The world’s first fully-regulated crypto ETP (exchange-traded product) will launch in Switzerland this week, allowing people to trade a basket of cryptocurrencies including bitcoin, ethereum, XRP, bitcoin cash, and litecoin.
It’s important to point out that, contrary to some misleading news reports, this is not the much-hyped bitcoin ETF (exchange-traded fund).
The cryptoverse is eagerly awaiting the approval of a bitcoin ETF, with many calling it the future catalyst for a bitcoin price surge. But how is this Swiss crypto ETP different? And what exactly do you need to know?
What is a Crypto ETP?
An ETP is an acronym for “exchange-traded product.”
In simple terms, an ETP tracks the price of an underlying asset (or a basket of assets), like gold, stocks, and now cryptocurrencies.
The beauty of ETPs is that they are simple and cheap. With this new ETP, investors don’t need to buy cryptocurrencies directly or figure out how to store them. They simply buy the ETP from their broker and instantly get exposure to a basket of five cryptocurrencies.
The ETP is traded on the Swiss stock exchange and can be bought through a traditional stockbroker.
In essence, they’re more accessible to institutional investors which may lead to more money flowing into the crypto market.
Sounds a Lot like an ETF…
It is. The difference is that “ETP” is an umbrella term for different types of exchange-traded products. Those products include ETFs.
ETFs are the most popular type of ETP, but there are others, including exchange-traded notes (ETN) and exchange-traded vehicles (ETFV).
The Amun Crypto ETP will begin trading this week on the Six exchange. It will track a basket of five cryptocurrencies, weighted heavily to bitcoin and XRP. The exact makeup of the ETP is listed below:
Bitcoin Cash: 5.2%
It’s interesting to note that XRP receives a significantly higher weighting compared to ethereum. Although XRP overtook ethereum as the second-largest cryptocurrency last week, the heavier weighting may be an indication of Amun’s expectations for the future.
Note: the weighting will be rebalanced automatically on a monthly basis.
Amun notes that it aims to provide a diverse holding of crypto assets. However, it removes any assets that are tied to a fiat currency, like tether, and any currencies with anonymity features (such as zcash and monero).
The Amun Crypto ETP also avoid any coins without sufficient liquidity and those that don’t trade on reputable exchanges.
“The Amun ETP will give institutional investors that are restricted to investing only in securities or do not want to set up custody for digital assets exposure to cryptocurrencies. It will also provide access for retail investors that currently have no access to crypto exchanges due to local regulatory impediments.”
The ETP carries a management fee of 2.5% annually.
Jane Street and Flow Traders will back the fund and have agreed to pour money into the ETP to give it liquidity. They are known as “market makers.”
In true cryptocurrency style, the ETP will trade under the ticker $hodl. It’s a nod to the popular crypto meme “hodl,” a misspelling of “hold” which was adopted by crypto enthusiasts as a term for holding bitcoin even through the biggest price drops.
It launches on the Swiss SIX exchange, the fourth-largest stock exchange in the world. Based in Zurich, it has a market capitalization of $1.6 trillion.
At the time, SIX CEO said: “For us, it is abundantly clear that much of what is going on in the digital space is here to stay and will define the future of our industry.”
Set to launch in 2019, the exchange will facilitate trading, settlement and storage custody services.
How Is This Different to the Anticipated Bitcoin Etf?
First, there’s the makeup of the ETF itself. The Amun Crypto ETP tracks a basket of cryptocurrencies, rather than purely bitcoin.
Secondly, there’s the scale and impact of the ETP. While the Swiss ETP is an important first step, launching an ETF in the US is a much bigger beast.
The size of the exchange is the first point of difference. The Swiss exchange has a market capitalization of $1.6 trillion, compared to the New York Stock Exchange’s $21.3 trillion and the Nasdaq’s $7.8 trillion.
Simply put, launching a bitcoin ETF on one of the major US exchanges would have a much larger impact.
Then there’s the regulatory process. Switzerland, as explained, is much more open to the crypto industry in general. Approval in Switzerland is less of a groundbreaking move. Whereas the approval of a bitcoin ETF in the US would break down the door for countless other cryptocurrency products and investment vehicles.
