Hello,
I lurk mostly in the altcoin threads, so I'm not really up-to-date with the stuff happening with bitcoin. Recently, I got an idea, that, as I realized, is not as new and unique as I initially thought. I thought, I'd post it anyway, mostly to get some pointers towards where I could read more about it. Please be aware, that this is still a work-in-progress and a whole lot is not well thought out, yet. Anyway, here it is:
What is Circles?
Circles is a layer that can be used on top of pretty much any cryptocurrency to create sidechains on which tokens loaded with the chosen currencies can be used. This way, the functionality of Ethereum, Lisk and other Crypto 3.0 projects can be used without having to commit to associated currencies.
All Crypto 3.0 projects have the deficit, that they are closed ecosystems. Additionally, the tokens of e.g. Lisk and Ethereum are not meant to be currencies, which makes their worth dependent on their usability. Combining the functionality of Crypto 3.0 projects with currencies that are used as such, effectively lowers volatility and makes for an easier access, since no dedicated tokens need to be purchased.
While there is no doubt about the fact that in the beginning, Circles will be mostly a playground for nerds, in the future, ideally, most of Circles' magic is happening on the backend, barely noticeable for the enduser, keeping the frontend easy and uncluttered.
Circles can be used with just about any Cryptocurrency, but its most likely use case is to use it with Bitcoin. Therefore, this paper is written for its use with Bitcoin. The term “Bitcoin/BTC” can be replaced by a cryptocurrency of choice, though. Mixing currencies in the Circles network is possible and probably relatively easy on a technical level, but adds a layer of complexity on the user side, that I think is unnecessary for the time being (on the other hand, this may create an interesting use case for exchanges).
What are Circletokens?
To use Circles, one has to create a token that is loaded with a certain amount of Bitcoin. This token is used on the Circles-Network as a placeholder for the coins used. Different than in other cryptocurrencies, these tokens have a serial number, which associates them with the amount invested. When the token gets sent to a certain address, a smart contract pays out the Bitcoin invested. This way, the worth of a token is only determined by the amount of BTC it is backed by. There may be rare cases where tokens gain worth on their own, but that is not their function.
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Circle security
What happens inside a Circle, stays inside a Circle, at least for the most part. Most types of Circles know of the existence of the other Circles and which tokens (based on their serial number) are held inside which Circles. That is it, though. They have no knowledge about which account holds which or how much tokens. This is information that is only accessible to members of a Circle. Now, obviously this information can be leaked, but to prevent this is out of Circles' capabilities, as with just about any other way of encrypted communication.
There are different types of Circles and Circles can vary greatly in things such as size and duration. There may be Circles having only two, maybe even one member, others may have tens of thousands of members.
Circles are highly customizable, things like blocktime and consensus algorithms can be defined, as well as whether or not and if yes, how new members can join the Circle.
To prevent users from sending money they don't own out of a Circle, the members of a Circle need to sign a transaction.
Abandoning and archiving a Circle
One of the big advantages of Circles is that you don't bloat a Main Blockchain with data, that is only relevant for a small number of people and often enough only for a short time. Especially when you use smart contracts, those contracts get fulfilled at a certain point, at which their existence may be still important for legal reasons, but only a very small number of people is actually affected by their existence or nonexistence.
To remedy this, single use smart contracts can be executed on a small Circle, which can be abandoned after use. This effectively means that all tokens within this Circle are either cashed out or moved to another Circle and no new blocks are being mined.
Though the blockchain of this circle can be deleted now, it is advised to archive an abandoned Circle. To do so, the people involved in this Circle store its blockchain on their home devices. A hash is generated and written on the Bitcoin blockchain, to prevent manipulation. This way, in case of a legal argument, it is still possible to retrace the contracts involved, provided a single person still has a unaltered copy(i.e. a copy with a hash that matches the hash on the Bitcoin blockchain) of the archived blockchain.
