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Step through this with me... I've got 5 Bitcoins. I transfer all of them to a brand new sidechain for an initial 50 Sidecoins. This Sidecoin sidechain has a di

Step through this with me... I've got 5 Bitcoins. I transfer all of them to a brand new sidechain for an initial 50 Sidecoins. This Sidecoin sidechain has a different block reward. Let's say 3 weeks go by. Now there are 10,000 total Sidecoins. Let's say I've got 2,000 of those Sidecoins. How do I convert them back to Bitcoins? Can I only transfer 50 back? Can I transfer all 2,000 back? What are they worth in Bitcoin now? --- jdmichal's response: You freeze your 2000 Sidecoins. That is then converted into some number of Bitcoins, the conversion of which is entirely dependent on how the Sidecoins work. (Likely the ratio of the number of Bitcoins dedicated to the sidechain to the number of existant Sidecoins.) A transaction is then submitted to the main chain, submitting the required proofs that you have frozen / destroyed the appropriate amount of Sidecoins to unfreeze a number of Bitcoins. If the number of Bitcoins trying to be created exceeds the number committed to the sidechain, the transaction will fail. Otherwise, it will succeed. --- So the main Bitcoin network needs to be aware of and to be able to analyze the entire Sidecoin sidechain? So if only a total of 5 Bitcoin were ever sent/frozen to the sidechain, then only 5 Bitcoin can ever be retrieved/unlocked? So when the Sidecoin sidechain was first created each Sidecoin was worth 0.1 Bitcoin. So after three weeks there are now 10,000 Sidecoins, each worth 0.0005 Bitcoin? Is this a general rule for sidechains? Why did you say "likely"? Is that because none of the details of sidechains have been worked out? Transactions on sidechains are mined in to blocks, right? So if someone mined 8,000 Sidecoins of those 10,000, they've now got 4 Bitcoin? If someone then sent/froze an additional 5 Bitcoin to the Sidecoin sidechain, then that would generate 10,000 new Sidechains? So the incentives to mine Sidecoins would correspond to the total number of Bitcoin that has been sent to the sidechain? If 5 Bitcoin were only ever sent to Sidecoin, then all the mining in the world could only ever lead to a total of 5 Bitcoins? So for Sidecoins to be economically viable and therefor functional, someone would need to be constantly injecting Bitcoin in to the sidechain, right?

dllthomas 12y ago
Well, you also can always trade them directly for bitcoin, like anything else, at whatever rate you can find a counterparty to trade at.
- williamcotton 12y ago
  But having 2-way pegs to a sidechain would mean that you would never need to trade Sidecoins for Bitcoins on a 3rd party exchange... the system itself does that for you, right? Isn't that the whole point?
  - dllthomas 12y ago
    To be honest, I'm not entirely sure of the point.
wmf 12y ago
This Sidecoin sidechain has a different block reward. It seems like sidechains can't have a block reward at all, because that would allow creating new BTC outside Bitcoin. Or perhaps the block reward would have to be paid in a different currency than BTC which would have a floating exchange rate.
- williamcotton 12y ago
  But without a block reward there would be no incentive to verify and secure the transactions of these Sidecoins, right? The system that you're describing related to a block reward being in some "different currency having a floating exchange rate" is so foreign to me that I can't even begin to ask any questions!
gwern 12y ago
> So if only a total of 5 Bitcoin were ever sent/frozen to the sidechain, then only 5 Bitcoin can ever be retrieved/unlocked? Yes; anything else would be madness. (If you got back less than 5btc, it would be a huge tax on any usage of creation of sidechains; if you got back more than 5btc, well, there's gonna be problems.) > So for Sidecoins to be economically viable and therefor functional, someone would need to be constantly injecting Bitcoin in to the sidechain, right? Yeah, assuming the sidecoins aren't being used up by miners somewhere. You have to pay for the security somehow; miners aren't charities - the transaction fees have to come from somewhere. In Bitcoin, the transaction fees currently come in the form of inflation+transaction fees, but probably different sidechains will pick different forms of payment depending on their goals.
- williamcotton 12y ago
  I'm not sure what you mean by "assuming the sidecoins aren't being used up by miners somewhere". Could you go in to detail? What do you mean by "different sidechains picking different forms of payment?". Doesn't all of this basically guarantee that the mining rewards of Sidecoin need to be exactly matched to Bitcoin? If so, what's the point of sidechains at all?

dllthomas 12y ago

Well, you also can always trade them directly for bitcoin, like anything else, at whatever rate you can find a counterparty to trade at.

williamcotton 12y ago
But having 2-way pegs to a sidechain would mean that you would never need to trade Sidecoins for Bitcoins on a 3rd party exchange... the system itself does that for you, right? Isn't that the whole point?
- dllthomas 12y ago
  To be honest, I'm not entirely sure of the point.

wmf 12y ago

This Sidecoin sidechain has a different block reward. It seems like sidechains can't have a block reward at all, because that would allow creating new BTC outside Bitcoin. Or perhaps the block reward would have to be paid in a different currency than BTC which would have a floating exchange rate.

williamcotton 12y ago
But without a block reward there would be no incentive to verify and secure the transactions of these Sidecoins, right? The system that you're describing related to a block reward being in some "different currency having a floating exchange rate" is so foreign to me that I can't even begin to ask any questions!

gwern 12y ago

> So if only a total of 5 Bitcoin were ever sent/frozen to the sidechain, then only 5 Bitcoin can ever be retrieved/unlocked? Yes; anything else would be madness. (If you got back less than 5btc, it would be a huge tax on any usage of creation of sidechains; if you got back more than 5btc, well, there's gonna be problems.) > So for Sidecoins to be economically viable and therefor functional, someone would need to be constantly injecting Bitcoin in to the sidechain, right? Yeah, assuming the sidecoins aren't being used up by miners somewhere. You have to pay for the security somehow; miners aren't charities - the transaction fees have to come from somewhere. In Bitcoin, the transaction fees currently come in the form of inflation+transaction fees, but probably different sidechains will pick different forms of payment depending on their goals.

williamcotton 12y ago
I'm not sure what you mean by "assuming the sidecoins aren't being used up by miners somewhere". Could you go in to detail? What do you mean by "different sidechains picking different forms of payment?". Doesn't all of this basically guarantee that the mining rewards of Sidecoin need to be exactly matched to Bitcoin? If so, what's the point of sidechains at all?