The Securities and Exchange Commission (SEC) faces a deadline of December 29th to rule on the next bitcoin ETF proposal put forth by VanEck. However, there’s a good chance the SEC will push the decision back into 2019.
Commentators expect a bitcoin ETF approval to kickstart a new bitcoin price surge. It would, theoretically, allow institutional investors to flood into the market.
Currently, many Wall Street traders are forbidden to buy or hold cryptocurrencies as part of their client portfolios. Others are worried about the risk involved with buying and storing so much crypto directly.
A bitcoin ETF would give them an easier way to gain exposure to the crypto market, without the risk and complexity of buying it directly.
The Swiss crypto ETP is an impressive and important milestone in crypto adoption. It provides a simple route for institutional investors to wade into the crypto market. However, this is not the catalyst many are waiting for, and it does not make a bitcoin ETF approval in the US any more likely.
As always, Block Explorer will bring you more information as and when the true bitcoin ETF is approved in the US.
Edit: this list of blockchain games was updated on January 11, 2019, to include new developments in blockchain gaming.
Blockchain games are nowhere near as ambitious as Fortnite or Skyrim or Call of Duty. But that doesn’t mean there aren’t huge innovations in the works. Blockchain gaming, while exciting, is still in its infancy, often based around collectibles (you’ve all heard of Cryptokitties, right?) Our aim is to begin tracking the world of blockchain gaming as it develops and see what new ideas are out there. Delton Rhodes explores.
What Are Blockchain Games?
As the name suggests, blockchain games are any games that use blockchain technology to power some or all of the gameplay.
It might be as simple as storing gaming items on a blockchain, often Ethereum. Or as vast as building an entire blockchain gaming universe (see Decentraland and CryptoSpaceX below).
Why Blockchain Games vs. Traditional Games?
Blockchain games are considered more transparent and secure than traditional games. In traditional games, everything is stored on the gaming company’s servers.
With blockchain games, your items and progress can be stored safely and transparently on a public blockchain.
For the first time ever, it also means you can own 100% unique digital items. Before blockchain, every digital item (like a weapon or trading card) was just a copy of something else.
Now you can truly own something digital in a game – which opens up tons of new gaming and collectible options.
Curious? Let’s dive into some of the best early blockchain games out there.
Top Blockchain Games
The following are some of the best blockchain games out there (or in development). Some of the games in this list can’t be considered true blockchain games in the sense that they don’t yet rely solely upon blockchain technology. However, many in this list do utilize blockchain for every aspect of gameplay.
Age of Rust is a dark sci-fi adventure game set in the vast expanse of the universe in the year 4424. In the game, you can explore abandoned space stations, mysterious caverns, and ruins on far away worlds. You can unlock puzzles and secrets throughout.
One of Age of Rust’s most innovative features is its blockchain-based peer-to-peer rental market that allows anyone to rent in-game assets for specified periods of time.
The anticipated launch date for Age of Rust is late 2019, meaning it will have undergone two years of development.
SpacePirate Games, the creators of this game, have already released a text-adventure version of Age of Rust which features Rustbits as the in-game currency. The beta version of Age of Rust offers the equivalent of four BTC in prizes. Eventually, Rustbits will be converted to ERC-1155 tokens using Enjin Coin’s smart contract to enable this functionality.
Okay, so this isn’t technically a blockchain game, but it does have a unique cryptocurrency twist…
No Man’s Sky contains an enormous universe for gamers. This game includes 18 quintillion randomly-generated planets for players to explore. Since the game launched in 2016, the creators have continuously added new features like base building, better ship customization, and improved graphics.
In 2018, No Man’s Sky also added multiplayer functionality. The game is available on PC, PS4, and Xbox One.
Although this is not technically a blockchain game, it does have in-game cryptocurrency rewards. What’s most interesting, though, is that the game’s creators didn’t add this. Instead, two avid fans (Jon Creasy and his brother) hid two clues in separate locations within the game.
The first player who can find both will have the ability to access the secret phrase (seed) needed to unlock a wallet containing around $30 worth of BTC.
Gods Unchained, mentioned in our recent article about dapps, continues to gain attention from gamers.According to the project website, Gods Unchained is the first-ever blockchain esport. This game has a multiplayer mode where users can battle each other as well as trade, sell, and store gaming cards.
