one of Scalability solutions Blockchains use side chains. China side It is a blockchain network that connects to the main blockchain and allows the transfer of tokens from the main blockchain to other blockchains and back. Spacechainare one of the methods of implementing this mechanism. In the first part, an overview Implementation of Bitcoin side chains About what it is and how it works Space ChinaExplanations were provided. Stay tuned to Mehin Blockchain for the second part about Applications of Spacechains (Space chains) in Bitcoin sidechains.
How do sidechains work?
Main idea side chains Creating a two-way mechanism where it is possible to transfer bitcoins to completely new blockchains. In fact, Sidechain wanted to do the same thing that is currently done with altcoins with Bitcoin itself, without the need to change or create any risk to the main blockchain, so that users of the Bitcoin blockchain can without the need to speculate on full tokens. Separately, use the Bitcoin token to access new functions.
Economically, it was thought that Bitcoin on sidechains would never deviate significantly from its mainchain price. The argument of this idea was because of Arbitrage Trading. In fact, if the price of Bitcoin on the sidechain becomes higher than the value of Bitcoin on the mainchain, you can simply transfer the coins to the sidechain, make a profit on the sale, and buy back Bitcoin on the mainchain. The same thing is possible in the direction of the photo and anyone can easily get this benefit. Therefore, in case of Bitcoin price deviation in the main chain and side chain, traders will quickly balance the price.
Mechanism of operation of Spacechains
The logic of one-way peg is not so different and the only difference is the one-way performance. In a spacechain that has a one-way peg, you can burn bitcoins on the main chain and claim a token on the side chain. But since this trip is one-way and irreversible, you can never bring the token back to the main chain. In this mechanism, there is a chance for arbitrage. If the demand in the sidechain decreases for any reason, the value of the token in the spacechain may become lower than the value of Bitcoin, but the value of this token will never exceed the price of Bitcoin in the long run.
If for any reason you need features and Use of space chain token but its value is lower than bitcoin, the most logical thing is to buy the token in the market and use it. In other words, why should you buy bitcoin at a higher price and send it one-way to get a cheaper token on the sidechain? Conversely, if the value of the token in the sidechain is more than the value of Bitcoin, it makes sense to send Bitcoin through such a route. What is the need to pay more money to buy tokens on the market, when you can get bitcoins for less than the market price by simply pegging?
This process creates an arbitrage dynamic. In fact, whenever the price of the sidechain token becomes higher than the price of Bitcoin, Bitcoin can be pegged (linked) to the sidechain, sold at a higher price, and bought back into the main Bitcoin chain. Finally, this process leads to the equilibrium of the Bitcoin price.
The use of Spacechains in the implementation of a security mechanism
Spacechains are a great place to implement features that cannot be implemented in the original Bitcoin protocol. But since the peg mechanism is one-way, it cannot be considered a suitable place for testing. If some mainchain feature was running on spacechain and you were burning bitcoins to peg the sidechain, then the mainchain feature would make your spacechain tokens worthless. In other words, since these features are available for use on the main chain, there is no way to return the tokens to the main chain, and it probably won’t be bought on the market.
However, what will most likely never be deployed on the main chain, such as Confidential Transactions (due to the risk of undetectable inflation bugs), is a set of logical features implemented in SpaceChain. Also, the complex programming languages of smart contracts or Turing-complete (Turing-complete), which are never accepted in the main Bitcoin protocol due to complexity or security risks, can be reviewed and implemented in Space Chain.
The application of Spacechains in the field of domain name tokens (DNS)
One of the uses of space chains is to facilitate the transfer of Domain Name System (DNS) tokens such as Namecoin. Domain Name System is used almost all over the internet. Any website address you type into a browser will ping a DNS server, examine the entry, and find the correct IP address. It then connects to the same server to retrieve the web page. This whole system is implemented in a centralized way. Therefore, it is possible to seize and record domains, and even the user cannot register a domain without an intermediary and without providing his full legal identity.
If such a system can be implemented on the blockchain so that anyone can register a domain name without the control of a centralized entity, own it and decide for themselves where this domain will be displayed, it would be a worthwhile endeavor. Spacechains have the ability to do this without the need for a new token. In fact, the system can be run just by burning bitcoins.
Application of Spacechains to create reliable tokens
Many different types of assets can be issued on a blockchain, but ultimately, regardless of how decentralized the blockchain is, its assets are centralized. Stablecoins, stocks, bonds, or anything else where the issuer can control the underlying collateral or make a legal claim to centralized rights or dividends belonging to the holder of the asset is considered a centralized asset.
