Drivechain Makes Bitcoin The Only Crypto – Bitcoin Magazine
This is an opinion editorial by Nikita Chashchinskii, a software developer working on BIP300 sidechains.
Drivechain as defined in BIP300 and BIP301 offers a new vision for Bitcoin, where the following problems are solved:
- It offers an alternative to our existing contentious and political process for changing Bitcoin. “Layer 1” rules never need to be changed, and new features are instead introduced by adding opt-in sidechains.
- It removes all reasonable arguments in favor of Bitcoin’s competitors by copying any useful features they might have, and probably makes Bitcoin a monopoly in the cryptocurrency market, which is very useful for an asset that wants to be “money”.
- It provides a feasible way to generate enough transaction fees to support the Bitcoin security budget. This is particularly important, as the block grant will inevitably fall due to halving over the years, and the existing options for funding the security budget are highly problematic: introducing tail emissions removes the 21 million BTC limit via a hard fork, and switches to proof-of-stake requires a significant technical overhaul of Bitcoin and a hard fork, binding fees amount to transaction values opens Bitcoin to competition from altcoins and fiat payment systems that offer lower fees.
All this is achieved with a soft fork that enables sidechains with three important characteristics:
- Mainchain nodes only validate a small, simple and fixed set of BIP300 and BIP301 rules, and all sidechain rules are validated by a completely separate piece of software that can be safely ignored if you don’t care about that sidechain.
- Sidechains don’t need to create a new asset, BTC can be put into a sidechain and then withdrawn back to the main chain at a one-to-one exchange rate, so unlike altcoins, they don’t fragment the network effect and don’t compete with BTC.
- Sidechains are secured by the existing Bitcoin hash rate and all sidechain transaction fees go into Bitcoin’s security budget, instead of going into the security budget of a competing altcoin.
Bitcoin would have a portfolio of these sidechains. Whether a sidechain is included in this portfolio will be determined by its potential to generate transaction fees. That would happen because miners, being reasonably rational and self-interested agents, will only activate sidechains that maximize their profits. So ultimately, the direction of Bitcoin’s development will be determined by the revealed preference of Bitcoin users. This economic decision-making process can replace the existing political decision-making process with community deliberation.
Some sidechains would be built from scratch, introducing new functionality not yet implemented well by any altcoin. And some valuable altcoins would be converted to sidechains, with the sidechain version strictly superior to the original altcoin, because it would inherit Bitcoin’s larger network effect, larger security budget, and it would have exactly the same functionality as the original altcoin.
So by adopting the BIP300, it would be possible to:
- Extend Bitcoin’s functionality with opt-in sidechains, without ever changing the main chain.
- Convert any useful competing altcoin into a sidechain strictly superior to the original altcoin, which will cause Bitcoin to eventually absorb the altcoin’s market share.
- Support Bitcoin’s security budget after the block grant is gone, without tail emissions or other problematic options, by collecting all the transaction fees from our portfolio of useful sidechains.
Most likely, a high transaction throughput sidechain will be added, and it will generate an amount of transaction fees proportional to the scale of Bitcoin’s adoption.
Can sidechains generate enough transaction fees to sustain Bitcoin?
As of this writing, the block grant is 6.25 BTC (at about $23,600/BTC) and it will drop to 0.390625 BTC (a drop of about 94%) by 2040. We cannot expect users to be willing to pay transaction fees that are much higher than they are today, and in 2040 it is still very unlikely that users will pay much more than $1 or $2 (when adjusted for inflation) for a transaction.
So to have a security budget in 2040 comparable to today’s security budget, either the bitcoin price would have to rise to around $350,000 (which would also make the Bitcoin network a 15x more valuable target to attack) or the number of transactions would have to increase significantly .
Let’s estimate how many transactions on a high-throughput sidechain it would take to match the existing security budget. As of July 20, 2022, the Bitcoin security budget is around $250 per second (based on the block reward of a 6.25 BTC subsidy plus a total fee of 0.1 BTC awarded every 10 minutes, and given the $23,600 BTC price) . An average transaction fee as of July 20, 2022 is around $2, but let’s be conservative and cut it down to $1. So to match the current security budget with just the transaction fees, we need 250 transactions per second (TPS for cards).
By comparison, Visa processes about 1,700 TPS (based on the 150,000,000 transactions per day figure that Visa gives here). We can match the existing security budget of 250 TPS, which is around 15% of Visa’s TPS.
Assuming Bitcoin will grow and see more adoption over the 18 years it would take for the block grant to drop significantly, 15% of Visa’s TPS doesn’t seem that crazy in terms of user demand. And if demand for Bitcoin transactions can match Visa’s TPS of 1,700, the security budget could be around $1,700 per second (given $1 fees), which is around seven times more than it is today.
Currently, Bitcoin’s TPS is technically limited to around 5, but arbitrarily large transaction throughput is achievable without changing the main chain in any way beyond adopting BIP300 and BIP301.
With these back-of-the-envelope calculations, we have determined that, given fairly reasonable assumptions about increased use and adoption of Bitcoin, it will be possible to match the existing security budget using sidechains even after the block grant is significantly reduced.
Bitcoin’s security budget will scale with user demand to process Bitcoin transactions, which is not a bad thing, because the amount of capital used to deter a potential attacker will be proportional to the value of the Bitcoin network. If the network’s value falls, this capital will be freed up for other uses. If the network’s value will rise, the network will command more capital for its defense against a 51% attack.
Possible Sidechains for Bitcoin’s Drivechain Portfolio
In conclusion, I will list some possible sidechains that are likely to be developed and included in the sidechain portfolio:
- A privacy sidechain (there is already a working zcash sidechain implementation, converted from the original zcash altcoin)
- A distributed DNS page chain
- A digital asset/colored coins/NFTs sidechain
- A sidechain with high transaction throughput, as already mentioned
- A prediction market sidechain
And of course, any existing or future altcoin that offers useful technology can be converted to a sidechain at a fairly modest development cost.
This is a guest post by Nikita Chashchinskii. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
