Federated Sidechains Bitcoin Original – Bitcoin Magazine

This is an opinion editorial by Shinobi, a self-taught educator in the Bitcoin space and tech-oriented Bitcoin podcast host.

Federated sidechains are currently the only deployed type of Bitcoin sidechain (the most recent paper here). The idea of using a federated peg and consensus system was actually an appendix in the original sidechains whitepaper. There was no concrete design for any type of two-way peg involving miners, so a federated peg was described as a way to deploy a sidechain now, and upgrade to a two-way verified peg using simple payment verification (SPV) proofs similar to what softchains do, when something was concretely designed that was safe and deployable. It was also pointed out that in terms of incentives, for very small systems it might be dangerous to use a miner-based peg as they could steal from a very small group of people without much consensus on doing anything about it from the wider Bitcoin system. Federations could be useful for smaller systems where the group of users isn’t big enough to be a disincentive for miners to steal coins.

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