Bitcoin Blockchain Protokols & Second Layer

This article covers various blockchain protocols, transaction mixers & second layer technologies.



Bitcoin Sidechains


rootstock drivechain omnilayer counterparty
Rootstock Drivechain Omnilayer Counterparty

Sidechains offer the possibility of linking applications with the blockchain BC that are not possible directly on the BC due to security reasons or lack of capacity, such as decentralized applications dApps, Smart Contracts SC, which are set up BC that can access the know-how and resources of the Bitcoin blockchain. Examples are Rootstock, Drivechain, Omnilayer and Counterparty, these projects are also open source but under the leadership of startups working on sidechain solutions and applications.

 

Smart Contracts SC

Smart Contracts/Intelligent Contracts are protocols that can execute contracts independently with the help of a BC, for defined events without a third party (e.g. If > then Relationships if{...}...else{...}). The digital contract is implemented via a user interface. Examples are simple copyright licenses, token generation, proof of ownership e.g. for goods that are lent or exchanged according to definition and general database applications, since a BC is basically something similar! An interesting usecase would be the decentralized trade with electricity, so every electricity producer could of course trade renewable energies, his own electricity and SC not only regulate the trade but of course also the network control so far the theory! There are already some projects working on it, but it will certainly take some more years of development. Basically, this application is so extensive that it is not just a simple contract, but a complex decentralized application dApp!

Atomic Swaps

Atomic Swaps are defined smart contracts, which have the task to exchange different tokens/coins of different crypto currencies with each other.


Decentralised Applikation dApp

dappradar.com dapp.review stateofthedapps.com dapp.com

With Distributet Ledger Technologies DLT comes the next generation of the Internet. The Web 2.0 we know as the Internet of Copies, through the emerging Web 3.0 with DLT/BC and dApps it enables the Internet of Values & Originals. Basically every DLT/BC is a dApp! Imagine a web application such as Youtube, Facebook or a cloud and hosting service, only that it is decentralized and its data is stored e.g. via an InterPlanetary File System (IPFS), which is also called Distributed Web. Currently, there are still some difficulties with the long-term availability of the data. This problem of blockchain cloud storage (no data is stored in the BC, only the signatures and timestamps!) using IPFS, is presented in the chapter "Blockchain Consensus & Cryptography" a possible consensus algorithm dzu "Proof of Capacity". The development of a decentralized cloud storage system for the Bitcoin is planned for 2022. Decentralized applications must meet certain criteria so that the name is not misused:
An application must be open source and the development must be driven by the community. Instead of majority decisions, the community works by reaching a consensus. All data must be cryptographically secured via the blockchain. Tokens or private keys enable access and rewards. The token does not necessarily have to be tradeable as a crypto currency, but should be generated decentrally under a cryptographic scheme.
However, many applications known as dApps are not decentralized and are developed profit-oriented by a company.


Decentrale Autonomous Organisation DAO

Through DLT/BC there is now the possibility to form decentralized organizations, which according to the theory can appear in any social organization, such as companies, social organizations, etc.. Some wet dreams of the Blockchain enthusiasts even go so far that whole states could be realized with the help of BC.
The hierarchy among the participants* is different simply because of the availability of information and skills, an example of which is the Bitcoin itself:
At the beginning only insiders and nerds knew about the existence and the potential of such a technology, although the source code is freely available the community had to grow first.


Lightning Network

lightning

The Lightning Network is a protocol for scaling Bitcoin transactions (tx). Lightning-nodes are used to process tx instant. Lightning as the name suggests allows very fast transactions tx, which theoretically allow 1 mio tx per second per Lightning channel/node! Without Segregated Witness Bitcoin managed about 7 tx per second. The amazing thing is that according to Andreas M. Antonopoulos, this layer is a kind of proof of stake! Because in order to operate a L. Channel, credit must be given to L. Node, the more credit there is, the higher the transaction rate, the more fees can be generated, or the fees for the individual L. tx are lower. Thus by a larger credit less fees are paid, if it concerns an extremely fair L. Channel (Andreas M. Antonopoulos translation)! So Bitcoin is already using a hybrid blockchain with Proof of Stake and Proof of Work, which to my knowledge is not the same as Proof of Activity!


Segregated Witness & bech32


Segregated Witness is an update to scale the Bitcoin BC and the ability to implement second-layer technologies. The bech32 format is an update for another form of address. The standard address is called Legacy Address and starts with 1 (1ND....53t), it is compatible with all other address formats (except Lightning of course), but cannot take advantage of Segwit like e.g. cheaper dynamic fees.

