Sidechains: Why These Researchers Think They Solved a Key Piece of the Puzzle

Sidechains and Why These Researchers Think They Solved a Key Piece of the Puzzle

New blockchains are born all the time. Bitcoin was the lone blockchain for years, but now there are hundreds. The problem is, if you want to use the features offered on another blockchain, you have to buy the tokens for that other blockchain.

But all that may soon change. One developing technology called sidechains promises to make it easier to move tokens across blockchains and, as a result, open the doors to a world of possibilities, including building bridges to the legacy financial systems of banks.

In October 2017, Aggelos Kiayias, professor at the University of Edinburgh and chief scientist at blockchain research and development company IOHK; Andrew Miller, professor at the University of Illinois at Urbana-Champaign; and Dionysis Zindros, researcher at the University of Athens, released the paper “Non-Interactive Proofs of Proof-of-Work” (NiPoPoW), introducing a critical piece to the sidechains puzzle that had been missing for three years. This is the story of how they got there.

But, first, what exactly is a sidechain?    

Same Coin, Different Blockchain

A sidechain is a technology that allows you to move your tokens from one blockchain to another, use them on that other blockchain and then move them back at a later point in time, without the need for a third party.  

In the past, the parent blockchain has typically been Bitcoin, but a parent chain could be any blockchain. Also, when a token moves to another blockchain, it should maintain its same value. In other words, a bitcoin on an Ethereum sidechain would remain a bitcoin.  

The biggest advantage of sidechains is that they would allow users to access a host of new services. For instance, you could move bitcoin to another blockchain to take advantage of privacy features, faster transaction speeds and smart contracts.  

Sidechains have other uses, too. A sidechain could offer a more secure way to upgrade a protocol, or it could serve as a type of security firewall, so that in the event of a catastrophic disaster on a sidechain, the main chain would remain unaffected. “It is a kind of limited liability,” said Zindros in a video explaining how the technology works.

Finally, if banks were to create their own private blockchain networks, sidechains could enable communications with those networks, allowing users to issue and track shares, bonds and other assets.

Early Conversations

Early dialogue about sidechains first appeared in Bitcoin chat rooms around 2012, when Bitcoin Core developers were thinking of ways to safely upgrade the Bitcoin protocol.

One idea was for a “one-way peg,” where users could move bitcoin to a separate blockchain to test out a new client; however, once those assets were moved, they could not be moved back to the main chain.  

“I was thinking of this as a software engineering tool that could be used to make widespread changes,” Adam Back, now CEO at blockchain development company Blockstream, said in an interview with Bitcoin Magazine. “You could say, we are going to make a new version [of Bitcoin], and we think it will be ready in a year, but in the meantime, you can opt in early and test it.”

According to Back, sometime in the following year, on the Bitcoin IRC channel, Bitcoin Core developer Greg Maxwell suggested an idea for a “two-way peg,” where value could be transferred to the alternative chain and then back to Bitcoin at a later point.

A two-way peg addressed another growing concern at the time. Alternative coins, like Litecoin and Namecoin, were becoming increasingly popular. The fear was these “altcoins” would dilute the value of bitcoin. It made sense, Bitcoin Core developers thought, to keep bitcoin as a type of reserve currency, and relegate new features to sidechains. That way, “if you wanted to use a different feature, you wouldn’t have to buy a speculative asset,” said Back.

To turn the concept of sidechains into a reality, Back along with Maxwell and a few other Bitcoin Core developers formed Blockstream in 2014. In October that year, the group released “Enabling Blockchain Innovations with Pegged Sidechains,” a paper describing sidechains at a high level. Miller appears as a co-author on that paper as well.

How Sidechains Work

One important component of sidechains is a simplified payment verification (SPV) proof that shows that tokens have been locked up on one chain so validators can safely unlock an equivalent value on the alternative chain. But to work for sidechains, an SPV proof has to be small enough to fit into a single coinbase transaction, the transaction that rewards a miner with new coins. (Not to be confused with the company Coinbase.)

