Author: Erik Aronesty 2017-06-23 14:19:18
Published on: 2017-06-23T14:19:18+00:00
The conversation revolves around the concept of sidechains and their implementation. The idea of using UTXO commitments for sidechains is supported by Paul Sztorc, who believes that this would be a better alternative than merged mining as it would not mess with the main chain's incentive structure. Erik Aronesty proposes a proof-of-burn sidechain as the ultimate two-way peg where one has to burn Bitcoin or side-chain tokens to mine the side chain. The size of the burn is the degree of security and any Bitcoins held in the sidechain depreciate in value at a rate of X% per year, which pays for increased security. This deflation rate functions like an altcoin, with high inflation and cheap transactions, but the altcoin is pegged to Bitcoin's price because of the pool of unredeemed Bitcoins held within the side chain. However, Paul points out that Erik's design may not be competitive as users may not tolerate depreciation of X% per year when there are alternatives that do not require such depreciation. He does not believe that blind merged mining messes with the main chain's incentive structure and argues that miners are free to ignore the sidechain while still getting paid the same as other miners. He cautions that if the premise of the proposal is false or skewed so as to damage Bitcoin as a whole, then it needs to be demonstrated first. The critical issue is that protocol changes should not further incentivize geographical and institutional consolidation. Miners who can deal with the bandwidth caused by drivechain coffee transactions will profit from these transactions, whereas smaller and more geographically distributed miners will not. These miners will, in turn, build faster ASICs and buy more electricity and drive out smaller players. The lightning model does the opposite of this, where miners watch fees increase and come from an orthogonal protocol that cannot cause further centralization. One problem is that the main chain also must grow in response to bandwidth, or the disadvantages of using the main chain will weaken financial support and hash rate securing it. The author believes that a "balancing act" will be Bitcoin's norm until something like BIP103 is adopted, which provides steady and appropriate growth.
Updated on: 2023-06-12T02:14:57.646608+00:00