According to the future roadmap, there will be a Gods Unchained world championship sometime in the near future. As of November 13, 2018, around $370,000 has been raised for this event.
Gods Unchained just released a trailer to show us what the action will look like:
How to play: start by purchasing cards online (requires Meta Mask to access and ether to make purchases)
CryptoSpaceX is a game where you can explore the universe. The game is built on the blockchain, and all in-game elements are assigned digital ownership to the players.
Users can engage in detailed and strategic planet vs. planet battles to loot stardust. With this game, you can also build new starships as well as upgrade and customize your star fleet.
Players can also compete in various challenges and tournaments in a special arena and travel to Vegastar (built in the Fabula galaxy) to win special prizes.
Episode I of the game launched in June 2018. Episode II is expected to be ready to launch by December 2018. According to the project website, the game will eventually include support for mobile gaming functionality.
CryptoSpaceX is unique due to its extreme scarcity of tokens. While similar games might have millions or even billions and claim to be scarce, CryptoSpaceX will only ever have 4000 SpaceX tokens. 3,700 were available in the presale which ended in Ju
ne 2018; however, only 773 were sold then. To avoid centralization of the token supply, each user was limited to a maximum of 10 SpaceX tokens.
CubeGo is a game in which you can use 3D building blocks to build your very own personalized 3D models called Cubegon.
The mission of this game is to enable players to ignite their creativity and imagination by building 3D characters. According to the project website, “They will be the soldiers standing by your side in the face of all adversary and earning you significant rewards.”
With CubeGo, as with most blockchain games, you have full ownership of your creations. Similar to collectible games, each Cubegon (3D model) is unique. The game even provides blockchain-backed copyright ownership for creators.
CubeGo players can use arenas as the playground for demonstrating the power of their Cubegons through 3D battle experiences.
The token presale for CubeGo starts on November 24, 2018. In December 2018, CubeGo will launch Cubegon Building & Marketplace. For 2019, there are several anticipated milestones in the future roadmap, including arena opening and ranked battles. This project has established several big partnerships. Some include Kyber Network, Zilliqa, and Coinbase Wallet.
EOS Knights is the first mobile game (available on iOS and Android) that runs on the EOS blockchain. This game allows users to complete tasks like collecting materials, crafting items, adopting pets, and trading items using EOS.
Even though the game only launched in September 2018, the team behind it has been busy making a variety of major updates.
For example, in November 2018, EOS Knights is adding much-improved functionalities like multi-play boss content (four players), additional boss content, six-level Items (Destructive), and set items (new category).
Axie Infinity draws its inspiration from Pokémon and Tamagotchi games. It is a decentralized game that runs on the Ethereum blockchain. Axie Infinity allows you to breed, raise, and battle fantasy creatures known as Axies.
Similar to other blockchain games, Axie Infinity utilizes scarcity as a key component. The four levels of rarity are Common, Rare, Ultra Rare, and Legendary.
There are more than 500 Axie body parts available, with additional ones being revealed later. Axies’ body and parts are grouped into classes including Beast, Plant, Bug, Bird, Reptile and Aquatic.
This means the combinations are limitless. Axie Infinity also features a 3v3 battle mode. As of November 13, 2018, there have been close to 11,000 Axies created and over 93,000 battles.
Decentraland is not a game as such, more a platform for lots of future virtual reality (VR) blockchain games.
Decentraland provides a VR platform for creating, experiencing, and monetizing content and applications. Unlike most projects that are making blockchain VR games a more distant goal, creating a VR world is Decentraland’s main focus.
According to the project website, Decentraland users can also go to a casino, watch live music, attend a workshop, shop with friends, start a business, test drive a car, and visit an underwater resort within the game.
Decentraland even provides an SDK (software developer’s kit) that allows anyone to start developing games and applications for the platform.
The Decentraland protocol features three layers: consensus layer, land content layer, and real-time layer. Designers can use SketchUp and/or Blender to create models before importing them to Decentraland. This project has been around since 2015 and uses MANA as its in-game currency.
Beyond the Void is a unique combination of strategy, action, and one-on-one competitions. This game brings the multiplayer online battle arena (MOBA) genre with its real-time strategy (RTS) origins back together in outer space.
