Gold collapsing. Bitcoin UP.

[cypherdoc]

nullc, in pm's with me, has admitted that there are cases where scBTC can be lost on SC's.  i should've gotten into the specifics.

[1715262746]

1715262746

[BldSwtTrs]

If you leave to the sidechain, there is a chance the sidechain will explode in your face and take all BTC that have been moved to it it with it.

It will still have to be pegged with bitcoin or else it is a fiat altcoin. So Bitcoin will have not only the same value, but also the ability to magically convert to that SC or any other SC and thus the ultimate arbitrage between SC coins that can bypass exchanges.

^^This is how I understand it - the owner of the scBTC is always in control of the original BTC, it's just locked. A malfunction/default/shutdown of the SC doesn't effect your ability to unlock the original BTC. Correct me if I'm wrong on the following from a technical standpoint:

A SC only references that the original BTC is continually "locked" in the correct way. As soon as it is unlocked the SC asset ceases to exist as well (regardless if the SC network is actively functioning)

If that's true nobody will have an incentive to stay in the main blockchain. Every body will leave the BTC blockchain to enjoy an upside potentiel without downside in a sidechain. That's really bad.

[cbeast]

I don't understand how the peg will work.

Let's say 10 000 BTC are locked and give access to a SideChain, if that Sidecoin is more succesful than BTC then the Sidecoin could be sell for more than the peg on the open market. If the sidecoin fail than the sidecoin holder can exit the sidechain and retreive their old BTC.

So basically a sidecoin is an option and there is a massive incentive to leave the BTC blockchain to the sidechain and enjoy you free option, so basically this will destroy Bitcoin. What I don't understand?

If you leave to the sidechain, there is a chance the sidechain will explode in your face and take all BTC that have been moved to it it with it.

But if not...
The pegging will be done on-the-fly in-and-out as needed by the users. It will only need a small amount of bitcoins to start. If a better SC comes out, you can switch back to your bitcoins and switch to another SC anytime.

If someone builds the uber SC, then a lot of people will switch, but the bitcoins will still exist just in case a better SC comes along someday. Bitcoin will not be destroyed because it is the primary liquidity for the SC. In fact it should drive the price of BTC up for cold storage purposes just in case the SC gets broken. Miners will be the sentinels for Bitcoin.

Why BTC is the primary liquidity for SC? What prevent people to buy the SC on the open market with fiat?

It will still have to be pegged with bitcoin or else it is a fiat altcoin. So Bitcoin will have not only the same value, but also the ability to magically convert to that SC or any other SC and thus the ultimate arbitrage between SC coins that can bypass exchanges.

earlier i was trying to conceive a scenario where the mining fees required to transit the peg might become exorbitant thus negating the perfect arbitrage.  what would happen if either BTC or scBTC is perceived to be in crisis and failing?  anyone trying to get out from the failing unit might have to pay thru the nose to do so as the miner would be taking signif fee risk with a unit heading to zero.

If it's open source there should be safeguards to keep those things from happening surreptitiously. But then again, it looks like we are only discussing theory and hypotheticals as it is unlikely SC will even get as far as Ethereum as anything more than an altcoin.

[cypherdoc]

If you leave to the sidechain, there is a chance the sidechain will explode in your face and take all BTC that have been moved to it it with it.

It will still have to be pegged with bitcoin or else it is a fiat altcoin. So Bitcoin will have not only the same value, but also the ability to magically convert to that SC or any other SC and thus the ultimate arbitrage between SC coins that can bypass exchanges.

^^This is how I understand it - the owner of the scBTC is always in control of the original BTC, it's just locked. A malfunction/default/shutdown of the SC doesn't effect your ability to unlock the original BTC. Correct me if I'm wrong on the following from a technical standpoint:

A SC only references that the original BTC is continually "locked" in the correct way. As soon as it is unlocked the SC asset ceases to exist as well (regardless if the SC network is actively functioning)

If that's true nobody will have an incentive to stay in the main blockchain. Every body will leave the BTC blockchain to enjoy an upside potentiel without downside in a sidechain. That's really bad.

now that's a really damn good point.

[martinw79]

Great points

[cbeast]

nullc, in pm's with me, has admitted that there are cases where scBTC can be lost on SC's.  i should've gotten into the specifics.

Yeah, SC is just Proof of Burn. Season of the Witch.

[cypherdoc]

where the fuck is brg444 when we need him?

