Blockstream’s Bitcoin sidechain solution, Liquid, slated for launch in early 2018

in #bravenewcoin7 years ago

Sidechains promise to help Bitcoin adapt to new demands and accommodate new innovation, according to the company behind the seminal sidechain whitepaper, Blockstream. Several different companies have been developing the idea since Blockstream introduced the concept in an October 2014.

“We propose a new technology, pegged sidechains, which enables bitcoins and other ledger assets to be transferred between multiple blockchains,” states Blockstream in the paper, Enabling Blockchain Innovations with Pegged Sidechains. ”This gives users access to new and innovative cryptocurrency systems using the assets they already own.”

Blockstream describes sidechains as blockchains that allow users to transfer assets to and from other blockchains. As sidechains are fully-independent chains, they are able to implement a variety of different features, such as block structure or transaction chaining. The whitepaper posits that by reusing Bitcoin’s currency, these systems can more easily interoperate with each other and with Bitcoin, avoiding the liquidity shortages and market fluctuations associated with new currencies.

The key to blockchain interoperability is the transfer of assets, known as the “two-way peg.” The peg works by locking the assets in a transaction on one chain, making them unusable there, and then creating a transaction on the sidechain that describes the locked asset. Effectively, this moves assets from a parent chain to a sidechain.

One of the fundamental roadblocks in deploying sidechains is that the Bitcoin blockchain is not currently capable of executing the required verification rules for a two-way peg. Blockstream describes changing the protocol as “non-trivial,” and the process of implementing similar changes was part of the motivation for pegged sidechains to begin with.

However, Blockstream postulated that it is possible to do an initial deployment in a completely permissionless way, using a two-way peg described as a “federated peg”. In January 2017, Blockstream released a second paper, Strong Federations: An Interoperable Blockchain Solution to Centralized Third-Party Risks. The document expands on the federated peg, and introduces a detailed version called Strong Federation, while describing a Strong Federation sidechain implementation called Liquid, “the first market implementation of the system.”

“With Liquid in place, we believe Bitcoin will be in a stronger position to attract institutional trading firms and brokerages, as well as address global liquidity and pricing data challenges faced by these players interested in bitcoin as an asset class. That will be a major milestone for Bitcoin, bringing many new users and applications to the industry.” - Samson Mow, Blockstream Chief Strategy Officer

The company states that leveraging proof-of-work provides Bitcoin with unprecedented security for transaction history, which “comes at a cost in latency and throughput.” Liquid addresses the delay by introducing a set of participants with two responsibilities: generating valid blocks and enforcing withdrawal rules. “This coordination is measured in seconds as opposed to minutes for Bitcoin,” the company claims. “As in Bitcoin, the knowledge of a private key is sufficient for the ‘right to spend’ without the permission of any third party.”

The Liquid network is made up of a federation of operators, or functionaries. These network operators mechanically execute defined operations if specific conditions are met. Functionaries have the power to control the transfer of assets between blockchains and to enforce the consensus rules of the sidechain.

The platform has been in testing with a number of Bitcoin companies since early April, and is slated for a public launch in Q1 of 2018, depending on SegWit adoption. The first version, v1.0, supports up to 15 functionaries, “each securely hosted by geographically dispersed, independently owned and operated bitcoin exchanges,” Blockstream Director of Product, Ben Gorlick, told Brave New Coin. “Several can go down without impairing the system's ability to operate, and even if the system stops operating, there are multiple recovery systems for ensuring that customer funds are not lost.”

“There are no Blockstream-run servers required for the day-to-day running of Liquid, the servers running the Liquid network are hosted by the participating exchanges.” - Ben Gorlick, Blockstream Director of Product

Gorlick states that the platform will “facilitate trading, arbitrage, and liquidity amongst participating exchanges – hence the name Liquid.” A possible side-effect is an indirect decrease in Bitcoin’s existing traffic. “Liquid does help with scaling in that it can reduce pressure on the Bitcoin blockchain if traders choose to keep a balance of bitcoin on the Liquid network,” Gorlick explains, “and if those traders use the Liquid network for high volumes of transfers between exchanges.”

The major customer-facing innovation is a wallet that customers can use to securely hold their liquid bitcoins, off of the exchanges, but in a way that allows them to move those coins very quickly when needed. “Liquid provides a more secure and efficient system for exchange-side bitcoin to move across the network,” adds Chief Strategy Officer, Samson Mow.

Another feature makes use of the TOR privacy-routing network. There are at least three types of transactions users can make using TOR, according to Mow, with each Liquid address starting with the letter X if confidential, and Q or H otherwise: “The expectation is that the majority of usage will be confidential, and that is the default.”

