How Do POW Projects Benefit From Sidechains

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How Do POW Projects Benefit From Sidechains?

The majority of cryptocurrencies inherited their consensus mechanism from Bitcoin. The consensus mechanism ensures that the network agrees on a single transaction history and the method Bitcoin uses to reach this agreement of all network participants is called Proof-of-Work (PoW). Although this method has proven itself over more than ten years by now from a security perspective, it does come with certain limitations.

Proof-of-Work blockchains that are using the original consensus mechanism introduced with Bitcoin are limited in transaction throughput, have fairly high latency and a limited ability to scale.

Sidechains present an elegant solution to build on top of PoW blockchains, without having to change the core protocol too much. The protocol is a set of rules and conventions that govern the communication of all network participants. Applying changes to the core protocol is difficult. First, you need to make sure there are no security flaws and second, you need to convince the majority of developers, nodes operators, and miners that the changes are beneficial to the network.

A sidechain is a blockchain in and of itself, but with the capability to communicate with a second blockchain, the mainchain. This communication doesn’t just allow the transfer of information, but also of assets, such as a cryptocurrency.

Sidechains only require a single change to the core protocol, namely enabling the deployment of sidechains in a secure way. After this capability is introduced, any developer can start building on top of this blockchain. If the Sidechain implementation is well written, malfunctions or bugs on a sidechain cannot affect the mainchain.

Depending on the exact implementation, a sidechain can be very different from the mainchain and tailored exactly to the needs it should serve. In can use a different consensus mechanism to agree on the order of events and a number of parameters can be modified. You could increase the block size limit so that it can record fairly large amounts of data, or you could reduce the block time to allow for faster confirmations of blocks.

Horizen is working on a sidechain implementation that will allow a number of different consensus mechanisms to be used for their sidechains, with a unified protocol to send assets, in this case, ZEN from the mainchain to a sidechain and vice versa.

Horizen has a robust roadmap and is actively working on building out a sidechain solution as well as an SDK - a Software Development Kit. This will allow developers to choose from a number of functionalities for their sidechain, simplifying the development process. The engineering efforts are led by Alberto Garoffolo.

Benefits of sidechaining

Scalability: Sidechain implementations will be completely decoupled from the mainchain, which significantly improves scalability. Only cross-chain transactions going from the mainchain to a sidechain or the other way around will be recorded on the main blockchain. Transactions within the sidechain are not recorded by the mainchain, meaning there can be a large number of them, depending only on the sidechain itself.

Security: Adding features to a public blockchain is always a difficult task. As mentioned above it needs consensus building within the community as well as a thorough evaluation of the code from a security perspective. Sidechains allow us to add a large number of features with a single change to the code base. After the deployment of sidechains is enabled once in a secure way, a large number of them can be deployed, each of them offering different features.

SDK: Releasing the SDK and a reference sidechain will enable users to start designing and building applications on top of Horizen using different programming languages and protocols. This makes our blockchain attractive to developers, as they can build features with their language of choice.

The Horizen Team is looking into a number of specific use cases for our sidechain implementation:

• We are developing a treasury system for the DAO in cooperation with IOHK. The main purpose of the DAO Treasury and voting model is to establish a decentralized and censorship-resistant funding mechanism for the development and maintenance of the Horizen blockchain platform. The voting system for the DAO based on liquid democracy will be built on a sidechain.
• Migrating the logic for the Secure and Super node tracking and payment system from running off-chain to on-chain. Currently, Node tracking is done on external servers. Moving the process to a sidechain will decentralize this process and make it highly censorship-resistant.
• We plan on building a distributed VPN service running on our node network. Node operators will be able to choose if they would like to support this service by making their nodes available as a possible endpoint for the VPN connection. In turn, they will get paid by the VPN user. The payment logic will most likely be built on a dedicated sidechain.
• A dedicated sidechain can be build, that allows extended smart contract functionalities.
• Another potential use case for a sidechain is to facilitate a decentralized and secure registry of public keys for encrypted emails. Email addresses could be linked to the corresponding public keys so that you don’t need to exchange public keys before you can start a secure communication via email.

Technical Details:

The construction of the sidechain model consists of two protocols: The sidechain consensus protocol  and the cross-chain transfer protocol. While the sidechain consensus protocol takes care of establishing an order throughout all the transaction on a given sidechain, the cross-chain transfer protocol establishes a set of rules on how assets are transferred between main- and sidechain

Horizen’s Director of R&D Alberto Garoffolo developed the SCP and CCT independently of each other. This is what allows different consensus models on different sidechains, without having to adapt the mainchain.

The main innovation is a new backward transfer protocol, that allows transactions from one of the possibly many sidechains back to the mainchain, without the mainchain having to track the sidechain and without introducing a centralized federation of validators. While a reference implementation of a sidechain consensus protocol will be provided, a wide range of sidechain consensus protocols will be possible.

The cross-chain transfer protocol is to be unified and fixed by the mainchain logic so that all sidechains will use the same CCT protocol.

More about Horizen Sidechain Model:  https://www.horizen.global/research/