Drivechains as an Alternative to Altcoins – Bitfinex Blog – CryptoNews

Drivechains as an alternative to altcoins

February 17, 2023
in education

Powerchains are a second-layer Bitcoin technology for sidechains that allow altcoins to exist on top of Bitcoin. This would offer several advantages, such as enabling permissionless experimentation, new features or use cases, eliminating competition between blockchains, and improved scalability. The downside is that they require a soft fork to perform.

The origin of Drivechains

If Paul Sztorc had made it back in 2017 when he proposed Bitcoin Improvement Proposals (BIP) 300 and 301, the state of current crypto adoption would likely be very, very different. Paul’s two BIPs lay the groundwork for a decentralized Bitcoin sidechain implementation, better known as “drivechains”, that uses Hashrate Escrow and Blind Merge Mining.

Sztorc first introduced Drivechains in a blog post in 2015 and envisioned Drivechains as a way to stop the fragmentation of Bitcoin caused by hard forks resulting from consensus disagreements. As well as a way to absorb significant contributions from altcoin experimentation into Bitcoin and eliminate the competition between tokens that has fragmented adoption.

In the world Sztorc probably envisions, instead of our current cryptocurrency market, with Bitcoin and the 22,563 additional altcoins we currently have, we would have Bitcoin and every other altcoin with a unique use case or coin with unique characteristics existing on the sidechain as a drive chain, with its own blockchain that is mined by merging Bitcoin miners.

Drive chains in brief

Drivechains would allow Bitcoin users to lock BTC into these drivechains using a decentralized two-way connection that uses cryptographic proof to mint coins that have characteristics or characteristics of each altcoin.

The driving chains will operate as independent blockchains (on their own sidechains) and will be mined via fusion by Bitcoin miners, similar to how the RSK sidechain (formerly known as Rootstock) is currently mined via fusion as the remora chain.

Drivechains will provide miners with additional fees, increase Bitcoin’s hashrate and security, and enable new features and use cases that have seen mass adoption of altcoin chains, such as decentralized finance (DeFi), non-fungible tokens (NFT), security tokens and stablecoins built and backed by Bitcoin.

Driving chains would allow experimentation with Bitcoin without harming the underlying layer one blockchain. This could potentially make altcoins obsolete and allow Bitcoin to take the best or most successful features and use cases from any existing altcoin without changing Bitcoin’s code. Instead of launching a new altcoin on its own blockchain, it could be launched as a Bitcoin powerchain.

Why haven’t Drivechains been added to Bitcoin?

Recently, the conversation around drive chains has reignited on social media as a new wave of bitcoiners have shown a renewed interest in revisiting Sztorc’s ideas. Drive chains do offer quite a few advantages, with some trade-offs that must also be considered. As stated in the original drivetrain design, they would be an opt-in soft fork, similar to the Segwit or Taproot soft forks.

Despite the potential for power chains, with the ongoing controversy surrounding Ordinals and Inscriptions, which used some of the new capabilities provided by the Taproot spend scripts on the recent Taproot soft fork, it is unlikely that we will see bitcoiners rush to adopt a new soft fork to implement blockchains in bitcoin at any time.

How do Drivechains work?

Driving chains use Simplified Proof of Payment Verification (SPV) to allow users to send bitcoins to and from a sidechain using a two-way connection. The Bitcoin is then locked in a special onchain address that acts as an onchain vault or box where the coins are stored.

The sidechain then checks for these locking transactions and upon finding one, creates an appropriate amount of native sidechain tokens. These token sidechains can be created with any of the desired compromises or features of any of the existing altcoin use cases that would be considered invalid under the first-layer Bitcoin consensus rules.

A great example of the kind of altcoin features side tokens can contain is the zSide sidechain, which is a power chain that uses Z-Cash’s ZK-SNARKS zero-knowledge proofs for confidential and private sidechain transactions.

This is a single example, but all features of any altcoin token scheme can be implemented on its own chain. Sidechain tokens can have faster blocks, lower fees, be NFTs, smart contracts, DeFi, Stablecoin, etc.

In order to convert sidechain tokens back to on-chain bitcoin, the sidechain must confirm the special sidechain withdrawal transaction as well as ensure that it is a valid Bitcoin Level One blockchain transaction that pays out the coins held in the vault address described above to a new type of address, in a withdrawal transaction.

This validation happens on the sidechain, not the Bitcoin blockchain. Once the withdrawal transaction is created in the sidechain, the funds are frozen in the sidechain and sent to the miners of the Bitcoin blockchain.

This withdrawal transaction may take a period of 13,150 blocks, or roughly six months, to allow participants in the Bitcoin blockchain and sidechains to verify that this is in fact a valid spend as determined by the miners’ votes. This address that receives the payout on withdrawal is a special address that must be agreed upon by all miners that it can receive the payout, through a voting process called Hashrate Escrow. If the draw does not receive enough votes, it is void and no funds are transferred.

What are the trade-offs of Drivechains?

There are currently several rebuttals made by Bitcoiners as to why adding blockchains to Bitcoin is undesirable. The criticisms surrounding drivetrains are very nuanced technical arguments, and both sides of the debate have valid points.

To learn more about the pros and cons, it’s worth reading Paul Sztorc’s drivechain.info FAQ, which provides detailed answers to the criticisms. See below for some of the criticisms. We leave it up to the reader to DYOR and decide for themselves whether the compromises are worth the risk.

Criticism 1: Miners can steal user funds

Drivechain detractors point out that with Drivechain’s current implementation, miners could theoretically steal user funds when withdrawing coins back into mainchain Bitcoin. While this is somewhat true, efforts have been made in the implementation of the drive chain to mitigate this, including the 13,150 block waiting period for withdrawal transactions. The probability of being stolen by a miner is very low. Learn more by reading about the drivechain security model here.

Criticism 2: Drivechain creates new costs for miners

Another argument used by opponents of drivechain is that since merge mining will increase the data on the chain, it will make nodes more expensive and mining will become less profitable, which is bad in such a competitive, low-margin market. This is true, the sidechains of fusion mining drive chains do require miners to verify several additional hashes, but this argument does not take into account the additional fees that miners will earn, which will bring them more profit and eliminate any additional costs incurred.

A further rebuttal to this criticism is that blind merge mining is optional and opt-in only, so miners are not forced to incur any additional costs unless they wish to. If they’re willing to participate, you can be sure they’ve weighed the risk versus the reward and decided the fees are worth the cost.

Criticism 3: The new fees distort the incentives for miners

Another criticism of blockchains is that the fees generated by blockchain sidechains could shift the incentives and game theory for miners. This means that if it is more profitable to mine sidechain transactions for fees than onchain, miners could potentially become bad actors, reorganizing transactions or censoring transactions out of greedy self-interest.

This is another argument that is also somewhat true, but may not actually play out the way the detractors imagine. This leads to another larger issue and conversation surrounding Bitcoin’s fee model, block subsidy, and miner profitability. Traditionally, miners do what they can to earn as much as possible, their self-interest is a major factor in Bitcoin’s security model, and blind merge fees fall into this incentive structure.

This argument is currently similar to opponents of Ordinal Inscriptions, who complain that blocks are filled with JPEGS instead of economic transactions, even though Inscriptions pay fees, making them economic transactions that have paid for the block space they use.