At the time the Blockstream researchers released their paper, they knew they needed a compressed SPV proof to get sidechains to work, but they had not yet developed the cryptography behind it. So they outlined general, high-level ideas.

The Blockstream paper describes two types of two-way pegs: a symmetric two-way peg, where both chains are independent with their own mining; and an asymmetric two-way peg, where sidechain miners are full validators of the parent chain.

In a symmetric two-way peg, a user sends her bitcoins to a special address. Doing so locks up the funds on the Bitcoin blockchain. That output remains locked for a contest period of maybe six blocks (one hour) to confirm the transaction has gone through, and then an SPV proof is created to send to the sidechain.

At that point, a corresponding transaction appears on the sidechain with the SPV proof, verifying that money has been locked up on the Bitcoin blockchain, and then coins with the same value of account are unlocked on the sidechain.

Coins are spent and change hands and, at a later point, are sent back to the main chain. When the coins are returned to the main chain, the process repeats. They are sent to a locked output on the sidechain, a waiting period goes by, and an SPV proof is created and sent back to the main blockchain to unlock coins on the main chain.  

In an asymmetric two-way peg, the process is slightly different. The transfer from the parent chain to the sidechain does not require an SPV proof, because validators on the sidechain are also aware of the state of the parent chain. An SPV proof is still needed, however, when the coins are returned to the parent chain.

The Search for a Compact Proof

In a sidechain, a compact SPV proof needs to contain a compressed version of all the block headers in the chain where funds are locked up from the genesis block through the contest period, as well as transaction data and some other data. In this way, an SPV proof can also be thought of as a “proof of proof-of-work” for a particular output.

Inspiration for the compact SPV proof comes from a linked-list-like structure known as a “skip list” developed 25 years ago. In applying this structure to a compact SPV proof, the trick was in finding a way to skip block headers while still maintaining a high level of security so that an adversary would not be able to fake a proof.

In working through the problem, Blockstream showed an early draft of its sidechains paper to Miller, who had been mulling over compact SPVs for a few years already.

In August 2012, in a post on a BitcoinTalk forum titled “The High-Value-Hash Highway,” Miller described an idea for a “merkle skip list” that a Bitcoin light client could use to quickly determine the longest chain and begin using it. In that post, he described the significance of the data structure as “absolutely staggering.”

When Miller read through the Blockstream draft, he spotted a vulnerability in the compact SPV proof described in the paper. Discussions ensued, but they “couldn’t find a way to solve that problem without compromising efficiency,” Miller said.

Miller’s non-trivial contributions to the Blockstream paper ended up being a few paragraphs in Appendix B that describe the challenges in creating a compact SPV proof.

It should “be possible to greatly compress a list of headers while still proving the same amount of work,” the section reads, but “optimising these tradeoffs and formalising the security guarantees is out of scope for this paper and the topic of ongoing work.”

That ongoing work remained stuck for three years.

Compact SPV

During that ensuing time, researchers at IOHK began taking a more serious interest in sidechains. Plans were taking shape for Cardano, a new proof-of-stake blockchain that IOHK had been contracted to build.

Cardano would consist of two layers: a settlement layer, launched in September 2017, where the money supply would be kept, and a smart contract layer. Those two layers would be two sidechain-enabled blockchains. In this way, the settlement could remain simple and secure from any attacks that might occur on the smart contract layer. But if IOHK was to get Cardano to work as intended, it needed to solve sidechains.

In February 2016, Kiayias, then a professor at the University of Athens, and two of his students, Nikolaos Lamprou and Aikaterini-Panagiota Stouka, released “Proofs of Proofs of Work with Sublinear Complexity” (PoPoW).

The paper was the first to formally address a compact SPV proof. Only, the proof described in the paper was interactive; whereas, to work for sidechains, it needed to be non-interactive.

In an interactive proof, the prover and the verifier enter into a back-and-forth conversation, meaning there could be more than one round of messaging. In contrast, a non-interactive proof would be a simple, short string of text that would fit neatly into a single transaction on the blockchain.