[neilol-real]

From the paper - implies there is no risk of degraded sidechains. Also, that there is no real harm of a SC becoming more used than BTC because the side chain coins are backed by BTC:

---
Furthermore, because sidechains transfer existing assets from the parent chain rather than creating new ones, sidechains cannot cause unauthorised creation of coins, relying instead on the parent chain to maintain the security and scarcity of its assets.

Further still, participants do not need to be as concerned that their holdings are locked in a single experimental altchain, since sidechain coins can be redeemed for an equal number of parent chain coins. This provides an exit strategy, reducing harm from unmaintained software.

On the other hand, because sidechains are still blockchains independent of Bitcoin, they are free to experiment with new transaction designs, trust models, economic models, asset issuance semantics, or cryptographic features. We will explore many of the possibilities for sidechains further in Section 5.

An additional benefit to this infrastructure is that making changes to Bitcoin itself becomes much less pressing: rather than orchestrating a fork which all parties need to agree on and implement in tandem, a new “changed Bitcoin” could be created as a sidechain. If, in the medium term, there
were wide agreement that the new system was an improvement, it may end up seeing significantly more use than Bitcoin. As there are no changes to parent chain consensus rules, everyone can switch in their own time without any of the risks associated with consensus failure.
---

[cypherdoc]

From the paper - implies there is no risk of degraded sidechains. Also, that there is no real harm of a SC becoming more used than BTC because the side chain coins are backed by BTC:

---
Furthermore, because sidechains transfer existing assets from the parent chain rather than creating new ones, sidechains cannot cause unauthorised creation of coins, relying instead on the parent chain to maintain the security and scarcity of its assets.

Further still, participants do not need to be as concerned that their holdings are locked in a single experimental altchain, since sidechain coins can be redeemed for an equal number of parent chain coins. This provides an exit strategy, reducing harm from unmaintained software.

On the other hand, because sidechains are still blockchains independent of Bitcoin, they are free to experiment with new transaction designs, trust models, economic models, asset issuance semantics, or cryptographic features. We will explore many of the possibilities for sidechains further in Section 5.

An additional benefit to this infrastructure is that making changes to Bitcoin itself becomes much less pressing: rather than orchestrating a fork which all parties need to agree on and implement in tandem, a new “changed Bitcoin” could be created as a sidechain. If, in the medium term, there
were wide agreement that the new system was an improvement, it may end up seeing significantly more use than Bitcoin. As there are no changes to parent chain consensus rules, everyone can switch in their own time without any of the risks associated with consensus failure.
---

i think we've identified numerous potential problems in different scenarios in the last several pages that need answering.  i'm not going to repeat them yet again.

[tvbcof]

No trade does not mean the price is zero, it simply means there is trade. For example, in a speculative market you would get no trading if everyone agrees on the same price.

Anyway, as I said mining would still happen, and you could potentially buy from miners, but only at better price than what they could get by converting to higher-valued scBTC. There is no arbitrage though, the mining rewards would simply be sought out for their conversion value and miners would compete harder for them, driving up difficulty.

Explain to me how you price something that doesn't exist.  If ALL BTC are converted to SCbtc, then that means no more BTC exists.  If no more BTC exist then there are no more sellers.  Buyers can't buy when there are no sellers and the price is effectively 0.

In the same way that if all BTC are spent on trinkets from TigerDirect that means that no more BTC exists I suppose.

The 'two way' part of the phrase 'two way peg' means something.  Namely, that the impact of sidechains on Bitcoin in terms of economics is very similar to having a new slew of retailers starting to accept Bitcoin.  Yes, it could have some inflation as hodlers like me become actual users of Bitcoin (via fully backed sidechains) but the effect would be transient and ultimately very healthy in a number of ways.

[cypherdoc]

FED buying stocks again?

markets are mind boggling

not really.  i'm hoping and expecting the $DJT to go back up and make another high while the $DJI fails to do the same.  that would be a Dow Theory non-confirmation which has been associated with the vast majority of stock market tops over the last 100 yrs.  that's one of my markers:

[HeliKopterBen]

But if not...
The pegging will be done on-the-fly in-and-out as needed by the users. It will only need a small amount of bitcoins to start. If a better SC comes out, you can switch back to your bitcoins and switch to another SC anytime.

If someone builds the uber SC, then a lot of people will switch, but the bitcoins will still exist just in case a better SC comes along someday. Bitcoin will not be destroyed because it is the primary liquidity for the SC. In fact it should drive the price of BTC up for cold storage purposes just in case the SC gets broken. Miners will be the sentinels for Bitcoin.

