Bitcoin Sidechains: Incentives and Financial Models

[coins101]

As Sidechains are likely to be a big part of Bitcoin's future, I'd like to understand the economics and financial modelling around Sidechains.

Background

I'm surprised that there isn't a thread on this yet.

I'm pleased to announce the publication of an experimental bitcoin-testnet sidechain and the software that implements it:

There is a fair amount of description and more coming at the Blockstream website: https://blockstream.com/developers/

... Including a video of a talk I prepared for the t the SF Bitcoin 'dev' meetup tonight (the video was pre-recorded, I think the presentation in the meetup went better but I work with what I've got. )

You can get the code and use the sidechain from the github repo: https://github.com/ElementsProject/elements


The sidechain includes some powerful new features... but beyond that, I hope that this opens up new avenues for experimentation and innovation In Bitcoin, providing a way to try things out without either rebooting the network effect or unduly imposing on people who aren't interested in the benefits (or risks) of something new.

What incentives are there for people to run sidechain projects?

E.g.

* Mixing services = service fees?

* Asset issuance = brokerage fees?

[Amph]

i can think of two things,  for anonimity(a monero-akin side chain) and for customize bitcoin, like with the confirmations time

and also to avoid building everything on blockchain, i'm sure there are much else to come, and as long as there will not be any instamining crap or premine with those sidechain they should be fine

[coins101]

i can think of two thing,  for anonimity(a monero-akin side chain) and for customize bitcoin, like with the confirmations time

and also to avoid building everything on blockchain, i'm sure there are much else to come, and as long as there will not be any instamining crap or premine with those sidechain they should be fine

Thanks.

I read the ring sigs white paper by gmaxwell and colleague.

My question is not so much about the types of service one could offer, but how people would earn money from them.

I guess sidechains are their own entities and people can create any type of fee payment system. But its not entirely clear.

I started by trying to second guess what return Blockstream investors would get for their $21m investment, but I think that was a red herring. Sure if you invest $21m in a start-up, you may want to get back $2bn at some point, but Blockstream could be just creating one or two types of services, e.g smart contracts.

So if someone else wanted to create their own project as a sidechain, how would they make $2bn, as the incentive mechanism to do the work to create a sidechain in the first place?

[pereira4]

With sidechains banks and governments could create their own chains and control everything, from the reward for the miners, to the period of halvings, to the total supply... all of this without disrupting Bitcoin and at the same time benefiting Bitcoin because it runs on top of it.