The PoPoW paper was presented at BITCOIN’16, a workshop affiliated with the International Financial Cryptography Association’s (IFCA) Financial Cryptography and Data Security conference. Miller, who was at the conference, approached Kiayias and shared an idea for making the protocol non-interactive.

It was a “nice observation,” Kiayias told Bitcoin Magazine, but making the proof secure was “not obvious at all” and would require significant work.

Zindros, who had just started working on his PhD under Kiayias, was also at the conference, and he needed a topic for his thesis. Kiayias saw a good fit, “so we pressed on, the three of us, and adapted the PoPoW protocol and its proof of security to the non-interactive setting,” Kiayias said.

In October 2016, Kiayias officially joined IOHK, and a year later, Kiayias, Miller and Zindros released “Non-Interactive Proofs of Proof-of-Work,” introducing a compact SPV proof five years after sidechains had first been talked about on Bitcoin forums.

“If it were interactive, I don’t know if it would have worked; with a non-interactive proof, it is really smooth,” Zindros told Bitcoin Magazine.

More Work to Be Done

Even with NiPoPoW, sidechains are still not fully specified. Several questions remain, including, how small can the proofs be made? After a transaction is locked up on one chain, how much time needs to pass before it can be spent on the other? And, will it be possible to move a token from a sidechain directly to another sidechain?

“A lot of theory still needs to be defined,” IOHK CEO Charles Hoskinson said in speaking to Bitcoin Magazine.

Also, while NiPoPoW is designed to work for proof-of-work blockchains, some believe that if blockchains are to take their place in the world on a grand scale, the future rests in proof-of-stake protocols like Ouroboros, Algorand or Snow White, which promise to be more energy-efficient than Bitcoin.

In particular, if Cardano, which is based on Ouroboros, is to work according to plan, IOHK researchers still need to discover a non-interactive proof of proof-of-stake (NiPoPoS).

Hoskinson is confident. “We can definitely do that,” he said. “We can definitely have a NiPoPoS. The question is how many megabytes or kilobytes is it going to be? Can we bring it down to 100 KB? That is really the question.”

This article originally appeared on Bitcoin Magazine.

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Body of Kuwait maid found dead in freezer repatriated

The body of a Filipino woman who was found in an abandoned apartment in Kuwait early this month arrived home on Friday.

Joanna Demafelis travelled to Kuwait in 2014 after being recruited by Mona Hassoun, a Syrian national, in hope of earning enough money to support her family back in the Philippines. Damafelis went missing in 2015 and failed to make contact with her family.

Demafelis was reported missing by a member of her family to the Overseas Workers Welfare Administration (OWWA) in February 2015. An investigation was conducted in Kuwait but found that the agency which recruited Demafelis had shut down. Without any leads, the investigation was closed.

The frozen body was found by the landlord of the apartment on 7 February this year, after an order was attained to evict Hassoun. As he entered the apartment, the owner realised the tenants had fled, before discovering the dead body in the freezer.

“I hope my sister will be given justice,” Demaflis’ brother, Jojit, said as he watched his sister’s coffin arrive back to an airport in Manila.

In early January 2018, Philippine President Rodrigo Duterte ordered that foreign employment contracts stop being granted to Kuwait due to the number of deaths among Filipinos working in the country.

“I implore you, I am making a plea to all Arabs, the Filipino is no slave to anyone, anywhere and everywhere,’ Duterte said. “Do not give us back a battered worker or a mutilated corpse.”

Duterte went on to warn Kuwait of “drastic measures” to prevent further loss of lives in the country. “What are you doing to my countrymen? And if I were to do it to your citizens here, would you be happy?” he asked.

Kuwait attempted to negotiate with Philippine’s president in order to lift the ban, but this latest death incident may have deepened the issue.

Amnesty International has frequently warned of exploitation and abuse of migrant domestic workers across the Gulf. Migrant workers equate to 90 per cent of the work force across the Gulf, who remain tied to their employers under a sponsorship system known as “Kafala” which enables their employers to confiscate their passports.

Some 2.3 million Filipino workers are documented as working abroad, largely in the Middle East.

