Introduction
This article will examine BIP 300, a Bitcoin improvement proposal referred to as drivechains. Drivechains are essentially sidechains, or separate blockchains built on top of the Bitcoin blockchain, that use BTC as the primary currency. BIP 300 was proposed by Paul Sztorc and his company, Layer 2 Labs, which has raised $3 million to improve privacy, scalability, and user experience for Bitcoin.
Drivechain (BIPs 300+301)
Peer-to-Peer Bitcoin Sidechains
Source: drivechain.info
Drivechains define a specific way through which to create Bitcoin sidechains. Sidechains are parallel blockchains to Bitcoin that enable BTC to "flow" between the two networks in a two-way peg.
Since BTC coins can’t actually leave the Bitcoin network, sidechains accomplish this task by locking up BTC on the Bitcoin blockchain and representing them in different ways in the sidechain. The goal is that the representation of BTC in the sidechain maintains a 1:1 peg to the actual BTC locked on the Bitcoin network.
Motivation
Today, cryptocurrencies like Ethereum, Monero, Sia provide capabilities that Bitcoiners cannot access unless they sell their Bitcoin in order to utilize a competing monetary unit. According to on-chain data, there is more value outside of the Bitcoin, with transaction fees paid being more than ten times higher on other blockchains than on the Bitcoin’s network.
Bitcoin software changes rely on developer consensus. Bitcoin's community will reject a good proposal even if it’s marginally unpopular, slowing progress.
Instead, a new sidechain can be set up at any moment. These creators/developers are exclusively answerable to their users, and they are also shielded from competing developers. Users can move their BTC across these various pieces of software as they see suitable.
Bitcoin could practically copy every useful technology as soon as it is invented. Also, scam coins lose their justification and become obsolete. The community can be pro-creativity, knowing that Layer-1 is protected from harmful changes.
Advantages
Drivechains have the potential to address a number of issues with Bitcoin by:
Providing an alternative to the current contentious and political process for changing Bitcoin. "Layer 1" rules would remain unchanged while new features are introduced through opt-in sidechains.
Making it easier to replicate any useful features offered by Bitcoin's competitors, thus potentially making Bitcoin a dominant player in the cryptocurrency market.
Offering a viable solution for generating enough transaction fees to support the security budget for Bitcoin. Under the drivechain model, Bitcoin miners also mine sidechain blocks. That is, the miner doesn’t need to run software for that specific sidechain, while accruing from the value being transacted on that parallel chain. This is because most fees paid on the sidechain go to the bitcoin miners.
Technical Details
Source: drivechain.info
As per above, the squares are block headers, and trailing rectangles are transactions, with time flowing from left to right, i.e. December 2020 to April 2021, represented as tens of thousands of blocks.
The sidechain, represented above in red, running in parallel the whole time, with its own blocks, block headers and its own blockchain from December to April. The idea with BIP300 is that three months of sidechain activity are compressed into one little 64 character string. This string is the only thing inserted into Bitcoin's mainchain, thus no matter what Bitcoin's versions of "Monero" is doing, this is all that layer-1 will see (diagram below):
Source: drivechain.info
As a result of this, the full nodes on the main chain (in blue), don't check anything that's happening on the side chain. There could be unlimited complexity and a sidechain doesn't have to be its own blockchain either.
In essence, BIP300 would operate entirely on Layer-1, off of this one string here in green.
Implementation
Drivechains are proposed to be implemented through a soft fork, which allows for the creation of sidechains with three key features:
The mainchain nodes would only need to validate a small, simple and fixed set of BIP300 and BIP301 rules. While all the sidechain rules would be validated by a separate software that can be safely ignored by those who do not use it.
These sidechains do not require the creation of a new asset, BTC can be deposited and withdrawn to and from the sidechain at a one-to-one exchange rate, thus it doesn't fragment the network effect or compete with BTC.
The security of the sidechains will be provided by the existing Bitcoin hashrate and all the transaction fees from the sidechains will go into the security budget of Bitcoin, instead of competing altcoins.
Overview of BIP301
The idea behind BIP301 is to improve mining incentives, with Layer-1 miners collecting side chain transactions, without actually seeing them. This is known as Blind Merged Mining, which allows BTC miners to mine a sidechain, without running their own node software (hence "blind").
Instead, a separate sidechain user runs their node and constructs the block, paying himself the transaction fees. He then uses an equivalent amount of money to "buy" the right to find this block, from the conventional layer-1 miners.
So in practice, if miners do what they normally do today and include all of the transactions that pay them the most fees, then they would automatically mine all the sidechain blocks and collect revenue from all sidechain transactions.
Bitcoin Sidechains "Apps"
The portfolio of sidechains for Bitcoin would be determined by their ability to generate transaction fees. This is because miners, as rational and self-interested agents, will only support sidechains that maximize their profits. In this way, the direction of Bitcoin's development would ultimately be determined by the preferences of its users.
Source: drivechain.info
Each new BIP300 sidechain is essentially an "app", and developers can change sidechain software anyway they like. Users will in essence decide whether they will participate in a sidechain by sending their Bitcoins onto it. This is very similar to the lightning network, where currently users lock-in their BTC on lightning.
The base layer is completely unaffected by any issues that may occur on the sidechain.
Some potential sidechains that may be included in this portfolio could be:
Privacy Sidechain
Currently, developers are competing to bring ZCash privacy functionality to a Bitcoin sidechain, as they are using the drivechain technology for a prize fund of 6.1 BTC, as announced by BIP300 author, Paul Sztorc.
ZCash intends to offer a far higher standard of privacy through a sophisticated zero-knowledge proving scheme that preserves confidentiality of transaction metadata.
NFT Sidechain
Bringing ERC20 tokens and to Bitcoin, on its own specialized chain.
DNS Sidechain
Sidechain For BitNames/Logins/DNS.
Summary
Layer 2 Labs aims to improve the user experience in Bitcoin, especially around activities necessary for truly self-sovereign bitcoin ownership. BIP300 author Paul Sztorc said the company has 6 sidechain-designs in development already, including two which are exact clones of Ethereum and ZCash (but BTC-only), which would "allow for immediate global scale, impenetrable easy-to-use privacy, and complete freedom for users and developers."
It should be mentioned that, in aside from drivechains, developing apps on top of Bitcoin is feasible using Taro and the Lightning Network.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.