Beyond the Void uses Nexium (NXC) as its in-game currency. Within the Nexium ecosystem, you can find games developed and/or published by B2Expand (creators of Beyond the Void), a decentralized shop for all in-game items, and Ethereum tools for developers.
B2Expand is actively working to expand collaboration within the blockchain gaming space. One cool fact is that, if you own a Crystalibur ship in Beyond the Void, you also own an Amaranthe card in the Spells of Genesis.
B2Expand also organized the first annual Blockchain Game Summit in Lyon in France in September 2018.
EtherQuest is a fantasy role-playing game powered by the blockchain. Mighty warriors from multiple worlds clash in a struggle for supremacy. The warriors range in rarity, from “common” to “legendary.” Each rarity type comes with a unique combination of stats and bonuses.
Game activities include summoning, arena, and tournament. To play this game, you’ll need to have a MetaMask wallet. Luckily, for new players who want to get started learning this game, EtherQuest provides a comprehensive gameplay guide.
Spells of Genesis is a mixture of various game types. It is a trading card game (TCG) that involves deck collection and strategy as well as arcade-style gaming elements. With this game, you can collect, trade, and combine orbs to build the card decks.
Then, you can put your orbs to the test against various opponents while exploring the fantasy realm of Askian.
BitCrystals (BCY) are the digital assets that serve as the game-fuel and the premium in-game currency of Spells of Genesis.
Compared to other blockchain games, this currency is relatively well-established. The BCY crowdfunding campaign took place back in summer 2015. Spell of Genesis cards are digital assets based on Counterparty, which is a platform that allows developers to create custom tokens for the Bitcoin blockchain.
Not a game as such, but FirstBlood is aiming to change the future of esports betting. Most notably, FirstBlood provides a platform for players who want to automate their tournament play and payout distribution. In fact, this blockchain-based platform even automates registration, bracket management, and scorekeeping via technologies like smart contracts and oracles.
Why is this a significant step forward for esports? Essentially, this platform reduces (or even eliminates) the groundwork involved with launching an esports tournament. This means that FirstBlood can support small tournaments with low buy-ins on any given day as well as large-scale, high-profile competitions. The best thing is that this can all be organized via a trustless environment.
DreamTeam is another popular option for esports. According to ICObench, “DreamTeam will offer esports player and teams recruitment and management tools for the most popular PC titles CS:GO, LoL, DOTA 2, PUBG, Overwatch and more. Amateurs and professionals can create accounts for players with rankings taken directly from their games.”
It’s also important to note that every transaction on the platform will eventually require the use of DreamTeam tokens.
As of November 2018, the DreamTeam platform still hasn’t launched key features like its management tool or the ability for players to earn funds through gameplay.
Nevertheless, DreamTeam is aiming to use its native token for smart contracts that can facilitate tournament prize payouts as well as paid platform features (i.e. premium accounts). The native token could also potentially be used for other things like buying games, software, hardware and more via the DreamTeam platform.
What’s Next for Blockchain Games?
In the early days of 2019, some big names are entering the world blockchain gaming. Square Enix, the publisher behind Tomb Raider and Final Fantasy, announced it was making blockchain a big part of its strategy this year.
Blockchain project TRON recently announced a $100 million fund to power a blockchain gaming ecosystem. The building blocks are in place.
It might take some time before large-scale applications like real-time video can be powered by blockchain. Therefore, to move popular multiplayer video games like Fortnite into a blockchain-based game, some serious technical advancements would need to be made.
However, there are already a few companies trying to do just this. For example, MagnaChain is a separate blockchain being developed specifically for video games. The company behind the project claims its network is capable of handling up to 100,000 transactions per second. Earlier in 2018, its testnet handled over 13,000 transactions per second.
It will be interesting to see how the future of blockchain gaming plays out. Will the user adoption of blockchain games ever surpass that of traditional games? This might be too early to tell. As blockchain scalability increases, we could very well see the emergence these and other innovative blockchain games that offer improved user experiences over traditional games.
If it weren’t for strong cryptocurrency communities, we wouldn’t be where we are today.