Read: Qatar calls for EU-style security pact for Middle East

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USD/CAD – Canadian Dollar Unchanged, No Fundamentals to Start Off Week

The Canadian dollar is almost unchanged in the Monday session, after posting losses on Friday. Currently, USD/CAD is trading at 1.2493, up 0.07% on the day. On the release front, there are no Canadian or US events on the schedule, so traders can expect the pair to have a quiet day. In the US, banks and stock markets are closed for Presidents’ Day.

The Canadian dollar posted losses on Friday, but managed to post slight gains last week. The currency weakened on Friday, after the US posted sharp housing and consumer confidence reports. Building Permits jumped to 1.40 million in January, up from 1.30 million in December. This easily beat the estimate of 1.29 million. Housing Starts followed suit and improved to 1.33 million in January, up from 1.19 million a month earlier. This was well above the forecast of 1.28 million. There was more positive news from consumer confidence, as UoM Consumer Confidence climbed to 99.9, well above the estimate of 95.4 points. This marked a 4-month high. On Wednesday, the Canadian dollar recorded its best one-day performance in 2018, gaining close to 1 percent against the greenback. The US dollar sagged as investors focused on poor retail sales reports in January. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%.

Should cryptocurrencies be regulated? Bitcoin has seen wild fluctuations in recent months, ranging from under $1000 to just under $20,000. There are growing calls for these currencies to be regulated, and central banks could play a key role in such a move. However, last week, ECB President Mario Draghi poured cold water on any ECB involvement, saying that it was not the ECB’s responsibility to ban or regulate Bitcoin. Draghi added that the ECB was exploring the use of blockchain, a digital technology to monitor bitcoin transactions. Still, with Bitcoin gaining more and more popularity, the Bank of Canada and other central banks will have to pay greater to attention to the impact of Bitcoin on the currency markets.

USD/CAD Fundamentals

  • There are no US or Canadian indicators

USD/CAD for Monday, February 19, 2018

USD/CAD, February 19 at 8:05 EST

Open: 1.2555 High: 1.2566 Low: 1.2527 Close: 1.2563

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2190 1.2351 1.2494 1.2630 1.2757 1.2855

USD/CAD ticked lower in the Asian session but has recovered in European trade

  • 1.2494 is providing support
  • 1.2561 is the next resistance line
  • Current range: 1.2494 to 1.2630

Further levels in both directions:

  • Below: 1.2494, 1.2351, 1.2190 and 1.2060
  • Above: 1.2630, 1.2757 and 1.2855

OANDA’s Open Positions Ratio

USD/CAD ratio is showing little movement in the Monday session. Currently, short positions have a slender majority (52%), indicative of slight trader bias towards USD/CAD breaking out and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Tunisia to set up investigation units on violence against women

An investigation unit will be set up in Tunisia to investigate crimes of violence against children and women, the interior ministry has announced.

The “Central Crime Squad for the investigation of crimes of violence against women and children” will be built on the law adopted last year which criminalises and eliminates violence against women.

The unit will be linked to the judicial police of the National Security Directorate as well as the judicial affairs services of the Directorate General of the National Guard, according to the interior ministry.

Professionals will be part of the units with specialities in abuses – ranging from sexual to economic -against women and children and police will be trained to deal with the matters adequately.

Read: Tunisia launches new awareness campaign on violence against women

This announcement comes following concerns raised by organisations that the law on the fight against violence against women had not been applied properly and that there had been shortcomings by the government and authorities to care for victims of violence.

The Comprehensive Law on the Elimination of Violence against Women adopted by the Assembly of People’s Representatives (APR) encompasses various abuses such as sexual as well as public order crimes affecting economic and social rights.

Nearly 80 per cent of cases of physical and mental violence against women are perpetrated by the husband and 11 per cent of cases of sexual violence are committed by members of the family, according to a study prepared by the Tunisian Association of Democratic Women (ATFD) in November last year.

According to official statistics, 47 per cent of Tunisian women between the ages of 18 and 64 years have been subjected to violence at least once in their lives.