SegWit P2SH addresses start with a 3, just like my donate address at the bottom of the page! The P2SH (Pay-to-Script-Hash) cannot use all advantages of SegWit. The 3rd address format is the Native SegWit address bech32, it starts with bc1 and can allow very low fees depending on wallet compatibility!
Some wallets and exchanges are not yet compatible with the most advanced address format, so it is recommended to read the fee schedule before registering at a wallet. Bitcoin addresses starting with m are Testnet addresses!


Liquid Network



liquid

Liquid Network was developed by Blockstream and is basically similar to Lightning N., but Liquid N. uses a sidechain to verify on these transactions. It is a service designed for transactions between stock exchanges and institutions that do not burden BC with many transactions, which generally leads to higher scaling.

There are also applications for private use, so transactions could be fully verified within 2min of which only sender and receiver know! Liquid N. as sidechain can also produce many other application possibilities of a BC such as SC etc.. So the question arises what exactly is the difference to a sidechain in general?
Write me gladly over Telegram or by Mail if I present something technically wrong here and with all other texts!


Schnorr-Signatures

A Bitcoin Improvement Protocol (BIP) could follow SegWit with the next big "update": The cryptographic scheme for digital signatures designed by Claus-Peter Schnorr, which replaces interaction with the use of a cryptographic hash function and SegWit has created the prerequisites for implementation!

According to Pieter Wuille, a Bitcoin Core developer, Schnorr signatures have three main advantages over the ECDSA signatures currently used in the Bitcoin network. The Elliptic Curve Digital Signature algorithm uses elliptic curve cryptography to create and encrypt the signature.
According to the Wuille file, the Schnorr scheme has three advantages over ECDSA signatures: security proof, non-deformability, and linearity.


TumbleBit

TumbleBit 

is a kind of Tx mixer that, according to the 5 developers at Boston University, "is a hub for new, unidirectional and non-bindable payments that are fully compatible with the current Bitcoin protocol. TumbleBit allows fast, anonymous offchain payments to be made with a 'tumbler' (mixer) intermediary without having to trust it. No one, not even the tumbler, can connect the sender and recipient of a payment.

Each payment is covered by Bitcoins and guarantees that the tumbler cannot violate anonymity, steal Bitcoins, or 'print money'.


CoinShuffle

CoinShuffle (PDF) was introduced by the University of Saarland in 2014, it is a decentralized Tx mixer!


Coinjoin

Coinjoin is a popular Tx mixer which is used in Samurai & Wasabi Wallet!

By merging several Tx "inputs" and many "outputs" the tracking of e.g. "taintet coins" (marked coins for tracking e.g. by chainanalysis) becomes impossible or all coins are marked after mixing!


Dandelion


dandelion

Dandelion is a theoretical approach for a P2P network where messages that can also be Tx or SC are mixed with other Tx once they are sent, so a Tx can no longer be tracked! This protocol would mean anonymizing the users!
Dandelion could also be implemented using a sidechain in Bitcoin.


Mimblewimble

Mimblewimble was provided by an anonymous person. It is an idea of a blockchain protocol that promises absolute anonymity through complete encryption of all transactions and high scalability. Mimblewimble could be implemented within a Bitcoin sidechain. It makes no sense for this guide to explain the exact functionality, but if Mimblewimble should be intergrated into the Bitcoin blockchain somehow in a few years, this topic will be covered here in detail. Mimbelwimbel (orig.: mimblewimble) is the unintelligible word that Vernon Dursley chokes out in chapter 4 of the first volume when Hagrid thoroughly plunges him together! From this protocol now a "coin" has emerged, the Grin, it is questionable whether this blockchain protocol is safe at all, since it is still very young and untested!


Andreas Antonopoulos about Mimblewimble and Dandelion




Confidential Transactions

Confidential Transactions CT describes "confidential transactions" whose amounts are only visible to the sender and recipient.
CT's are in the planning and programming for BTC, we may be curious if this feature is available to us!


Bitcoin without, or the next Internet?

Blockstream has managed to bring satellites into orbit to secure the Bitcoin network (Miner and Nodes). This brings us closer to the understanding that the Bitcoin blockchain can operate independently of the Internet as we know it, using other information transmission technologies independent of web 2.0. With goTenna, a so-called mesh network is currently being created, in cooperation with Samurai Wallet, Bitcoins will in future be sent via an autonomous secure network. The Web 3.0 is now available, the Internet of originals and values may be compared to the Web as we knew it in the 90's, we can only speculate today what changes, opportunities and risks this technology will bring! But one thing is already certain today: No God No state of this universe is able to stop Bitcoin!