging from my friends who are kind of interested in them I'll predict they'll have an OK future. 

Yes, I think that's probably right.

That's why I keep harping on the exchange-rate being definable by "any deterministic function". We're going to get all kinds of a wacky "experiments", and many may have the perverse property of effectively being their own completely (or nearly-completely) free-floating alt, while still technically being able to be defined as a "bitcoin sidechain".

Sidechains are being marketed as a way to 1:1 fix the full supply of a new chain to bitcoin, but the reality is that that's just one of infinite possible specifications.

Part of what I want (pegged) sidechains to exist and be successful is so that I can spend less time telling people NO and more time telling them "Good Luck with that", without having to also be telling them to create something that competes with the bitcoin currency.

Innovation comes from innovative people and doesn't cease to be innovation just because such people happen to be working on an altcoin. The fact is that many altcoins have smart and creative people working on their development who are doing interesting innovative things. That's not really a function of which coin they happen to work on.

To clarify, by many I mean in absolute terms, and even there the number is probably not more than 20-30. The vast majority of the 1000+ altcoins are worthless scams. Most of those are copy-paste and don't even claim to be innovative anyway. Some number are likely scams in some sense but also innovative in some sense.

Also, it is possible to be innovative in marketing and community building. Maybe you don't agree with that, but if you think the Bitcoin marketing, community, and reputation is perfect, we will have to agree to disagree. It is no surprise at all to me that some reasonable people may like and support cryptocoins generally but want no part in Bitcoin specifically.

That's the whole point. You are assuming an "acceptable" answer is required. It isn't.

For many the answer will simply be "because that's what we want."

Many of the DOGE community want nothing to do with BTC and being a BTC side chain would be a negative to them, not a positive.

It has nothing to do with features or "need." They don't need to justify themselves to you or anyone else. It is more about identity and distinctiveness, and that has demonstrated a lot of importance in the market with the #2 and #3 coins (when I exclude Ripple and BSTX) being LTC, which have no significant feature differentiation with BTC, and DOGE, which has only a small monetary differentiation (perpetual maintenance reward).

I'm not in this group, but I recognize it for what it is.

I don't really think there is anything wrong with that theory. I don't entirely subscribe to it, but I respect people who do. As this is all new, the actual conclusion is unknown.

The difference is that when the conclusion is assumed (as is the case when asking "Why do you need ...") rather than stated as a theory, it becomes a bias.

wtf? Your lucky I'm on planes and on my android otherwise id rip you apart. And you're the resident shill?

Of course the sc needs mining. In fact, initially it would be merge mining if its lucky. There's been plenty discussion and skepticism this will even occur due to the insecurities.

You can't pay for mining with BTC.

A simpler version of this is described in the paper. Simply pay miners in a new altcoin that is distinct and can't be used to unlock Bitcoins at all. But still tradeable and valuable if has demand and scarcity.

You then have the benefit of two different types of coins on the same chain and can do atomic cross-coin trades easily without the need for slower and more complicated cross-chain trades.

Anyone who thinks this won't spawn a new explosion of altcoins is delusional.

To Bitcoin there would be basically zero difference (between a sidechain crashing and burning and an individual losing their private keys.)

I don't know about you-all, but my interest in sidechains is nearly 100% about preserving Bitcoin and that is where my focus is.  Sidechains allow Bitcoin to freeze in it's current fairly reliable, predictable, and defensible state while not hampering the ability of it to server as the 'everything to everyone' value foundation.  That is the big appeal to me.

I'm not worried that a failure in a given sidechain will rub off on Bitcoin.  If anything I think that people will see that with sidechains,  failures are not catastrophic to Bitcoin proper.  I'll bet that there are a lot of people who are, like me, deeply concerned that Bitcoin itself is a single point of failure and efforts to grow it into the single currency for the world's masses are almost certain to trigger one failure or another and more likely than not a catastrophic one.

I'm looking forward to the new worlds that will open up as various sidechain efforts occur, and I hope to eventually use some of them for things I cannot do with Bitcoin right now, but that's pretty secondary.

Perhaps cypher's concern is that everyone moves their BTC over to the sidechain, then the sidechain fails in such a way that it's not possible to reconvert them to BTC, and the whole Bitcoin ledger is destroyed.

let him (brg444) answer since he's the resident shill.

so, remember that the working example here is one where we have a Bitcoin fork plus perfect anonymity added on top as an innovation.  i believe the vast majority of BTC holders value anonymity.  therefore perfect anonymity should be better than pseudonymity.

since that's the case, why wouldn't you then move ALL your BTC into scBTC?

... if a sidechain's feature becomes so obviously superior that the whole market wants it then it is much more likely this feature is implemented into the Bitcoin main chain, either as a soft fork OR a hardfork. This makes much more sense for every market participant than having them all switch to the sidechain. In that scenario, hard fork are still a very tricky proposition but with the help of experimentation and beta implementation within a sidechain, the risk is considerably mitigated and consensus much easier to obtain.

I tend to think this is a bit unlikely, though, simply because I can't see "everyone moves their BTC over to the sidechain" until it is absolutely solidly established that it is no more dangerous than Bitcoin is. That could take years, if it ever happens.

James King @M_Gauche
Calling it right now: #Bitcoin will be irrelevant in 5 years. Cash out now to beat the rush. cc @balajis

and you may not have the luxury of a practical example.

for instance, one of the first SC's i'd expect to pop up is a SC with perfect anonymity added as an innovation to a simple fork of Bitcoin with no initial coins and a 1:1 peg in place to accept incoming transfers of BTC to scBTC.

the question for you is, what if you saw significant #'s of BTC start moving into scBTC, what would you conclude?

i disagree.  

when Satoshi created Bitcoin, a BTC was worth $0. there was literally nothing to warn us about.

when Maxwell proposes a technical change to the source code of a market worth $5 Billion, i think he should be expected has a duty to warn us of all possibilities, negative or not.

you and i may be able to distinguish what's going on here in terms of a potential SC failure, but certainly the avg investor might not be.  and simply b/c there will be a market price for scBTC, one can assume uneducated investors will be tempted to buy them on an exchange.

ok, so if i understand your answer, relative market price btwn a BTC and a scBTC will aid in the assessment of whether a SC is succeeding or not?  for example, if the price of scBTC is rising and leading the price of BTC, that might be an indicator that the innovation related to the SC is valid?

second question, would transfer of a "significant number" of BTC to scBTC mean anything to you?

and you're just being a shill again trying to discredit anyone who is asking good questions.

what does Satoshi have to do with what i would believe to be an expected disclaimer warning to moving one's BTC to a SC?

It'd just be a gift from suckers investing in unstable sidechain schemes to the rest of the bitcoin holders. Same as Counterparty's burning of bitcoins for XCP, except with Counterparty it was known that there was no way to get the coins back in the first place.