What if miners migrate to the sidechain diverting mining resources from bitcoin.  Would this leave bitcoin exposed to a 51% attack?  If a 51% attack were easy, then some of the conversion transactions could be reversed, leaving an imbalance of coins and screwing up the peg.

Edit:  I guess mining would be more or less pegged too.  Miners could mine bitcoin, convert so SC and sell, at least as long as there was a mining reward.

[cypherdoc]

But if not...
The pegging will be done on-the-fly in-and-out as needed by the users. It will only need a small amount of bitcoins to start. If a better SC comes out, you can switch back to your bitcoins and switch to another SC anytime.

If someone builds the uber SC, then a lot of people will switch, but the bitcoins will still exist just in case a better SC comes along someday. Bitcoin will not be destroyed because it is the primary liquidity for the SC. In fact it should drive the price of BTC up for cold storage purposes just in case the SC gets broken. Miners will be the sentinels for Bitcoin.

What if miners migrate to the sidechain diverting mining resources from bitcoin.  Would this leave bitcoin exposed to a 51% attack?  If a 51% attack were easy, then some of the conversion transactions could be reversed, leaving an imbalance of coins and screwing up the peg.

Edit:  I guess mining would be more or less pegged too.  Miners could mine bitcoin, convert so SC and sell, at least as long as there was a mining reward.

if i was a gvt, i'd fork the mainchain into an uberSC that employed a single beneficial factor over the mainchain, anonymity being the first one.  now, as BldSwtTrs has said above, all current mainchain BTC tucked away in cold wallets all over the world will probably be cracked open out of greed and some out of necessity and sent to the uberSC.  even tho the security at the moment might be risky, why not, as the paper has said that even in a SC failure you can get back into your BTC via the peg.  all upside, no downside!  which is it Greg, can we get back or can't we?

assuming the paper is accurate, mining will be forced to transition/follow as well, but that is where the security holes start gaping wide open.  as you said, attacks will made on the network causing double spends and loss of confidence.  also, individual hodlers making the transition now risk identification and hacks.  

now, to amplify the attack as the gvt, i would deploy as many new single feature uberSC's as there are beneficial features with a divide and destroy objective.  BTC and miners would be scrambling to different uberSC's they perceived gave them the most benefit only to be eventually destroyed by attacks as a result of less security for each uberSC during the transition.

this is why, potentially, all innovation should be done on the mainchain with the current security model, hashing rate, and BTC distribution in place safely tucked away.

[brg444]

This is not so black and white.  I suppose there could be a real threat of a side chain taking over if there is little to no perceived risk by the market to move from chain to chain, but if the market perceives little to no risk then maybe there is little to no risk.  Savers will likely park their money in the safest chain, i.e. the chain with the highest hashrate and bitcoin could cease to be the dominant chain at some point.  I don't see why it couldn't happen.

I agree this could happen but not the way you suggest.

For a side chain to "take over" it requires the whole network, nodes & miners, to come to a concensus that the side chain should become the main chain.

As you have mentionned, it that were to happen, it would be because the market perceives little to no risk. Risk #1 being the conservation of value of their stake. In reality, ONLY a 1:1 peg that preserves Bitcoin's scarcity & overall economic model can provide this security.

I have demonstrated in my previous post and some have come to an agreement that sidechains issuing a new native currency (no 1:1 peg) are effectively an altcoin piggybacking off Bitcoin's security. For that reason, the likelyhood that such a sidechain takes over is the same as any regular altcoin taking over.

Having said that, 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.

[brg444]

brg444, I'm past the part  about core dev altcoin implementations. I do see how it would be a hard sell for them although not impossible to sell to noobs. You forget that we are witnessing the power of what they can do RIGHT NOW with this SC  proposal. They've banded together precisely to push this proposal through as a  for profit company which requires a fork for them to be successful. It's not a wild thought imagining them trying to implement a new currency some day. LukeJr has talked about demurrage coin on reddit. Why? I could see a day where he starts one on his own and claims its just him personally, not Blockstream. Unlikely but possible.

They have banded together because they believe this proposal adds considerable value to Bitcoin's infrastructure. Nothing more.

It is not a wild thought to imagine them try to implement a new coin. In fact they are free to do so. But as in all things alt coin, the free market will decide whether their proposition is worth switching over from Bitcoin. In the event this happens, their position as core developer would be of little help, if any at all. The whole idea of Bitcoin is that we do not care who created it, only that it works as advertised.

