You have an entity that takes value into it's store and gives out value in an alternate blockchain that may or may not follow similar rules (some altcoin, maybe a Bitcoin clone or maybe something quite different). The exchange can hold onto that value until the altcoin work is done and exchange back the value. Validation is done in whatever currency is chosen for the transfer, which can obviously have any of a variety of zero-knowledge transaction and block validation schemes.
that sounds rather centralised? Dont forget MtGox also operated like that - they exchanged your bitcoins for gox iou entries in their database. Then some stuff happened (you trade etc) and finally you ask for repayment of the iou. If its central there is a central point of failure that can lose or steal the backing funds.
You can think of a sidechain as a decentralised escrow agent where the sidechain economic majority (hashrate etc) controls and fairly administers the backing.
Adam
I didn't think of it as centralized because anyone can be an exchange and whoever wants the branch can choose the exchange. Also, the choice on whether to peg the conversion or let it float is an option of the exchange and it's store. But I understand that this forces openness on a not-necessarily-open process and standardizes for a particular use. And I can certainly see the benefits of distributed administration of the backing (though would still point out that such an implementation of an exchange is not prohibited either).
I think, though, it's important for me to better understand the proposals here before appearing to suggest that existing practices solve the use cases. I was just trying to get a feel for what they were targeted at solving, and your answer is a good start!
Centralized in this sense means you need to trust and give responsibility to a single party that needs to play by the rules. Many-a-time it's profitable for such a party not to play by the rules, or they're compromised, and therefore it's unsafe to assume they do. Ie. Gox. Or banks. And altcoin exchanges.
