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Straight Off the Chain

October 23, 2014
Tough week to fall behind on the blogging front, I must admit.  The Coinbase guys, Gavin Andresen and the Blockstream teams do their first AMAs on reddit.  The BitLicense deadline passes with numerous other high-profile submissions added to the public record.  A scandal rocked the Shibes in the form of Moolah's collapse and potential fraud of CEO "Alex Green" a known scammer.  On top of all that, I have to weigh anything I write against the potential compliance repercussions.  (An Office Space viewing is overdue, I think.)

That said, I owe you all some juice, and the BlockStream / "sidechains" unveiling certainly qualifies.  For the uninitiated, the concept of sidechains is a crucial development that could improve the extensibility of the Bitcoin protocol, and obviate the need for experimentation at many unsecure, extremely volatile and redundant altcoins.  The long-rumored and much-whispered about white paper outlining the vision for sidechains was released today, and for those who haven't read it, especially the technically inclined, I encourage you to do so soon.

I think that this is the most important white paper in crypto-land since 2008.  

In a nutshell, sidechains are simply alternative transaction ledgers that connect to the Bitcoin blockchain and use "pegged" bitcoins as currencies -- rather than alternative currencies with separate blockchains and code bases.  (Crucially, bitcoins moved onto sidechains can also be moved back to the parent Bitcoin blockchain at any given time.)  Sidechains offer the experimental sandbox of altcoins, but with radically improved interoperability and developer cohesion around the core Bitcoin blockchain and protocol.  They also remove trusted third-party crypto-exchanges from the equation (RIP Cryptsy) as movement to and from a sidechain is done at a technical level rather than via a financial intermediary. 

If you think of altcoins as the startups vying to take-down the 800 pound Bitcoin gorilla, then sidechains represent Bitcoin's skunkworks -- the segregated experimental communities that make it safe to fail and possible to overhaul the look and feel of the parent without massive disruptions.  

Fresh out of the gates, I think Blockstream, the new venture leading the sidechains charge, has killed the (already questionable) credibility of the vast majority of alt-currencies.  From a branding perspective, a team that decides to release an alt-currency outside of a sidechain will now face an even steeper battle in convincing followers and other developers that they have pure intentions and vision.  If someone truly is concerned about innovating vs. getting rich quick, why the hell would they subject themselves to the personal attacks, scaling issues, and potential legal liability of pursuing a new coin issuance? 

I'm bullish on sidechains not because of the quality of the idea, but because of the rock star team working on the idea. 

BlockStream's co-founders include Adam Back, who developed the “hashcash” program from the '90s whose core features are a fundamental part of Bitcoin's mining design, 3/7 top core Bitcoin developers in Matt Corallo, Greg Maxwell and Pieter Wuille, and Austin Hill, who created Zero-Knowledge Systems, a privacy technology company.  Basically all of the not-yet-employed Bitcoin core developers and leading minds are rallying around a single structure for how to crowd-source new ideas that improve the Bitcoin ecosystem and protocol.  

Oh, and they have $15 million of seed funding to work with. 
All of this said, nothing about Blockstream seems to resemble a true startup (except perhaps the hacker house in which a quorum of the Bitcoin core developers now reside - here's hoping they have an iron dome, 24-hour militia on guard and sit far away from any Silicon Valley fault lines) as much as a science project that could one day become a monstrously successful company.  Sidechain tech will all be open-source, and even CEO Austin Hill has said that the team is "focused on the technology and the community's feedback, not the company or biz." 

If you bought a bunch of bitcoin yesterday, you may actually be participating in as much upside as the investors who just plowed in $15 million into the company.  Because BlockStream's launch and the sidechains vision are big wins for Bitcoin.

Not big wins for crypto.  Bitcoin.


The team did an AMA this morning and answered a lot of valuable questions.

Peter Todd, another core developer and dissenting voice who has several objections to sidechains, also weighed in here and here.

What do you think of the news?

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Today's Tid Bits
Bitcoin Coding Allstars Launch Sidechains Project to Boost Innovation
Some of the biggest names in bitcoin’s coding community have unveiled Sidechains, a project that creates new sideline versions of bitcoin’s blockchain transaction ledger.  Bitcoin can be imported to these sidechains and transferred back to the blockchain without third party intervention.  The project hopes to create an independent environment for innovators to freely work with the core bitcoin software without harming bitcoin’s protocol.  Adam Back, Gregory Maxwell, Pieter Wullie, and Gavin Andresen all contributed to sidechains’ white paper.  Blockstream, a new company focused on cryptocurrency innovation, is backing the project. 
ASIC Design Firm Alchip to Debut on Taiwan Stock Exchange
Next Tuesday, Alchip Technologies, a Taiwan-based firm known for making bitcoin-mining ASIC chips will make its debut on the Taiwan Stock Exchange.  Alchip is already a public company and is currently listed on the Taiwan Emergent Market.  The firm has reportedly doubled its market cap over the past year, and reported revenue of $113m for the first three quarters of this year. 
OKCoin Introduces Bitcoin Futures Trading to Mobile Android App
OKCoin, popular bitcoin exchange, has updated its mobile Android trading app to include candlestick charts, futures trading, a profit calendar, and BTC/USD and LTC/USD trading pairs.  OKCoin’s futures trading platform, which has become very popular with bitcoin’s price decline, allows traders to enter into contracts to buy or sell bitcoin at a later date and at a specified price.  The OKCoin app for iOS is still pending approval by Apple. 
BitFury Capital Announces Investment in GoCoin
BitFury Group’s investment arm, BitFury Capital has made an investment in the digital currency payments processor, GoCoin.  GoCoin allows merchants to accept bitcoin and gives them the option to have it converted to their local currency immediately.  This is BitFury’s Capital third investment; the terms of the investment have not yet been disclosed. 
NY Law Panel: Bitcoin Won’t Get Backing Without Compliance
The New York Law School hosted the Bitcoin Law conference Tuesday morning, which featured a panel discussion about The New Landscape for Federal and State Regulation of Cryptocurrencies.  It was concluded that banking is the biggest problem to bitcoin companies today, and that regulation and compliance are necessary for bitcoin companies to get banking partners.  Some companies such as Ripple Labs have managed to form relationships with some banks, but overall bitcoin startups have struggled. 
Draper University Bitcoin Course Now Available
Draper University, an online university started by bitcoin venture capitalist and enthusiast Tim Draper, has launched its course taught on bitcoin today.  The course is split up into seven sections, it features seven hours of “high quality content,” 42 lectures, and 3 quizzes.  The idea of the course is to make “bitcoin more approachable.”  

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