Blockstream has recently acquired the Bitcoin wallet provider, GreenAddress in an effort to advance the Sidechains project, which was first announced in 2014 by Adam Back and Austin Hill. GreenAddress plans to incorporate the management of new assets and features that will be released over time. GreenAddress detailed the upcoming developments following the acquisition, through a blog post announcement:
“Here’s a preview of upcoming improvements we are working on a multi-platform wallet library to enable more rapid development of all platforms, enhanced privacy and security, and of course sidechain support throughout the platform. Extending GreenAddress to work with sidechains will mean you, as a GreenAddress user, will have the ability to manage not only bitcoin but other assets and features that are coming online over the next months and years ahead as Blockstream and other developers establish new sidechain-based networks.”
Blockstream has also recently raised $55 millions in Series A funding directed towards the development of the Sidechains project, which has seen accomplishments like the release of the Elements Project, along with the creation of a functioning sidechain, dubbed Alpha Sidechain which is pegged to testnet3 Bitcoin and allows innovations like confidential transactions, segregated witnesses and much more. The Elements Project allows developers to build and test new functionalities and complete sidechains like Rootstock (RSK) and Gem.
Sidechains allow Bitcoins to be redeemed for other assets and vice-versa without the need to create an alternative blockchain with its own native value token and exposing users and developers to the volatility and security risks associated with a new cryptocurrency. These assets can then be redeemed for Bitcoin through a fixed or deterministic exchange rate and through a centralized federated peg system (that requires a trust element), or through a decentralized SPV (Simple Payment Verification) proof system, which is currently not supported in Bitcoin. BTC can currently be locked and redeemed for a sidechain asset using the SPV proof system, but not the other way around. This is known as a one-way peg system, in which users can “burn” Bitcoins in exchange for an asset issued on another blockchain that cannot be exchanged back for Bitcoin.
Sidechains not only allow the creation of new pegged assets and innovative features in the Bitcoin ecosystem but embody new security failsafes and developments, since new features can be safely tested on sidechains before being implemented on Bitcoin. New versions of Bitcoin can even be developed to allow a medium term consensus to be reached by migrating to the new sidechain until the change is implemented in Bitcoin itself, reducing the risks associated with an hard-fork.
There are many use-case scenarios for the usage of side chains, which will bring additional value to Bitcoin by increasing its security, functionality, scalability and privacy: The creation and deployment of smart contracts, instant payment and micropayment networks, the creation of pegged assets, anonymous transactions and more. One example of this is Liquid sidechain, which is currently under development and will allow funds to be quickly transferred between exchanges, reducing the 10 minute waiting period to a few seconds.