Original author: Jagdeep Sidhu

Original compilation: Luffy, Foresight News

Will Bitcoin need sidechains in the future? After a six-year-old proposal returned to public view, todays DeFi community is divided on the answer to this question. Since the controversy surrounding sidechains involves high-level cryptographic languages, we’ll cover the basics first, then delve deeper into the pros and cons of the proposal, as well as potential solutions.

Before we delve into the details of BIP-300, it’s important to note that there are alternative ways to extend Bitcoin’s utility that don’t involve sidechains. One such method is federated mining, which allows Bitcoin’s Proof of Work (PoW) to be shared with more chains at no additional cost. Not only is this economically feasible, but it also creates a symbiotic relationship with Bitcoin rather than competing with it. For example, one way to achieve this is to adopt economic schemes such as EIP-1559 on the chain of joint mining, which makes transactions more efficient.

The Bitcoin improvement proposal discussed in this article is BIP-300, commonly known as the Bitcoin Drivechain. Originally launched in 2017, it proposed adding a specially designed sidechain called Drivechain on top of the Bitcoin blockchain. Bitcoin Drivechain will operate as a blockchain connected to the Bitcoin mainnet and use BTC as the in-system token.

Another point to consider is miner incentives. Pooled mining essentially allows miners to earn free money by doing what they are already doing. Not only does this benefit miners, but it also adds extra security to new chains that are jointly mined with Bitcoin.

Supporters see the proposal as a revolutionary step, while opponents say it could open the door to scams on the Bitcoin network while leading to more scrutiny from regulators.

While the debate surrounding BIP-300 continues, there is a need to look at existing solutions that can serve as proof of concept for the values ​​we espouse. After all, Drivechain is certainly not the only way to use Bitcoins PoW security for DeFi reasons. There are other Layer 2 systems that can expand Bitcoins use cases with direct, secure, and scalable paths.

But then again, why is the community worried about adding more sidechains to Bitcoin? Isn’t this something the Ethereum ecosystem does every week?

Limitations of BIP-300

The main problem is that BIP-300 allows trustless transfers of BTC between the mainnet and these drivechains in a two-way peg (2 WP). The truth about Bitcoin is that the BTC on the mainnet can never truly leave the blockchain. In contrast, the 2WP method creates the illusion of a transfer by locking the exact amount of BTC that is transferred from the mainnet to the sidechain, and then unlocking an equivalent amount of tokens in the target chain. The same process occurs when BTC is transferred from a sidechain to the Bitcoin blockchain.

At this point, it is easy for us to see the limitations of BIP-300 and understand the concerns of the Bitcoin community. First, implementing a two-way peg between the Bitcoin mainnet and sidechains could completely undermine Bitcoin’s economics and assumptions.

Critics also believe that Drivechain could lead to a proliferation of Bitcoin-based scams because each sidechain has its own version of BTC. And, as has happened over the past few years, an increase in fraudulent activity is directly driving a regulatory crackdown. From a technical perspective, BIP-300 would also require a soft fork on the Bitcoin blockchain, which would add another layer of complexity and potential points of failure.

Bitcoin needs more use cases

While these concerns are valid, it is also a reality that Satoshi Nakamoto created Bitcoin as an electronic currency rather than a store of value. This is why we need to find ways to leverage BTC within the larger DeFi ecosystem, otherwise it will eventually become too deflationary to really be used for anything other than a store of value.

Therefore, the Bitcoin community needs a system to complement Bitcoin rather than compete with it by trying to create new alternatives. One of the solutions is to build a blockchain to perform joint mining with the Bitcoin network. Federated mining enables miners to work on multiple blockchains simultaneously without incurring additional energy costs. Federated-mined blockchains can take advantage of this and inherit a large portion of Bitcoin’s steadily growing hash power.

For BTC holders, the gas fees for transferring BTC on the network can become expensive. Through the Bitcoin l joint-mined blockchain, part of the fees required to conduct transactions or execute contracts can be destroyed through an economic strategy based on EIP-1559. Since EIP-1559 cancels the fee market mechanism of high-price priority, it is possible for the chain to achieve cheaper Gas fees.

It’s important to remember that the base layer is just the beginning: in order to use Bitcoin in more use cases, any L1 blockchain will need an additional layer to “interact” with users: a layer that contains various decentralized applications and Second level of service. By building an L2 ecosystem that allows Bitcoin-powered DApps to thrive without the limitations of current sidechains, it will open the door to growing the user base in a secure and scalable way. In the end, this isn’t just about adding functionality to Bitcoin, it’s about enhancing the entire blockchain ecosystem for the betterment of global society.