With Drivechain, Bitcoin Will Make Altcoins Obsolete

Drivechain, a projected brushed fork via BIPs 300 and 301, could present a portfolio of sidechains to Bitcoin and replicate immoderate altcoin usage case.

This is an sentiment editorial by Nikita Chashchinskii, a bundle developer moving connected BIP300 sidechains.

Drivechain arsenic defined successful BIP300 and BIP301 offers a caller vision for Bitcoin, successful which the pursuing problems are solved:

1. It offers an alternate to our existing contentious and governmental process for changing Bitcoin. “Layer 1” rules ne'er person to change, and caller features are alternatively introduced by adding opt-in sidechains.
2. It removes each tenable arguments successful favour of Bitcoin’s competitors by copying immoderate utile features they mightiness have, apt turning Bitcoin into a monopoly successful the cryptocurrency market, which is precise adjuvant for an plus that aspires to beryllium “money.”
3. It provides a feasible mode to make capable transaction fees to enactment the Bitcoin security budget. This is particularly important, since the artifact subsidy volition inevitably autumn owed to halvening implicit the years, and the existing alternatives for backing the information fund are highly problematic: introducing process emanation removes the 21 cardinal BTC bounds via a hard fork, switching to impervious of involvement requires a important method overhaul of Bitcoin and a hard fork, tying interest amounts to transaction values opens Bitcoin to contention from altcoins and fiat outgo systems offering little fees.

All of this is achieved by a brushed fork that enables sidechains with 3 important properties:

1. Mainchain nodes lone validate a small, elemental and fixed acceptable of BIP300 and BIP301 rules, and each of the sidechain rules are validated by a wholly abstracted portion of bundle that tin beryllium safely ignored if you don’t attraction astir that sidechain.
2. Sidechains don’t request to make a caller asset, BTC tin beryllium deposited into a sidechain and past withdrawn backmost to mainchain astatine a one-to-one speech rate, truthful dissimilar altcoins, they don’t fragment the web effect and don’t vie with BTC.
3. Sidechains are secured by the existing Bitcoin hash complaint and each of the sidechain transaction fees spell into Bitcoin’s information budget, alternatively of going into the information fund of a competing altcoin.

Bitcoin would person a portfolio of these sidechains. Whether oregon not a sidechain is included successful this portfolio would beryllium determined by its imaginable for generating transaction fees. That would hap due to the fact that miners, being reasonably rational and self-interested agents, volition lone activate sidechains that maximize their profits. So, ultimately, the absorption of Bitcoin’s improvement would beryllium decided by Bitcoin users’ revealed preference. This economical decision-making process could regenerate the existing governmental decision-making process of deliberation wrong the community.

Some sidechains would beryllium built from scratch, introducing caller functionality that wasn’t implemented good by immoderate altcoin yet. And immoderate worthwhile altcoins would beryllium converted into sidechains, with the sidechain mentation being strictly superior to the archetypal altcoin, due to the fact that it would inherit Bitcoin’s larger web effect, larger information fund and it would person the nonstop aforesaid functionality arsenic the archetypal altcoin.

So, by adopting BIP300, it would beryllium imaginable to:

1. Expand Bitcoin’s functionality with opt-in sidechains, without ever changing the mainchain.
2. Convert immoderate utile competing altcoin into a sidechain that is strictly superior to the archetypal altcoin, which would pb to Bitcoin yet absorbing that altcoin’s marketplace share.
3. Support Bitcoin's information fund aft the artifact subsidy is gone, without process emanation oregon different problematic alternatives, by collecting each the transaction fees from our portfolio of utile sidechains.

Most likely, a precocious transaction throughput sidechain volition beryllium added, and it volition make an magnitude of transaction fees proportional to the grade of Bitcoin’s adoption.

Can Sidechains Generate Enough Transaction Fees To Sustain Bitcoin?

As of this writing, the artifact subsidy is 6.25 BTC (at astir $23,600/BTC) and it volition driblet to 0.390625 BTC (a driblet of astir 94%) by 2040. We can’t expect users to beryllium consenting to wage transaction fees that are overmuch higher than they are today, and successful 2040 users are inactive precise improbable to wage overmuch much than $1 oregon $2 (when adjusted for inflation) for a transaction.

So, to get a information fund successful 2040 that is comparable to today’s information budget, either the bitcoin terms volition person to emergence to astir $350,000 (which would besides marque the Bitcoin web a 15-times much invaluable people to attack) oregon the fig of transactions volition person to summation substantially.

Let america estimation however galore transactions connected a precocious throughput sidechain it would instrumentality to lucifer the existing information budget. As of July 20, 2022, the Bitcoin information fund is astir $250 per 2nd (based connected the artifact reward of a 6.25 BTC subsidy positive a 0.1 BTC full interest awarded each 10 minutes, and fixed the $23,600 BTC price). An average transaction interest arsenic of July 20, 2022, is astir $2, but fto america beryllium blimpish and bump it down to $1. So, to lucifer the existent information fund with conscionable the transaction fees, we volition request 250 transactions per 2nd (TPS for short).

For comparison, Visa processes astir 1,700 TPS (based connected the 150,000,000 transactions per time fig Visa provides here). We tin lucifer the existing information fund astatine 250 TPS, which is astir 15% of Visa’s TPS.

Assuming that Bitcoin volition turn and spot much adoption successful the 18 years it would instrumentality for the artifact subsidy to importantly drop, 15% of Visa’s TPS doesn’t look that brainsick successful presumption of idiosyncratic demand. And if request for Bitcoin transactions tin lucifer Visa’s TPS of 1,700, past the information fund could beryllium astir $1,700 per 2nd (given $1 fees), which is astir 7 times much than it is today.

Currently Bitcoin’s TPS is technically capped astatine around 5, but arbitrarily ample transaction throughput is achievable without changing the mainchain successful immoderate mode beyond adopting BIP300 and BIP301.

With these back-of-the-envelope calculations, we person established that, fixed beauteous tenable assumptions of accrued usage and adoption of Bitcoin, it volition beryllium imaginable to lucifer the existing information fund utilizing sidechains adjacent aft the artifact subsidy is substantially reduced.

Bitcoin's information fund would standard with idiosyncratic request for processing Bitcoin transactions, which is not a atrocious thing, due to the fact that the magnitude of superior deployed to deter a imaginable attacker would beryllium proportional to the worth of the Bitcoin network. If the network’s worth volition fall, this superior would beryllium freed up for different uses. If the network’s worth volition rise, the web volition bid much superior for its defence against a 51% attack.

Possible Sidechains For Bitcoin’s Drivechain Portfolio

In conclusion, I volition database immoderate imaginable sidechains that are apt to beryllium developed and included successful the sidechain portfolio:

1. A privateness sidechain (there already is simply a moving zcash sidechain implementation, converted from the archetypal zcash altcoin)
2. A distributed DNS sidechain
3. A digital assets/colored coins/NFTs sidechain
4. A high transaction throughput sidechain, arsenic already mentioned
5. A prediction marketplace sidechain

And, of course, immoderate existing oregon aboriginal altcoin offering utile exertion tin beryllium converted into a sidechain astatine a reasonably humble improvement cost.

This is simply a impermanent station by Nikita Chashchinskii. Opinions expressed are wholly their ain and bash not needfully bespeak those of BTC Inc oregon Bitcoin Magazine.