There would be no debates on whether Bitcoin is better than Bitcoin Cash. Telegram wouldn’t have raised$1.7 billion in its token sale, EOS probably still wouldn’t have launched its mainnet, and, well, it’s hard to tell for sure if crypto would even exist as we know it.
Block Explorer identified the strongest crypto communities and figured out why they were so important for the blockchain universe.
The Strongest Crypto Community #1:Bitcoin
Bitcoin began as a small community of cryptography geeks and cypherpunks. They shared ideas on obscure forums and mailing lists years before it gained mainstream attention.
In the ten years since, the bitcoin community has grown across the world. Bitcoin has suffered some huge price drops and dips in popularity, but every time, it comes back stronger. After bitcoin reached almost $1,200 in December 2013, it went down to $400 in just three months and did not grow back till the beginning of 2017.
But even in spite of all the roller coasters and bad publicity, bitcoin is still alive and thriving due to the large community of believers around. At the moment of writing, the Bitcoin Core client is the product of almost 19,000 unique code contributions from almost 600 individual developers.
Its public Github repository also tracks so-called “forks” of the code, the copies that can be modified for any specific purpose. To this date, the developers have forked Bitcoin Core reference client over 21,000 times. That’s a massive amount of people involved.
And let’s not forget the number of bitcoin wallets created so far – more than 30 million people have registered Blockchain wallets, and more than 20 million created Coinbase accounts.
No, bitcoin most likely won’t be disappearing any time soon.
The Strongest Crypto Community #2:Ethereum
If it wasn’t for the strong community, we can’t even imagine where Ethereum would be right now.
Let’s recap some disasters. Remember 2016 and the imperfections of the DAO (Decentralized Autonomous Organization)? At that time more than $50 million worth of ether was stolen from the infamous DAO and transferred into its smaller version called “child DAO.”
DAO explained: A DAO is an organization or business without a central authority. Instead, it makes decisions using digital “smart contracts” and voting mechanisms on the Ethereum blockchain.
Forking the blockchain was the only way to fix it. That meant a change to Ethereum’s code that split the currency into two versions. Users had to choose between by either updating their software or not.
It was risky. However, the fork was successful with 85% of users moving over to the new version.
EOS was developed by Block.one, as a faster, cheaper alternative to Ethereum. EOS begins with one of the most respected minds in the industry, Dan Larimer, who also created Bitshares and co-founded Steemit.
He has been described as a visionary and was very articulate about the need to eliminate fees in decentralized applications long before EOS appeared.
On top of the fees elimination, EOS intends to help fix the scaling problem in Ethereum. EOS implemented an alternative network that could, one day, manage millions of transactions per second and introduced a developer-friendly sandbox for creating new, fast decentralized applications (dapps).
Also, it has a great appeal for new blockchain entrepreneurs since it suggests a simple alternative for fundraising – switching from initial coin offering (ICO) to airdrops and airgrabs.
So, it’s not surprising that in a year-long ICO, EOS raised $4 billion for its blockchain and smart contracts platform.
However, even though the project is in its early stages, it has already experienced significant shakedowns. At one point hackers managed to gain control of Block.one’s Zendesk account and used it to send persuasive phishing emails.
Hackers could have got away with millions of dollars if it weren’t for the community to spread the word about the incident.
Less than a week away from the EOS mainnet launch, an internet security firm from China, called Qihoo360, reported that it found several vulnerabilities in the EOS system. The holes would allow hackers to gain remote control of EOS nodes and even access private keys.
Then, the much anticipated mainnet launch event was a disaster by itself. It was scheduled on the 2nd of June, 2018. But almost a week later the blockchain was not yet live because it required EOS token holders to vote.
And the voting process itself was very confusing and not very friendly to a non-techy audience. But that case only demonstrated the power of the project’s community. At the time, dozens of brilliant and helpful members of the EOS ecosystem developed a bunch of handy tools for voting along with the sets of instructions and guidelines. That promptly enabled the ability of token holders to vote for the mainnet launch and the network was successfully started on the 14th of June, 2018.
It would have been easy to ignore a security audit, but the Monero community felt strongly enough about security to fund it themselves.
Further, the Monero community actively fights against the use of mass-market mining tools (ASICs) to protect its decentralized nature. A community that puts its core principals ahead of economic gain is one worth keeping an eye on.