Spacechainare a desirable system for creating such assets, as they provide a more open access model to facilitate transactions and transfers of these types of assets. In federated systems such as the Liquid network, trusted parties are in charge of minting blocks for side chains. Although the Liquid sidechain project uses confidential transactions to hide the amounts and assets being transferred, a sufficient number of federations can stop the production of blocks and prevent transactions by stopping the system.
tipFederations are a group of operators that act as intermediaries between the main chain and side chains. It is up to federations to decide whether to lock and release user-transferred coins from the main chain.
However, Spacechains is not exposed to such conditions. In fact, since access to block mining is free and anyone can mine their own sidechain block by paying a high fee, federation groups do not have the ability to stop the development of the sidechain. If this technology is combined with technologies such as confidential transactions, it can improve the Liquid Project model. “Operator” refers to someone who intends to pay a Bitcoin transaction fee. So as long as another operator is willing to pay the fee, no one can stop the blockchain.
Application of Spacechains in creating capacity
Another advantage of Spacechains is its atomicity. It is not possible to inform the bitcoin chain about the events inside the space chain without changing the main bitcoin protocol and increasing the block size. But a Spacechain can implement the block validation requirements of the Bitcoin main chain as a consensus rule. In this way, it is possible to perform atomic transactions (Atomic Swap) cross-chain. Of course, with the condition that nothing can be valid in space chain unless the transaction happens in the main chain. For example, the transfer of a stablecoin is only valid if a predetermined bitcoin transaction is simultaneously mined to facilitate the sale of bitcoins. The atomicity of this process is much more and stronger than the normal cross-chain atomic swap.
Using two-way federated pegs in Spacechains
So far, the discussion was about one-way pegs. Since trustless two-way pegs cannot be implemented without changing the original Bitcoin protocol, Spacechains are built on one-way pegs. The use of two-way pegs requires new consensus changes beyond those required for Spacechains. But it can be done by using a trusted federation, just like Liquid projects or Rootstockexecuted a two-way peg.
Implementing a two-way peg using a trusted federation has two important advantages over Project Liquid as a federated system. First, as mentioned, the federation group does not control the mining process of the sidechain blocks. They can only participate in the mining process and earn side chain transaction fees in return for their participation and no longer have a monopoly role. Any person or entity who wants to extract their own block by miner by paying the transaction fee required by the main chain, can participate in the development of the chain by paying the transaction fee in the block side of the chain. Second, the possibility of knowing the events of the main chain with a Spacechain improves the process of removing the token from the peg or Peg Out from the sidechain.
Solving the challenge of removing the token from the peg
Although hardware security modules are in the form of a layer of defense, theoretically pegging the token would be a problem. In fact, for a person who de-pegs his tokens in a federated side chain, he faces the challenge of confiscation and possession of the token. Because there is a delay between the initial time of exiting the sidechain and sending funds to the main chain user, and nothing but secure hardware prevents the main chain withdrawal from being processed.
However, with a federated peg in Spacechain, token withdrawal from the peg can be done as an atomic transaction. The design of this system can be such that if a user makes a transaction to remove his coins from the peg state, this transaction will be invalidated by consensus. Unless a specific transaction that sends coins to a main chain user is mined at the same time. Otherwise, it is possible to return the coins to the side chain user. Also, since the federation group denying the peg has no monopoly power over the production of sidechain blocks, it cannot prevent the user from transferring funds from the sidechain or find another way to remove funds from the sidechain.
In this way, the security models of federated pegs of side chains are seriously improved. In addition, a mechanism is provided for the practical use of the two-way peg feature in Spacechain.
Spacechains have many applications for Bitcoin users or even other digital currency users. Currently, it is possible to implement space chains in a reliable way. If the CHECKTEMPLATEVERIFY or ANYPREVOUT In the future, they will be implemented and deployed on the Bitcoin blockchain, it is possible to implement them in a reliable way. To activate Spacechains, these two protocols can be implemented on Bitcoin without any special changes in the main protocol.
Spacechains A method for Implementation of side chains In the blockchain and Solving the scalability problem are. By using space chains, features that cannot be implemented in the main chain can be implemented in side chains. Plus Application of Spacechains In the field of domain name systems, Trusted tokens and the use of Atomicity capacity for atomic transactions are significant. As we mentioned before, the concept of side chains was mentioned in White Pepper Bitcoin from the very beginning. But how much do you think the presentation of the latest proposals for the implementation of Bitcoin side chains will help to solve the problem of scalability of blockchains? Should the digital currency industry wait for new developments?