The federated model is a temporary solution, as a workaround due to the lack of native support in Bitcoin Testnet. Once the Bitcoin network itself can validate the SPV proofs from the sidechain, this model will be replaced with a completely decentralized one.

>Uh oh. Remember Paycoin, with its "Prime Controllers" and "guaranteed minimum value". That didn't end well. The whole point of all this cryptographic machinery is supposed to be to eliminate the need to trust some central party or parties.

Personally, I'd compare this to Ripple; semi-centralized transaction timestamping seems to work ok for them.

>It's conceptually elegant, but the process is complex and delicate. Lots of things can go wrong, and it needs "challenge periods" of about a day during which things get sorted out.

I agree.

Neat proposal. It's worth mentioning that it can't be implemented in the current bitcoin implementation, yet the alpha sidechain introduced here happens to add exactly the bits it requires to work, namely time locked transactions and a more plausible malleability fix.

Which means if you find/build another altcoin with similar capabilities, you can start exchanging testnet coins with those altcoins using the very approach you describe today.

I don't believe that's a happy accident, but rather one of those core reasons for getting sidechains off the ground, as it provides a clear path toward finally building all the insane stuff people have been dreaming about for years.

Sidechains are about more than simply allowing extra capacity on the bitcoin network. They fundamentally enable the pace of innovation to increase in the cryptocurrency space.

In the past, if someone wanted to improve bitcoin technically (for a trivial example, let's say improving block confirmation times), they had to fork bitcoin, and release an "altcoin" (thus creating an entirely separate currency at the same time). This inevitably led to many bystanders speculating on the altcoins - getting distracted from the technical improvements, and focusing on whether it was a good investment or not. In the past, it was not possible to separate the bitcoin network from the currency.

Sidechains allow us to create entire new blockchain networks, which use the bitcoin currency natively. This means that I can now test changes to the bitcoin protocol, and allow people to move their existing bitcoin (currency) on and off my new network. For a popular sidechain, hosted wallets could even transparently support sending and receiving coins on both networks. This is a major step forward for cryptocurrency, because it means we no longer need every innovation to have 100% consensus on the main bitcoin blockchain - we can simply try out new ideas on sidechains.

Longer term, I can see sidechains allowing us to even migrate to a Bitcoin 2.0 protocol (think IPv6) - once a new standard is formalized, people can begin using the new network in parallel, and eventually everyone will migrate to the new "main" network.

Sidechains are a potential solution to the scalability problem you mention, but can also be better for other needs (e.g., privacy, speed of settlement) that Bitcoin may not be optimized for.

From my experience people seek alternative cryptocurrencies for different rules governing this community. Where it fails most often - adoption. Being able to piggyback to bitcoin blockchain gives you opportunity to get all the benefits of large infrastructure in place and develop your toy system with little to no effort.