What’s your favorite story about the strongest crypto communities? Go ahead and share it in the comment section below.
In the middle of the Nevada desert, a cryptocurrency pioneer is building an ambitious blockchain community and research center.
Nestled between Tesla’s gigafactory and facilities run by Google and Apple, the sprawling blockchain “utopia” will feature a high-tech park, an e-sports arena, and a college.
This is the grand vision of Jeffrey Berns, a lawyer-turned-entrepreneur who made his fortune buying ethereum back in 2015. After selling at an opportune moment, he amassed a multi-million sum.
“This will either be the biggest thing ever or the most spectacular crash and burn in the history of mankind”
Speaking to the New York Times, Berns outlined his ambitious goal of building a community around blockchain technology.
He plans to establish a new blockchain town on the Truckee River, complete with schools and houses, all with full backing from the local Storey County officials in Nevada.
Visit the site at the moment, however, and you’ll find a solitary office building acting as the nerve center for the project. Berns has poured more than $300 million into the land and development so far, including the hiring of 70 staff members to get the project off the ground.
High-Tech Neighbors: Tesla, Google, Apple
This once-quiet desert region in Nevada is now home to some of the biggest tech companies on the planet.
Tesla’s notorious “gigafactory,” the biggest factory on Earth, is located right next to Jeffrey Berns’ blockchain development. Apple and Google’s data centers are nearby, with Switch’s data center based near Las Vegas. Microsoft also runs an operations center in the region.
If San Francisco is the beating heart of the tech world, Nevada is its nerve center.
Tesla was lured here with a $1.3 billion incentive, while Berns cites the low tax environment and zero income tax.
The location of his blockchain utopia puts future blockchain research right in the heart of the tech world. It’s an apt choice for a future of collaboration and experimentation.
Powered by Ethereum
Berns may have made his fortune with ether, but his love for Ethereum doesn’t end there. He plans to run the entire project and community through the Ethereum blockchain.
All employees and residents in the community will use the Ethereum system to vote on local decisions. They’ll also use it to store and control their personal data, with private keys stored across multiple devices for security.
As an extra backup, Berns is planning to build cold storage and deep storage vaults in the Nevada mountains.
This blockchain utopia won’t just help develop blockchain technology, but actively use it to function. The societal experiment is as big a feature as the blockchain laboratories he aims to build.
“Something tells me this is the answer”
As he explained to the NYTimes, “Something inside me tells me this is the answer, that if we can get enough people to trust the blockchain, we can begin to change all the systems we operate by.”
“Innovation Park” as the development is known, is still in the early stages, but it’s an exciting venture for blockchain technology. We may begin to see not just technological advancements, but real community change, powered by blockchain.
Lack of scalability has been one of the biggest problems of blockchain technology since the release of Bitcoin back in 2009. Slow transaction speeds, high fees, and congestion have become major stumbling blocks, but sidechains may offer a solution.
In this piece, we cover everything you need to know about sidechains, from the basic definition to the evolution of this technology to potential applications for blockchains.
We not only discuss why sidechains are important from a technical perspective but also why they are an integral part of driving real-world uses of blockchain technology.
Sidechains, Explained in Simple Terms
Think of it this way. A blockchain can be compared to a highway for vehicles. While one lane may be enough for a steady flow of cars, it probably can’t support a surge of hundreds of thousands of vehicles.
If there are thousands of cars on the highway, it’s likely to result in slower travel times and increased congestion.
The best way to solve this is by creating a better infrastructure for travel.
Now, apply this concept to blockchain technology. The intent of any blockchain is to be able to easily send and store all user data (for example, transactional data of cryptocurrencies, data for dapps and smart contracts, and more).
The biggest issue, however, is that each blockchain has traditionally been reliant upon one lane of traffic – the mainchain.
By creating multiple roads that connect to the main road, we can create a more efficient transportation system. Similarly, this concept can be used in blockchains.
Sidechains are mechanisms that allow for data processes to take place off the mainchain, all while being connected to the mainchain if needed. Just as a car can travel back and forth from the main road to a side road, so can data between a blockchain’s mainchain and its sidechains.
The difficult part is moving assets (like bitcoin) from the mainchain to a sidechain securely, while proving the bitcoin is yours.
