Beyond Bitcoin

What was once thought to be only a Bitcoin innovation, now has the potential to shape new technology across the entire internet. In the coming years, we can expect to see other industries unleashing the potential of blockchain technology and Bitcoin sidechains, says George Basiladze.

2015 has seen a growing interest in alternative applications for the blockchain technology which powers Bitcoin. The peer-to-peer distributed network can provide an incredibly efficient means of transmitting ownership data. Blockchain technology is likely to be the focus of a great deal of attention in the coming years, with significant focus being placed an alternative applications for the innovative technology. Sidechains are a promising concept, which despite being confusing, could provide an infrastructure which enables other industries to use blockchain technology, without clogging up the primary Bitcoin blockchain.

Other companies are beginning to develop and use their own blockchain based software, which applies some aspect of the cryptocurrency technology, to wider problems. Most people will agree that the Bitcoin network can’t facilitate the sheer number of potential ideas and applications for blockchain technology that will emerge over the next few years. Sidechains can potentially function alongside the primary Bitcoin blockchain, wherein they’re essentially pegged to a certain address. This allows interesting connectivity and the development of an open platform between the existing world of Bitcoin and newer innovations.

The advantages of sidechaining

Blockstream are one of the leading champions of sidechain technology, and provide a platform for developers to begin experimenting with the new possibilities presented by them. Pegged sidechains will enable the next generation of blockchain innovations, and are increasingly likely to make a dramatic impact on the way we use the internet. Decentralised forms of value transfer have significant advantages and sidechains could be utilised for everything from distributing shares to land registry.

The advantage offered by sidechains is they will be afforded a degree of independence from the slow, consensus based development of the Bitcoin network. As an example, the Bitcoin community has been struggling to decide on the future of block sizes for some time now, without reaching consensus. Even though almost all parties agree that a size increase is needed, the process of choosing an appropriate implementation for an improvement to the Bitcoin software is difficult and long-winded. Separate pegged sidechains would allow developers to create practical solutions to problems, without being limited by reaching a full Bitcoin community consensus for their ideas; they can simply develop specific software for their separate chain which functions alongside the main blockchain. A full breakdown of the concept of sidechains is available in the form of the BlockStream white paper. It is worth noting that Blockstream will need to submit a BIP, or Bitcoin Improvement Proposal, before any changes to the Bitcoin codebase can be made to implement sidechain functionality.

Blockstream state that banks are one of the primary parties reportedly interested in using the platform. The company raised $21 million in Seed capital; there is certainly great potential for the sidechain concept. There are still potential issues which will have to be overcome before sidechains can actually exist on the main Bitcoin blockchain. Any proposed changes to the Bitcoin software will be subject to a great deal of scrutiny to ensure there is no possibility of negatively impacting the main blockchain. I/O Digital are working on a sidechain which functions as a decentralised identity system, and has a number of useful applications particularly for digital rights’ management. The mechanics of mining sidechains will be vital to protecting the integrity of the main blockchain, and as such will need to be figured out effectively. The success of Blockstream in introducing their innovation could result in a significant drop in the number of alternative networks, as attention moves to working with sidechain tokens.

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Ethereum is a smart contracts platform, which utilises a blockchain and programming framework. The project reportedly seeks to “decentralise the web” and has a number of potential applications, not solely tied to finance. It consists of it’s own separate blockchain and the project also has great potential to open up blockchain technology to more potential usage across many industries. Ripple has also received a lot of attention as an alternative value-transfer network, but it is not a truly decentralised system like Bitcoin.

Blockchain technology will surely be utilised across many industries in the coming years. The possibilities are incredibly exciting and the next couple of years will likely see more great ideas come forward, and more VC interest, for what may well be a technology that is used everywhere across the internet of the future.