August 18-19, 2018 – LANG Yu, CTO of Bytom and founder of 8btc News, delivered a speech titled “The Commercialization of Blockchain – Sidechain Expansion” in the 2018 BCCon Global Blockchain Eco-technology Conference.

Lang Yu has mainly talked about a tendency of commercialization of blockchain – side chain expansion. The speech is divided into five parts: 1). the bottleneck of blockchain Commercialization among traditional corporations; 2). the valuation of sidechain technology as one of the solutions; 3).the most widely adopted applications and industrial explorations at present; 4). Sidechain on Bytom; 5). future expectations.

Bottleneck of blockchain Commercialization

The mainstream blockchain projects, including Bitcoin and Ethereum, have a large bottleneck in commercial applications. For example, games running on Ethereum, including CryptoKitties, Fomo 3D and others, are all poorly performed in user experience due to congestion. As thus, we can see that one of the bottlenecks in the blockchain commercialization is the poor product experience and high use-cost.

Poor product experience and high use-cost

As we all know that, the high transaction cost and long confirmation time caused conflict in the Bitcoin community between developers and miners, and that finally led to the Bitcoin Cash hard fork on the 1^st of August, 2017 at 12:20 UTC. The PoW (Proof of Work) mechanism is not very useful in dealing with this kind of problem because it also needs time to converge under the boundless consensus condition.

Therefore, some people may ask, whether it is possible to adopt DPoS (Delegated Proof of Stake) or PBFT (Practical Byzantine Fault Tolerance) consensus algorithm? However, in this case, there is actually an agent risk. For instance, the EOS has an arbitration committee to judge whether you are an illegal user and they are able to freeze your account after being detected.

In addition, there is still a problem of poor scalability. The consensus nodes of DPoS is limited and  has not broken through 21 nodes yet. Some people even proposed 100 nodes, however, the overhead of network communication is exponentially increasing, which will inevitably leads to an unstable system.

Further more, if the nodes are all arranged on Alibaba Cloud and Amazon Web Services (AWS), once the cloud nodes go wrong, all the proxy nodes will be dysfunctional, which is also worth to concern.

Another solution is to use zero knowledge proof and bring in the insurance mechanism, which is  adopting external negotiation mechanism. However, it still remains double-spend attack risk of the guarantor and the issue of narrow trading channel. Zero knowledge proof may be able to be adopted in small transitions, such as buying a cup of coffee, but in the case of large transactions, users may not be willing to confirm zero knowledge proof, and the intermediate arbitrator may not be willing to make such a guarantee.

In conclusion, another bottleneck in the commercialization of blockchain is the risk of data.

Blockchain data risk

First of all, data storage costs based on a larger user base correspondingly increase caused by data hyperinflation, which is not sustainable. A full nodes ledger means all the data of every users needs to be stored. If the user expands 1,000 times, the storage cost will be incredibly high.

Secondly, there is a risk of data privacy, and storage on a private data chain cannot be secured. Why are big institutions reluctant to use the public chain to send data? This is because they have massive private data, and they are not willing to, or cannot disclose it due to compliance requirements. In addition, financial assets, such as stocks and securities have concerns about security. How to prevent data from being tampered with or reset becomes a tricky issue.

So in this case, we need a layering mechanism where the core data is encrypted and the non-core data is stored in other place. As thus, Sidechain can be a relatively good mechanism.

Valuation of Sidechain technology

What is Sidechain?

Sidechains are techniques that “connect” different blockchains through two-way peg, allowing multiple values to be traded and flow over different protocols. So what is two-way peg? That means the mutual perception of main chain and Sidechain.

It should be noticed that “connection” refers to the interaction of protocols on the chain instead of communication between systems. For example, to run a transaction, needs to request the data of a certain node. Its communication between processes, a centralized gateway, not the communication on the protocol. This is a misunderstanding that we are prone to.

So what are the disadvantages of the Sidechain? It is complexity. The heterogeneous environment of the main chain and the Sidechain will bring an unknown state with risk of fraudulent transactions. The iteratively protocol upgrade will also bring the soft fork risk and these are the challenges to sidechain technology.

What are the characteristics of the Sidechain?

First of all, the main chain token is still the main chain when it is in the Sidechain circulation, usually in a 1:1 ratio or other predetermined exchange rate; secondly, the Sidechain cannot produce the main chain currency, it can only accept the input of the main chain, and generated the corresponding tokens; thirdly, Sidechain may either have its token or not; fourthly, the Sidechain needs sufficient computing power and consensus algorithm to ensure the security; finally, the Sidechain is independent of the main chain. Anything that take place on the Sidechain does not affect the main chain which may ensure the safety of the main chain.

Why can Sidechain solve the problem?

First of all, under the premise of the main chain security guarantee, the Sidechain can reach a  consensus in a small scope to optimize the confirmation time. We can put tps in the first place and reach the second-level confirmation.

Secondly, when multiple Sidechains are “parallel” running, the security and business load of the main chain will not increase significantly. As the data on the main chain is only the stored state of the Sidechain data that is transferred into it, the problem of data bloat will never exist.