Done correctly, however, it’s theortically possible to make faster transactions via a sidechain, or even swap bitcoin to ether without using an exchange.
Why Are Sidechains Needed?
At first, blockchains didn’t technically have a major infrastructure issue. However, as traffic increased, we began to see these issues become more apparent.
Take the Ethereum blockchain, for example. As more people started using CryptoKitties and other dapps, network fees increased. Scalability problems became more obvious.
Similar to roads during rush hour traffic, blockchains were (and still are) mostly unprepared to deal with an increase in users and transactions during peak usage times. This became particularly obvious in December 2017.
More People Using Blockchain = More Congestion
Around December 2017, we saw a range of factors expose the scaling problem of blockchains:
First, more people were buying cryptocurrencies due to a bull market.
Second, new dapps that used large amounts of data were arriving on the scene.
Third, there was a rapid increase in the number of initial coin offerings (ICOs) that utilized existing blockchains to issue new tokens.
That’s why research has been going on to develop a variety of scalability solutions. Sidechains have been discussed for quite some time but weren’t yet capable of providing the solution that was needed at that time.
Although we haven’t seen congestion like December 2017 since, blockchains need to prepare for the future.
For instance, projects have to consider how another bull market could once again expose scalability issues.
Additionally, we should consider the potential for new blockchain innovations (beyond just cryptocurrencies). These will require larger amounts of data, potentially beyond the limits of mainchain technology. Sidechains are one proposed solution to expand the types of apps that blockchains are capable of running.
Why Haven’t Sidechains Been Adopted Sooner?
In blockchain technology, all sorts of advancements have been made only in the last couple of years. So why do some integrations (i.e. addition of sidechains) take longer than others? This is a valid question.
The best answer is that implementing newer technologies comes with big risk. Look at blockchain platforms like Ethereum and EOS. Not only do they feature their own native cryptocurrency but they also support dapps and tokens from other projects.
By not considering all of the current and future risks of making a big change like sidechain integration, any given blockchain risks not only its own project but also hundreds or thousands of others.
In theory, sidechains can ensure much greater scalability without risking the security of the mainchain. In reality, this hasn’t yet been 100% proven.
The “Scalability Trilemma”
Ethereum founder, Vitalik Buterin, summed things up when he outlined the “scalability trilemma.”
The trilemma points to three things key to blockchain technology: security, decentralization, and scalability.
Most solutions can improve one or two of those things, but usually at the expense of one of the others. In other words, if you want scalability, you probably have to sacrifice security and/or decentralization.
This is the case with sidechains.
Sidechains have been notoriously difficult to implement because they rely upon SPV (simplified payment verification proofs). With SPV proofs, it’s possible to prove ownership of funds when sending from a sidechain to the main chain.
However, without SPV proofs, there is a possibility that, when users or miners move their money back to the main chain, they could take more cryptocurrency funds than they really own in some scenarios.
According to some research, SPV proofs are also subject to a few different types of attacks, which creates a potential security risk for the entire blockchain. This is why, “trusted sidechains”, which are more centralized sidechains run by a few blockchain companies, have dominated sidechain implementation as of 2018.
Since the goal of most blockchain project teams is to move towards a more decentralized system, relying upon a trusted/centralized sidechain would run counter to their core principles.
At the same time, scalability is also a top priority. Still, development teams have been reluctant to accept an either-or scenario where scalability is achieved by sacrificing decentralization.
Progress in Sidechain Technology
The discussion of how to make blockchain technology more scalable has been going on since 2012.
Sidechain-specific research has been going on since around 2014. For the most part, sidechains remain in the research and development phase even in 2018.
This is because researchers have felt that the technology still lacks certain key components needed for real-world implementation. However, this has begun to change just in the past year or so.
In October 2017, Aggelos Kiayias, chief scientist at IOHK, made a technical breakthrough that could help propel sidechains into the next stages of adoption. In a scientific paper called “Non-Interactive Proofs of Proof-of-Work”, Kiayias explains the increasing importance “to be able to efficiently handle multiple blockchains by the same client and reliably transfer assets between them.”
In this research, Kiayias outlines the world’s first Proof of Proof-of-Work. The research shows that this proposed design could use SPV proofs that are able to prevent many of the normal attacks.