Gorlick adds that institutional traders and Wall Street firms may want to move bitcoin between their accounts at different exchanges, “without broadcasting the amounts to the general public, providing assurances that their trading strategies and holdings are not exploited by potential adversaries.”

“Like Bitcoin, Liquid transactions are viewable by everyone in the network, so Confidential Transactions hides transaction amounts from everyone except for the parties directly involved in the transaction itself. In doing so, it minimizes front-running risks that occur through blockchain analysis.” - Ben Gorlick, Blockstream Director of Product

The limitations mostly fall on the shoulders of the federation members. Since they are responsible for transferring bitcoins into and out of the Liquid network. They'll also be paying the bitcoin transaction fee and the Liquid transaction fee for each use, according to Glenn Willen, the Liquid Engineering Team Lead. The round-trip time of going from Bitcoin to the sidechain and back will be “about a day,” which he stresses is “not something that end users need to do, as these activities are performed by the Liquid functionaries.”

There are size constraints as well. The maximum size of confidential transactions is planned to be nearly 700 BTC in the production Liquid network, Willen divulged, although the size of regular (non-confidential) transactions is not limited in any way. “We expect almost all transactions to be confidential,” he added. Meanwhile, there is no minimum size restriction, but the team acknowledges that Liquid will not be cost effective for small payments, including a cup of coffee. “For merchants and micropayments, it would probably better to use Lightning instead of Liquid,” Mow explains.

Other sidechain projects in the space have been designed to fill other niche needs, and Mow doesn’t view them as competing products. “Rootstock and Drivechain utilize the two-way peg invented by Blockstream,” Mow states, while “all three leverage sidechain technologies to move asset value between different blockchains.” A link to the RSK project is prominent on the sidechains page of Blockstream’s website. However, the three “approach implementation of that functionality in different ways.”

“Liquid is much further along as it’s a production-grade sidechain, having been peer-reviewed, alpha and beta tested for over a year by end users,” Mow states, “and its codebase has been audited by an independent security firm.”

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Wow, four years on and it looks like after forcing their way on the issue of scaling (using Sidechains as one excuse why the limit need not be raised), the best product they have is a federated sidechain. Assuming it actually launched in 2018.

GG Blockstream. Please stay away from Steem.

So can I ask you, what is the reason that the BU(llshit) supporters not want Segwit to be implemented? Segwit itself is already a doubling in transactions and also the base for other future solutions. That mr. Roger, Jihan and Wright want bigger blocks I understand, but actively blocking Segwit, that is fully tested and already implemented on Litecoin without any problems, is in my opinion an attack against Bitcoin as the internet of money.

It makes me really suspicious that they are doing it to pump alts and short BTC (they know when they bring new FUD the BTC market crashes), milk the Bitcoin community with high fees or asicboost or trying to get power over bitcoin. They can easily proof their goodwill to the BTC community by letting Segwit be implemented and go for bigger blocks after.

Bitcoin could be the ruling blockchain, internet of money where finally all possible applications are possible by 2nd layers and BTC should be enormous valuable. BU supporters are wasting this opportunity by blocking a lot of innovation done by the best coders of the world. It is f*cking sad! Demolishing my dream that is almost reached.

BU. Please stay away from Bitcoin

They can easily proof their goodwill to the BTC community by letting Segwit be implemented and go for bigger blocks after.

By your standard, Ver and Wu are proving their good will by supporting Segwit2x. That is SegWit this month, hard fork after.

It's interesting that Blockstream can't meet the same standard even though it activates exactly what they claim to want.

Hahaha, Segwit2x is no goodwill, why you think it is just a few days before the UASF? They have to compromise, because otherwise they will be mining a chain that will re-org later and disappear, or lose face by implementing Segwit at the moment of UASF. Now we get probably buggy code, written last minute to save Rogers and Jihan's face. Thats a smart action on a 40 billion market cap economy! Thanks for risking my money for your pride!

You moved the goalposts remarkably quickly. You just said minutes ago that allowing SegWit activation and big blocks later would prove good will. Now it doesn't.

Double block size is in my favor too (not more than 2x at the moment), I described only that Roger and Jihan didn't do it because of goodwill, but to save their own ass.

Further I am not against a hard fork, but in this case I am afraid that something happens to Bitcoin because the code could be buggy and there is not much time for the coders I trust to check it.

BU had also bugs, I don't want the bitcoin network to crash after 8 years of uptime. If just the original Segwit should be implemented and after that a hard fork should be planned with focus on security, I should support it fully!

P.S. have still no answer what the reason is to block Segwit (If you come up with something that makes sense I am on your side)

Sidechains are a great idea. Something needs to be done to help Bitcoin move forward.

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