Tag Archives: Sidechains

The Power of Blockchain (and Sidechains)

Blockchain has the potential to allow distributed peer-to-peer networks to drive most internet services we use today. In the current sharing economy model, the middle man takes a cut but there is no middle man in a true peer to peer network; the network is self-governing and self-regulatory. Imagine sharing economy services such as Uber, Airbnb, RelayRides and Task Rabbit on a radically decentralised peer to peer network with no central authority. The Blockchain can be used to replace existing centralised systems, such as Dropbox for file sharing and Godaddy for domain registrations. Most of us find these services very useful, but their centralised nature makes them susceptible to hacks, data leaks and downtime. As storage gets cheaper, bandwidth increases and processors grow more powerful, we can imagine a world in which these centralised systems could be replaced with large P2P open-source networks, cryptographically encrypted at each end, all running on the Blockchain. Such is the disruption potential of the Blockchain.
As transactions take place on the network, computers algorithmically verify each transaction and create an open ledger of all activity. Transaction processing is real-time and arguably more secure than relying on a central authority. These computers that collectively form the network are located throughout the world and most importantly are not controlled by a single entity. Developers can build applications on the Blockchain – this makes Blockchain very powerful and the power lies in its distributed nature. There have been several precursors to Bitcoin that failed and succeeded to some extent, but the real technological breakthrough with Bitcoin is the underlying technology that powers it, and the opportunities that this technology creates.



Source: Business Insider

Blockchain could disrupt industries where trust is essential and there are several intermediaries. One use case is the exchange of property: currently several intermediaries are involved in the process, the payment is verified manually and the transaction takes several days to complete. Blockchain will confirm the transaction instantly, transfer ownership to the new owner, and the law will be enforced algorithmically (see smart contracts). Second use case is Blockchain crowdfunding; Naval Ravikant discusses the crowdfunding concept in detail here. These use cases are unharmed by the volatility in the price of Bitcoin and can be enforced by the ‘Code as Law’ using the Blockchain.

The structure of Bitcoin is somewhat limited in its current form but it can be enhanced to do clever things such as smart contracts and smart property. Each one of these applications is likely to be different and therefore it makes more sense to follow a sidechain model instead of a one size fits all. Additionally, it has become somewhat risky to make changes to the core Bitcoin code because of the capital at stake and the traction Bitcoin has gained.


Source: Cryptocoinnews

The main idea behind sidechains is to use the existing Blockchain framework and allow developers to build customised applications running off the Blockchain. Bitcoins will be sent to the sidechain and kept there as collateral. The Sidechain will then issue a pre-determined number of coins to be used on that sidechain. Rules of that sidechain will determine when and how the coins can be used. Companies such as Blockstream are working to bring Sidechains to enterprise customers. Other projects such as Ethereum are being built as an open source platform to build and distribute decentralised applications. Blockchain will continue to evolve exponentially and future applications are likely to be radically different from what can be conceived today.

Following is a quote from Peter Diamandis:

“Human development over 150,000 years has been local and linear, your brain is programmed to be linear. But in these next few decades the rate of change is growing so fast that almost everything we can conceive can happen. Every industry is potentially disruptible in the near future. And if you’re not excited or scared, you’re asleep at the wheel.”