Sidechain — a Bridge for Value Transfer
With the development of blockchain technology, it is highly expected and quite popular. But, there is a long way to overcome the difficulties in business application, especially in financial application, such as transaction performance, privacy protection. In tradition, each technology upgrade requires the development of a new blockchain, which causes huge waste of resources. Therefore, the solution based on sidechain technology has been proposed, which means the upgrading of the original blockchain to ensure it can work normally.
The essence of sidechain protocol is a cross-blockchain solution that makes digital assets to flow between different blockchains. One of them is called mainnet, and another is called sidechain. Initially, the mainnet usually referred to the bitcoin blockchain. Recently, the mainnet refers to any blockchain, such as Ethereum, EOS, Ulord, etc. The sidechain protocol gives a new direction for the development of various applications based on blockchain.
Sidechain adopts two-way peg technology to realize the value transfer between chains. The transfer process is essentially the locking of digital assets on one chain and the release of digital assets on another chain. Hence, no digital assets are generated between two-way peg. There are many ways to realize sidechain technology from the technical aspect.
1. Alliance mode
Alliance mode uses the notary alliance as a custodian of digital assets, and multiple signatures of the notary league to confirm the flow of digital assets in sidechain. The security of the sidechain depends on the honesty of the notary alliance. The biggest advantage of this model is that any existing blockchain protocol will not be changed, nor the community consensus will be reconsidered.
2. SPV mode
SPV is a way to prove the existence of a transaction just by a small amount of data in some block. In SPV mode, the user sends the digital asset to a special address in the mainnet to lock it. After confirming the completion of the corresponding transaction, an SPV certificate is created and sent to the sidechain. Then a corresponding transaction with SPV certification appears on the sidechain, verifying the digital assets on the mainnet have been locked. Next, another digital asset with the same value on the sidechain can be open with the similar process from the sidechain to mainnet.
The main disadvantage of this model is that the mainnet needs a soft fork because of community consensus.
3. Drive chain mode
In drive chain, miners are essentially fund custodians. The system send the regulatory rights of the locked digital assets to miners, and allows miners to unlock and send them. The miners observe the status of sidechain. When they receive the request from sidechain, they implement a coordination agreement to ensure that they agree on the authenticity of the requirements. The drivechain also requires a soft fork on the mainnet, and face the same challenges as SPV mode.
Sidechain in the Ulord system
Next, I will introduce USC, the first sidechain of Ulord, to show the implementation of sidechain and the process of value transfer between chains. A hybrid design called drive chain + alliance sidechain is used on USC and Ulord. On USC, the system uses sidechain (SPV). On the Ulord mainnet, drive chain/alliance (miners + alliance voting) is used.
When a Ulord user wants to switch by two-way peg, he sends a UT transaction to a multi-signature wallet address protected by federal. USC uses the Ulord-related public key (the USC public key generated with the Ulord private key) to restore SUT. This means that the private key that controls UT on the Ulord blockchain can be used to control accounts on USC. Although the public key and private key of Ulord and USC are similar, the addresses on each blockchains are different because different format to encode the address are used. Therefore, the addresses on the two blockchains are different.
Sidechain realizes the digital asset financial ecology in a fusion manner. Ulord adopts the design of multi sidechain to solve the function expansion. USC, Ulord’s first sidechain, was launched on October 15, 2018 and runs stably. UOS, Ulord’s second sidechain is in steady development. According to the plan, there will be multiple sidechains linked to the Ulord mainnet to meet different application scenarios. Sidechain expands the application range of blockchain technology in low-energy consumption, and also reduces the experimental cost of some new technologies to promote the further development and innovation of blockchain technology. We expect sidechain technology to play an important role in the application of blockchain and the transformation of various industries.