Pegged Sidechains [PDF Whitepaper]

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waxwing:
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yeah, sorry i'm not so clear. but in the scenario where a SC advertises a bogus innovation, the whale can pump BTC thru the 2wp, which is acting like a risk free put (if the SC fails, he can get this BTC back as advertised). the mere appearance of large #scBTC on the SC may cause a price rise originating on the SC which then drags up the price of BTC as well in arb. if he can sustain this then he could sell of scBTC on an exchange for profit (the dump).

If someone buys SCcoin and the SC fails, they don't get it back. (unless they do, in some weird scenario? i'm pretty sure that by default that coin would be permanently lost). I don't think there's any risk free put (it seems more like a call that you're thinking of - unlimited upside, no downside) here.

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in the case of a SC with a true innovation, like faster tx times, it seems to me with time, all tx's would be incented to move to the SC as the block rewards diminish on the MC, depriving BTC miners of badly needed revenue. yes, MM is a possiblity to harvest those SC fees but lots of miners nowadays are losing money. they might be more than willing to primarily direct mine a SC if they can scoop up large tx fees (assuming of course MM is only a % of the BTC hashrate).

Transactions moving to a sidechain doesn't deprive BTC miners of their primary source of revenue; I guess you're already in this paragraph talking about far future when block reward is insignificant. So, fold into the below.

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in 2140 when all block rewards are gone and the MC and SC (with its innovation) only mine tx fees, which chain would you rather be on? if you say that MC core dev will upgrade Bitcoin before that, what metrics will they use before they feel pressure or panic by a SC beginning to take over?

I'm not sure we need to be analysing what happens so far into the future. But indeed if there are no longer mining rewards, then the 'classic' blockchain is no longer special. It's just one of many. But this is so far away from where we are today it seems pointless analysing it.

cypherdoc:
Quote from: waxwing on November 04, 2014, 06:12:15 PM

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yeah, sorry i'm not so clear. but in the scenario where a SC advertises a bogus innovation, the whale can pump BTC thru the 2wp, which is acting like a risk free put (if the SC fails, he can get this BTC back as advertised). the mere appearance of large #scBTC on the SC may cause a price rise originating on the SC which then drags up the price of BTC as well in arb. if he can sustain this then he could sell of scBTC on an exchange for profit (the dump).

If someone buys SCcoin and the SC fails, they don't get it back. (unless they do, in some weird scenario? i'm pretty sure that by default that coin would be permanently lost). I don't think there's any risk free put (it seems more like a call that you're thinking of - unlimited upside, no downside) here.

maybe. but i'm just going along with what's being advertised here. a well vetted, tested SC thru a federated system that is then brought online as a Bitcoin linked SC is "unlikely" to fail. given that, the 2wp is acting like a risk free put. maybe a call is a better term, i don't know. but then, my question about manipulation still stands unanswered. to assume a stable 1:1 price relationship of BTC to scBTC seems naive i think. there's always volatility and we see signif disparities btwn exchanges today that fluctuate sometimes wildly.
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in the case of a SC with a true innovation, like faster tx times, it seems to me with time, all tx's would be incented to move to the SC as the block rewards diminish on the MC, depriving BTC miners of badly needed revenue. yes, MM is a possiblity to harvest those SC fees but lots of miners nowadays are losing money. they might be more than willing to primarily direct mine a SC if they can scoop up large tx fees (assuming of course MM is only a % of the BTC hashrate).

Transactions moving to a sidechain doesn't deprive BTC miners of their primary source of revenue; I guess you're already in this paragraph talking about far future when block reward is insignificant. So, fold into the below.

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in 2140 when all block rewards are gone and the MC and SC (with its innovation) only mine tx fees, which chain would you rather be on? if you say that MC core dev will upgrade Bitcoin before that, what metrics will they use before they feel pressure or panic by a SC beginning to take over?

I'm not sure we need to be analysing what happens so far into the future. But indeed if there are no longer mining rewards, then the 'classic' blockchain is no longer special. It's just one of many. But this is so far away from where we are today it seems pointless analysing it.

true, it's into the future. but how far? there will be a transition point and if a risk free put (on BTC) exists today, why not move a major portion of your BTC to the SC today and leave it there?

laurentmt:
Quote from: Boussac on November 04, 2014, 05:08:35 PM

I am wondering also about sidecoins fungibility and redemption:
let's say I have locked one bitcoin to release one sidecoin. To release the locked bitcoin, does my sidechain-enabled wallet simply collect one sidecoin (plus tx fee) worth of sidechain unspent outputs or are there other constraints on my sidechain transaction transferring the coin back to the bitcoin blockchain ?

My understanding of the white paper was that there must be a link between the initial coin unlocked on the SC and the coins used to exit the SC. Therefore, my questions about fungibility.

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While locked on the parent chain, the coin can be freely transferred within the sidechain without further interaction with the parent chain. However, it retains its identity as a parent chain coin, and can only be transferred back to the same chain that it came from.

But I must confess that I'm still not sure to get it right. For example, how to track this link if the SC implements some anonymity features like the unlinkability of utxos ? (or does it means that there could be some kind of incompatibility between this required link and anonymity ?).

Another hypothesis is that any SC coin can be used to escape the SC. The peg just checks that the global amount ever transfered from the SC to its parent is lower than what was transfered from the parent to the SC. In that case, parent chains are protected against the creation of "fake" coins coming from a SC and fungibility in the SC is not such an issue.

But with this hypothesis, we may imagine some "funny" scams:
- Let's take again the diamond architecture and let's imagine that SC1 is a legit SC but SC2 and SC3 are scam chains working together.

- Honest users transfer coins into SC3 via SC1
- Attackers transfer coins from SC2 to SC3
- Attackers transfer coins from SC3 to BTC via SC1
- At a moment, it becomes apparent that there may be a problem with SC3 (creators appear to be shady actors or whatever). SC1 decides to "cut the link" with this chain. Users of SC1 gradually stop transferring SC1 coins to SC3.
- Honest users still holding coins in SC3 can redeem them in SC2 but can't get back to BTC...

Well, seems better to wait for answers from the experts.

Luke-Jr:
Quote from: laurentmt on November 04, 2014, 08:37:00 PM

SC1 decides to "cut the link" with this chain.
What? SC1 is a blockchain, not an entity.

laurentmt:
Quote from: Luke-Jr on November 04, 2014, 09:03:01 PM

Quote from: laurentmt on November 04, 2014, 08:37:00 PM

SC1 decides to "cut the link" with this chain.
What? SC1 is a blockchain, not an entity.

:D :D
Sorry for the shortcut. When I say "SC1 decides to cut the link" I mean the community behind it (devs, users, ...).

But this is a good point. As we talk about an asymmetric schema (parents and sidechains) I've assumed that the decision to peg 2 chains (one being the parent, the other being the sidechain) is a one-time decision made by the 2 communities. Therefore, I assume that unlinking the 2 chains could also be a decision made by the communities. Is there an error in these assumptions ?

EDIT: After some more thoughts, I guess it's not realistic to imagine that the bitcoin community would have to explicitly accept every new sidechain.
Therefore, the hypothesis of the parent community "cutting the link" is not realistic. I've modified my previous post and replaced this hypothesis with another one.

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