How an idea whose time has long passed is stirring up the Bitcoin scene – and what it’s really about.
If Paul Sztorc had been present when the wise Heraclitus said that one could not step into the same river twice, he would have vehemently objected. And how you can! The developer has been hopping into the same river for years. As early as 2015, when the Bitcoin scene was still arguing about whether the blocksize should be increased or not, he was there and promoted his concept of drive chains.
Today, in 2023, no one is talking about blocksize anymore, but surprisingly everyone is talking about drivechains again. Because Paul managed to get a BIP number in August after many years of advertising. More specifically, two numbers: BIP-300 and BIP-301. This means that the requirements are met to bring it into the Bitcoin code – if the other developers give BIP the green light. Which is where the problems begin.
Drivechains, said Paul’s company LayerTwo Labs in July, “can eliminate all crypto and fiat transactions so that only Bitcoin is left.” A big promise, with which the developer ties in less with positive goals than with widespread resentment towards others Cryptocurrencies. It’s less about bringing something new into the world than about taking something away from others!
Like Liquid, but with 2-way peg
Drivechains are sidechains, like Liquid or RSK, with one crucial difference in the eyes of Paul and his colleagues: there is a “two-way peg”. You can add or withdraw Bitcoins directly from the sidechain, and both are confirmed by miner consensus.
Existing sidechains such as Liquid, RSK, Stacks or, indirectly, WBTC or iBTC, require intermediaries – or consortia of intermediaries – to organize the movement of Bitcoin from the mainchain to the sidechain. This process is sometimes cumbersome, but above all dirty in the eyes of many Bitcoiners, as it does not meet their demands for decentralization.
With drivechains, on the other hand, the miners run the sidechains in parallel and press a kind of excerpt into the blockchain every few months, for which they use a previously unused OP_Code. Full nodes can also verify this excerpt, while they can safely ignore the actual drivechain. Users don’t need any middlemen, just a little patience until the miners have done their job.
The sidechain concept is considered technically brilliant. It allows arbitrary sidechains to be attached to Bitcoin without significantly changing Bitcoin’s security and trust concepts. It also opens up new income options for miners, which become necessary as the block reward dwindles.
The altcoin reaper the Bitcoin soul craves
However, to activate sidechains, and this is Paul Sztorc’s misfortune, you need a soft fork that introduces some new rules. This alone makes the change controversial. A soft fork is a massive intervention in the consensus, which, as we know from the combination of SegWit and Taproot, can have undesirable side effects.
BIP-300 and BIP-301 intervene in the economics of mining. Are they creating new, toxic incentives? Can miners steal the Bitcoins on Drivechain? Such questions are discussed in every detail, weak points are inflated into major problems, changes are demanded, and all conceivable alternatives are imagined.
But there is so much at stake – not just for Paul Sztorc and his company, but for Bitcoin as a whole. If you listen to the debate at the moment, you might think it’s about being or not being. Bitcoin Magazine, for example, writes that drivechains would “convert any useful altcoin into a sidechain that is consistently superior to the actual altcoins, ultimately leading to Bitcoin absorbing the altcoins’ market share.”
Everything that was ever useful about blockchains is becoming a drivechain: a smart contract drivechain that takes the wind out of Ethereum’s sails, a privacy drivechain that takes the butter out of Monero’s bread, and so on!
This would be the perfect retaliation for the Bitcoin soul. Bitcoiners have seen Ethereum and other altcoins continue to eat away market share from Bitcoin. They had to watch as a horde of experimental developers brought the craziest applications to other blockchains, as the Darknet became more and more enthusiastic about the privacy coin Monero, as Lightning didn’t really want to start as a means of payment, and as the Liquid sidechain withered away while Etheruem was around Sidechains and rollups are flourishing.
Time for Bitcoin to strike back and bring back the lost territory.
The big problem with drivechains
Which brings us to the biggest problem with drive chains. This does not consist of technical details or security risks for Bitcoin, which are discussed and sometimes criticized. The biggest problem with drivechains is absurdly exaggerated expectations, which are described too kindly as hopium.
Bitcoin has had the Liquid sidechain for years, which introduced better privacy, tokens and swaps. Bitcoin has had the Rootstock sidechain for years, which integrates the Ethereum virtual machine and thus makes decentralized finance possible. Bitcoin also has stacks, a kind of sidechain – the term can be debated here – which also enables smart contracts like Ethereum. And with Ordinals, Bitcoin onchain has received a new infrastructure for tokens and NFTs.
But almost no one cared. The idea that the inventions of the altcoins would have to be brought to Bitcoin just a few years later so that all users and companies would switch over was revealed to be a fool’s errand. Again and again. With liquid, with rootstock, with stacks, with ordinals. None of these projects have stolen more than a handful of users from a single altcoin, and none have even irritated altcoins.
How many walls do you have to run into before you realize that you can’t go any further?
If, if, if
But…could it be that they simply haven’t done it right so far? Although Liquid and Rootstock are based on a multisig architecture, they are centralized around Blockstream or RSK. Stacks is more of an altcoin than a sidechain – including its own token – and Ordinals have an idiosyncratic infrastructure.
If you introduce a two-way peg, if it’s really decentralized and secure, if the design that Paul Sztorc created back in 2015 finally comes into its own, and we make sidechains the way they should have always been, then …
… then no one will still be interested. It is a colossal mistake to think that sidechains failed because they were not decentralized enough. They failed because the majority of developers, users and companies that are interested in a particular application have long been working with other blockchains, and because a sidechain – especially a decentralized one! – is much more complicated than a native blockchain. Even on Ethereum sidechains like Polygon, which also have a two-way peg, users prefer to use centralized bridges instead of the decentralized peg.
The mass and network effects have long been elsewhere. The train has left the coast for years, and it certainly won’t turn back to jump on Drivechains. The fact that people in the Bitcoin scene are hoping for this is, above all, an expression of desperation.