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Cryptocurrencies Could Fall to Near-Zero at Any Time

Cryptocurrencies are a nascent asset class and could fall violently at any time, the founder of blockchain network Ethereum warned on Saturday.

“Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time,” Vitalik Buterin said on Twitter. “Don’t put in more money than you can afford to lose.”

Buterin added: “If you’re trying to figure out where to store your life savings, traditional assets are still your safest bet.”

Cryptocurrencies have recovered slightly from a severe sell-off which saw the market lose as much as $100 billion in market value in a single day. Bitcoin recovered to a price above $10,000 last week after falling as low as $5,947.40 the week before.


Don’t go barking up the wrong tree in the Year of the Dog

Dollar Regains Ground Ahead of Fed Minutes

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ElBaradei: Egypt authorities ‘committing mass suicide’ against people

Former Egyptian Vice President Mohamed ElBaradei has warned that authorities in Egypt are “committing mass suicide” by their continued crackdown on dissent as the country prepares for next month’s presidential elections.

The opposition figure took to Twitter to voice his opinions after a government critic was arrested last week.

“Oppression never was or never will be a solution… nations are built on freedom not oppression, on knowledge not ignorance, on transparency not deceitfulness,” ElBaradei posted.

ElBaradei served as Egypt’s vice president in July 2013 until he resigned a month later following a military crackdown on protesters demonstrating against a military coup which removed the country’s first democratically elected President, Mohamed Morsi, killing thousands.

Sisi Era - Cartoon [Latuff/MiddleEastMonitor]

Sisi Era – Cartoon [Latuff/MiddleEastMonitor]

His tweets were posted after Egypt’s prosecutor remanded opposition figure Abdel Moneim Aboul Fotouh in custody last week for 15 days over accusations of links he had with members of the outlawed Muslim Brotherhood.

Aboul Fotouh was in support of the boycott movement of the presidential elections where current president Abdel Fattah Al-Sisi is widely expected to win a majority with only one unknown figure running against him.

Many hopefuls have dropped out of the race citing coercion or have been arrested for opposing Al-Sisi including a former prime minister and rights lawyer. Former military chief of staff Sami Annan was arrested last month after he declared his intention to run in next month’s elections.

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Israel soldiers force Palestinian family to halt authorised construction

Israeli forces seen at the home of the the Sharabati family, on Shuada street in Hebron, preventing them from performing construction work on their roof for which they had Israeli permission, in February 2018 [ISM]
Israeli forces seen at the home of the the Sharabati family, on Shuada street in Hebron, preventing them from performing construction work on their roof for which they had Israeli permission, in February 2018 [ISM]

Israeli occupation forces demanded a Palestinian family halt rooftop construction work despite the family having the required paperwork, according to the International Solidarity Movement (ISM).

According to ISM, the Sharabati family, who live on Shuada street in Hebron, “were hard at work constructing a metal frame for a roof covering on top of their house”, which is overlooked by an illegal Israeli settlement.

As they were working, “settlers arrived at a gate adjacent to the Sharabati rooftop and began swearing in Arabic, banging on the gate and trying to provoke a response.”

After the settlers were ignored, 12 Israeli soldiers “arrived and ordered the Palestinians to halt construction”, falsely claiming “they did not have proper permission”.

“After one hour of talking on their radios and taking pictures of the project and the family, the soldiers confiscated the power tools, equipment and generator leaving the rooftop in disarray.” ISM added:

The Sharabati family have previously tried to make alterations to their roof and faced the same difficulties. Head of the family, Mufid Sharabati, was assaulted five years ago by many soldiers, which resulted in hospitalization and metal plates in his back

 Thus, “regardless of having proper paperwork authorising rooftop construction, the family remained powerless at the word of a few angry settlers and actions of soldiers”, losing “the right to construct on their private property as well as 10,000 NIS [$2,840] worth of equipment”.

ISM notes that while “Palestinians cannot even make minor improvements to their own homes on their own land”, the Israeli occupation authorities continue to approve illegal settlement housing.

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