The agenda you are trying to push is they would somehow leverage their position in the community as a way to influence the market to switch over to their coin. Sure, the community would carefully consider the proposition considering their status. The code would be reviewed, analysed and criticized the same way Satoshi's was. And if it turns out there is any unethical concern comes up or it is made obvious this coin would provide unfair advantage to some entrenched interest then the idea would be dismissed and everyone would move on.

[brg444]

I could go for that.

Smooth is right. SC'S are just sophisticated forms of altcoins.

Nop, only you focus on that.

sideCHAINS are altCHAINS that allow for bilateral movement of assets (bitcoins) between them.

sideCOINS are effectively altCOINS supported by the Bitcoin network.

I suggest you read the paper again

It appears that we desire a world in which interoperable altchains can be easily created and used, but without unnecessarily fragmenting markets and development. In this paper, we argue that it is possible to simultaneously achieve these seemingly contradictory goals. The core observation is that “Bitcoin” the blockchain is conceptually independent from “bitcoin” the asset: if we had technology to support the movement of assets between blockchains, new systems could be developed which users could adopt by simply reusing the existing bitcoin currency2

[brg444]

I really doubt anything will come along that is considered "better" for everyone.  Anonymity, for example, is well below scarcity, security, and historical record on my list of priorities.  But the thing with SC as opposed to altcoins is that bitcoin the currency stays the same.  It is only bitcoin the blockchain that is in danger of being replaced.  And even if it is replaced, bitcoin the blockchain will still be mined heavily at least until the subsidy dries up because new coins can be moved to whatever chain is successful.

SC also provides a way forward scalablilty wise that doesn't require a VERY controversial hard fork.

In the end, any opposition is irrelevant.  This is a soft fork change, which means any single miner can choose to adopt it and remain compatible with the existing infrastructure.  Other miners won't add the new transactions since they are "nonstandard", but they will validate blocks containing them.  If use increases to the point that they are missing out on fees, you bet your ass they will jump on board.

+1

[smooth]

Edit:  I guess mining would be more or less pegged too.  Miners could mine bitcoin, convert so SC and sell, at least as long as there was a mining reward.

Correct. If the side chain gained value relative to the main chain (leading to main chain near-abandonment) then miners would mine solely for the purpose of converting their main chain rewards to the side chain.

However, this could exacerbate or accelerate the failure of the main chain when rewards are phased out/down, because there would indeed be no reason to mine on an abandoned or near-abandoned chain except for rewards.  

I wouldn't necessarily describe this as bad unless it is pushed by someone with a malicious agenda. If it happens organically it is just an upgrade. The (market preferred) side chain would become the new main chain.

[smooth]

This is a soft fork change, which means any single miner can choose to adopt it and remain compatible with the existing infrastructure.  Other miners won't add the new transactions since they are "nonstandard", but they will validate blocks containing them.

Can someone explain how this works. I didn't follow it in the paper and I don't have time to read it more carefully right now.

If a new opcode is added for coin return how will existing nodes validate that transactions unlocking coins using an opcode they don't understand are valid?

[brg444]

I don't understand how the peg will work.

Let's say 10 000 BTC are locked and give access to some sidecoin, if that Sidecoin is more succesful than BTC then the Sidecoin could be sell for more than the peg on the open market. If the sidecoin fail than the sidecoin holder can exit the sidechain and retreive their old BTC.

So basically a sidecoin is an option and there is a massive incentive to leave the BTC blockchain to the sidechain and enjoy you free option, so basically this will destroy Bitcoin. What I don't understand?

Careful about your speculation, it is possible for the feature of an altchain to become immensely successful but it is a completely different thing to suggest a sidecoin from an altchain would become more succesful than BTC. As I've mentionned above this is akin to saying an altcoin would become more successful than BTC. A possibility, but generally considered HIGHLY improbable.

Also, you are confusing two possibilities.

An altcoin could be created through a side chain using a non-deterministic exchange rate. If BTCs are pledged to that sidechain's altcoin then they are exposed to its exchange rate and volatility. In this scenario if the sidecoin fails than the holder CANNOT retrieve the same amount of BTC he put in, only the amount the exchange rate provides him in exchange for his failed coin.

The alternative is for an altchain to provide a certain feature that could be accessed using your BTCs. You would lock your BTCs to this altchain and use it as you wish. Since the altchain uses BTC as a currency and not a native sideCOIN then there is effectively no floating exchange rate and if the sidechain is somehow compromised you would generally be able to unlock your BTC from the chain and go back to BTC main.