Finally, the Sidechain data can be encrypted, transmitted in a small scope, and the transaction path is recorded without revealing privacy. Under such a strategy, we can transfer data in a proprietary domain as well as interact with the main chain.

Industrial explorations of Sidechain

The core of the Sidechain is to solve the cross-chain problem. Cross-chain and Sidechain are actually two different things. For example, there are some token-to-token exchange protocols on Ethereum, that are the interaction of different tokens onone chain. It can be seen as a narrow cross-chain motion, as well as atomic exchange instead of pass transactions from one chain to another. The Sidechain enables the cross transfers between the main chain and Sidechains, , which is the most advanced form of all cross-chain.

Three main forms of Sidechain:

1.Notary schemes

A centralized model, such as an exchange, requires an agent or a trial party to complete the value conversion.

2.Relays

What we often implement is a light client model that combines Bitcoin and Ethereum transactions by setting up an SPV client.

3.Hash-locking

This is a technique we often use on atomic exchange and lightning networks.

Case Study: BTC-Relay

BTC-Relay is an Ethereum-based contract that essentially implements Bitcoin’s SPV client. Its disadvantage is that it requires the bitcoin spv-proof-block data as an external feed; and it is difficult for BTC-Relay to handle bitcoin hard forks. It is not efficient enough and is the lack of incentives. No one wants to spend more money to transmit the bitcoin block and store it in Ethereum.

Case Study: Rootstock (RSK)

Rootstock has been developed in early days. Back in 2013, it claimed to build a smart contract distributed platform based on the Bitcoin blockchain. It has completed an improved version of the Ethereum Virtual Machine (EVM) by now. As a sidechain of Bitcoin, it uses a token that can be converted to bitcoin as a “fuel” for smart contracts. In the RSK, the relevant information of the bitcoin is written into the Sidechain, and the continuously generated block information is written into the SPV as well as the Sidechain. Hash lock is used to unlock tokens to bitcoin.

Sidechain on Bytom

The framework of Bytom is flexible and young, its main network has just been online for two months. Bytom also uses the POW mechanism and has implemented Turing’s complete smart contract. As thus, Sidechain can be adopted in Bytom.

Bytom is an interactive protocol for multi-BitAssets. There are different forms of heterogeneous BitAssets (including native digital currency, Token) and atomic assets (including equity, bonds, and other financial and non-financial assets) runs on Bytom. So we need to explore the Sidechain in order to meet requirements for transforming asset on blockchain .

Bytom is a blockchain based on the PoW consensus, its blockchain system is not only used in the cryptocurrency transactions, but also aiming to interact with business in the real world, so the Sidechain becomes one of the best choices.

Bytom is modified based on two-peg, implements a Sidechain model of fed-peg, and introduces a multi-party man-in-the-middle mechanism to control the quality and compliance of assets. The two-peg is different from the third-party guarantee from the exchange, it uses a cryptographic mechanism as a solution.

The Sidechain can either anchor the BTC or BTM. Assets on bitcoin blockchain can be used on the Sidechain of Bytom. With signatures from multiple parties, we can unlock and transfer the asset on the Sidechain of Bytom .

The implementation scenario shows in the figure blow:

All processes can be simplified to anchor the main chain asset and transmit value to the Sidechain. After waiting for the asset being “mature”, it can be traded on the Sidechain. The side chain can lock its own assets and tradings take place on the Sidechain has nothing to do with the main chain. Once the assets of the side chain are redeemed, or destroyed, it cannot be re-spent, the assets on the main chain may also fade away, and releasing only the withdraw output and clearing the handling fee. There is a handling fee for all the consensus costs on the Sidechain that is settled on the Sidechain and released on the main chain. Instead of having no handling fees between the transactions, like the consortium blockchain, both the trading parties and the consensus parties can get rewards on Sidechain.

Three key points:

1. “Anchor” the main chain asset and transmit to the Sidechain
2. Waiting for the side chain assets being “mature”, and trade on the Sidechain
3. Sidechain assets “withdrawal”, the main chain releases locked assets and there might be handling clearing charges.

 

Future expectations

The development of sidechains can be predicted in the following directions:

First of all, the assets on the main chain can integrate with the ‘second layer’ extended lightning network to simultaneously graft the side chain assets to the main chain assets. The lightning network is not the data on the blockchain, so it can trade both the main chain and the Sidechain data at the same time, which may shorten the waiting time for redemption.

Secondly, the Sidechain needs to be optimized on TPS and tamper-resistant while meeting the needs of specific business scenarios.

Thirdly, improve the tools for the Sidechain and main chain switching. Currently, many of the switching tools are complex and not user-friendly enough. We need to develop more visualized tools with lower threshold to provide convenience for users.

At present, many teams have implemented their demos, however, their development have not been used in the production environment. The so-called production environment refers to the real-life value exchange scenario of asset on the blockchain. We expect that the Sidechain technology will be wildly adopted in the production environment in 2019.