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Mar 09

Side Chains Part 1

By Raymond Prince

The term "side chains" as been quite the buzz lately in the cryptocurrency world. A blockchain is a distributed ledger of information that is confirmed by all parties in the network. In the context of Bitcoin, this is the underlying technology that allows the network to digitally write transaction to this blockchain and then cryptographically verify each of these transactions, without ever needing a central system such as a bank. The blockchain is seperate from Bitcoin, the same way the Internet is seperate from Facebook, the one just relies on the other in order to function correctly. Understanding the power of the blockchain technology has lead to great ideas for making use of this distributed ledgers in order to accomplish a variety of other tasks.

Features of Bitcoin

To understand the concept of side chains, it is important to keep several of Bitcoin's features in mind. Bitcoins are not fungible, so each Bitcoin is unique. With each transaction it's essential that the person proves that they own the Bitcoins in the transaction. Additionally, the person that receives the Bitcoins will need to prove that they know the public and private keys that correspond to the address the Bitcoins were sent to. This is the over simplified version of the transaction process, but cements the concept that Bitcoins unique Bitcoins are transferred, rather than virtual balances being updated like in the traditional banking system.

What's The Use

The Bitcoin blockchain has a few features that not everyone will like. For example, some don't like that it takes 10 minutes for transactions to confirm, and then addtionally, for further confirmations to take 10 minutes a piece. So some people have decided to send their Bitcoins to a centralised network, where that entity takes control of those Bitcoins, but updates them with a virtual balance which they can instantly transfer between other meembers of that network. Unfortunately this does mean that these users give up many of the security features offers by using the Bitcoin blockchain. The question then emerged, "Why can't I send my Bitcoins to a different blockchain, rather than giving it over to a centralised network". This has lead to the concept of sidechains.

A sidechain allows users to send a Bitcoin from the main blockchain, to some other blockchain, with a 1 to 1 ratio. This side chain has different attributes, and can be faster or slower to process, or have completely different security features.