In case you’ve been living in a Faraday cage: a blockchain is a distributed peer-to-peer ledger system, (generally) safeguarded by cryptographic proof-of-work, initially devised by a mysterious entity called Satoshi Nakamoto.

Sidechains are some of the most highly-anticipated technological improvements to bitcoin, due to the practically limitless functionality that can be enabled once they are deployed. Originally announced as a concept in 2014, sidechains are now perhaps only months away from being available on the bitcoin network.

If successful, sidechains could have a massive impact on the future prospects of the bitcoin price.

Sidechains are supposed to make it possible for users to move bitcoins between different bitcoin-based blockchains with different rule sets. For example, in this way, new techniques for preserving the privacy of transactions or a smart contract system similar to ethereum’s could be added to a bitcoin blockchain, without changing the bitcoin blockchain. They are as an architecture for building semi-decentralised products and services for Bitcoin that were simply impossible before. With sidechains, users won’t be affected at all by any new programming.

What are Some Examples of Possible Bitcoin Sidechains?

Lightning Network

The Lightning Network allows for the creation of “micropayment channels” across which multiple Bitcoin transactions can be securely performed without interacting with the blockchain, except for the initial transaction that initiates the channel. There is no counterparty risk: if any party ceases to cooperate, and/or does not respond within an agreed-on time limit, the channel can be closed and all its outstanding transactions kicked up to the blockchain to be settled there.

Rootstock

Rootstock (RSK) is a smart-contract platform that incorporates a Turing Complete Virtual Machine to Bitcoin. It also provides other network enhancements, such as faster transactions and better scalability, features which we believe will also enable new usage scenarios.

Given the fiascos we have seen with Ethereum contracts, Bitcoin-based versions may provide a welcome relief. It is still a bit too early to tell how all of that will play. Smart contracts are not the only selling point of Rootstock either.

Hivemind

Hivemind is a Peer-to-Peer Oracle Protocol which absorbs accurate data into a blockchain so that Bitcoin-users can speculate in Prediction Markets. These markets have the potential to revolutionize the emergence and diffusion of knowledge in society.

Hivemind is taking a page out of Augur’s book, as this is a peer-to-peer Oracle protocol specializing in prediction markets.

Mimblewimble

In brief, Mimblewimble is a solution to create a blockchain-based ledger that is rather different from Bitcoin as we know it today. To be more specific, Mimblewimble can be implemented as a sidechain, or even introduced in Bitcoin itself through a soft fork.

Mimblewimble is based on some of Bitcoin’s familiar privacy features. One of these is Confidential Transactions, which was mostly developed by Bitcoin Core and Blockstream developer Gregory Maxwell and is currently deployed on Blockstream’s Elements Alpha sidechain.

Mimblewimble, in its current form, is not very compatible with the Bitcoin protocol. This is mainly because for Mimblewimble to work, script must be purged from transactions.

But that doesn’t make Mimblewimble useless. Mimblewimble may, for instance, be the perfect fit for a privacy-focused sidechain.

Drivechain

Drivechain is a project aiming to provide sidechains to the Bitcoin ecosystem in the future.

Drivechain is a two-way peg for interacting with the sidechain. The key difference between drivechains and regular sidechains is who ultimately submits the necessary information to transfer the bitcoins back and forth: the users or the miners.

The side chain idea allows the native cryptocurrency to compete and win out over other competitors, as they are faster confirmed.

Liquid

The Liquid sidechain is a private sidechain. To get access to it, you must contact Blockstream.

Liquid is the world’s first federated sidechain that enables rapid, confidential, and secure bitcoin transfers. Participating exchanges and Bitcoin businesses deploy the software and hardware that make up the Liquid network, so that they can peg in and out of the Bitcoin blockchain and offer Liquid’s features to their traders. Liquid provides a more secure and efficient system for exchange-side bitcoin to move across the network.

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