Enabling Blockchain Innovations with Pegged

Since the introduction of Bitcoin[Nak09] in 2009, and the multiple computer science and electronic cash innovations it brought, there has been great interest in the potential of decentralised cryptocurrencies. At the same time, implementation changes to the consensuscritical parts of Bitcoin must necessarily be handled very conservatively. As a result, Bitcoin has greater difficulty than other Internet protocols in adapting to new demands and accommodating new innovation. We propose a new technology, pegged sidechains, which enables bitcoins and other ledger assets to be transferred between multiple blockchains. This gives users access to new and innovative cryptocurrency systems using the assets they already own. By reusing Bitcoin’s currency, these systems can more easily interoperate with each other and with Bitcoin, avoiding the liquidity shortages and market fluctuations associated with new currencies. Since sidechains are separate systems, technical and economic innovation is not hindered. Despite bidirectional transferability between Bitcoin and pegged sidechains, they are isolated: in the case of a cryptographic break (or malicious design) in a sidechain, the damage is entirely confined to the sidechain itself. This paper lays out pegged sidechains, their implementation requirements, and the work needed to fully benefit from the future of interconnected blockchains. ∗adam@cypherspace.org, mattc@bluematt.me, luke@dashjr.org, mark@friedenbach.org, greg@xiph.org, amiller@cs.umd.edu, apoelstra@wpsoftware.net, jtimon@jtimon.cc, pieter.wuille@gmail.com †This work was partially supported by Blockstream, a company founded by several of the authors. Many of the concepts discussed in this paper were developed before Blockstream existed; sidechain technology is an open proposal by the authors themselves.