From a security standpoint, Kiayias’ work is a major milestone for not only the adoption of greater scalability within one blockchain but also across multiple blockchains.
Bitcoin, Ethereum, EOS: Cross-Blockchain Communication
In the paper, Kiayias describes an ICO which distributes tokens issued on one blockchain but allows paying for them using coins in another blockchain.
Essentially, using this research to build a real-world application could allow for the possibility of cross-chain communication.
For instance, in the future, we could see interoperability between different blockchain networks (i.e. Bitcoin and Ethereum, EOS and NEO, or a variety of other combinations).
This is one of several ongoing efforts by around the globe to research how to improve the performance of sidechains. Here are some more important examples.
3 Projects Focused on Sidechain Deployment
Developed by Blockstream, this project was actually the first commercial sidechain on the market. It has already been implemented by a few different cryptocurrency exchanges. With Liquid, every transaction uses real bitcoin, pegged via a sidechain to the Bitcoin blockchain. This solution also ensures that users are always dealing with real, verifiable assets.
This project uses a federated sidechain – a private blockchain with different features, capabilities, and benefits than the main Bitcoin blockchain.
According to the Liquid website, Liquid will never be as decentralized as Bitcoin. However, it is designed to remove control from any single party, geographic location, or political jurisdiction.
It also allows for increased privacy via the “confidential transactions” feature, which hides transaction amounts from everyone except for the parties directly involved in the transaction itself.
This is a solution that uses a series of smart contracts that run on top of the Ethereum blockchain. Plasma’s goal is to scale Ethereum to be able to handle millions (or even billions) of transactions per second, compared to the current amount of only 10-15.
This is possible because Plasma eliminates the need for every node on the network to verify all transactions as they occur.
Projects like Ethereum and OmiseGO are driving the research, development, and implementation of Plasma as a scalability solution. Ethereum’s Vitalik Buterin said in May 2018,
“So if you get a 100x from Sharding and a 100x from Plasma, those two basically give you a 10,000x scalability gain, which basically means blockchains will be powerful enough to handle most applications most people are trying to do with them.”
What sets Rootstock (RSK) apart from many other proposed solutions is that it is a drivechain/sidechain hybrid two-way peg designed to port Ethereum’s smart contract functionality to Bitcoin without impacting the main blockchain whatsoever. This is a significant project because it would be the first project to bring any sort of smart contract functionality to the Bitcoin blockchain.
In 2017, crypto security expert Sergio Demian Lerner released information about Lumino, which is a compatible version of the Lightning Network built on top of Rootstock.
During this process, Lerner introduced a new protocol called the Lumino Transaction Compression Protocol (LTCP), which forms the transaction layer to the Lumino network. The purpose of LTCP is to create far smaller bitcoin transactions to enable as many as 100 transactions to be processed by the network every second. That’s six 6-to-33 times higher than Bitcoin’s 2018 transaction limits.
For those concerned with potential privacy concerns, Lerner suggested in 2017 that users could add greater privacy to transactions by techniques like creating new accounts with each transaction or using tumbling services to obfuscate (hide) the origin of their coins.
Future Possibilities for Sidechain Technology
The possibilities for sidechain implementation are continuously increasing with research advancements. Sidechain technology is not just important from a technical perspective. It can enable blockchains to achieve more transactions per second while also reducing transaction fees.
Furthermore, it is one of the most vital components to driving blockchain capabilities far past what is currently possible today. When we look at decentralized applications in 2018, many are still quite rudimentary.
A good comparison is to think of blockchain in 2018 kind of like internet connectivity in the early 2000s.
It was still much better than the 1990s, for example. Still, there was a lot to be desired. Back then, there were no easily-accessible mobile technologies (i.e. 5G networks), so devices couldn’t connect from anywhere.
Connection speeds were also significantly slower. Similarly, blockchains in 2018 are limited in what their services they can do. However, through the proper implementation of sidechain and other scalability solutions, any given blockchain could potentially run numerous types of advanced applications (for example, AI, IoT, and more) that require large amounts of data.
This could empower applications that are merely concepts in 2018 as well as future applications that aren’t even in the theoretical stages yet.