New Developments in Side-chain Technologies by Cardano Development Team, IOHK

November 7, 2018 / by Angel Reyes

IOHK, the technology company that developed Cardano, has produced a paper detailing their work on a new proof-of-work sidechain. The new sidechain will provide a decentralized method of interaction between two different blockchains — one based on verification rather than trust.

This new link between blockchain and side-chain “gives rise to two illustrative examples: the ‘remote ICO,’ in which an investor pays in currency on one blockchain to receive tokens in another, and the ‘two-way peg,’ in which an asset can be transferred from one chain to another and back,” according to the paper’s abstract. The implications of this include trustless exchanging of different assets between two parties

These researchers previously published a paper on non-interactive proofs of proof-of-work detailing methods for reducing resources needed in verifying transactions. They have a history of innovating in side-chain application. This previous paper details a reduction in the number of verifications and thus energy use, without compromising security. For transactions focusing on only one blockchain, there will be decreased traffic, improving transaction speeds and lowering fees.

Interoperability between chains is the other major use case, furthering the development of atomic swaps. No centralized intermediary will be required to transfer token value from one blockchain to another. What is new is the ability to transfer assets back — part of the two-way peg function. Either blockchain can function as the “source” of the transaction, requiring only one side-chain to be maintained.

Federation blockchains and trusted networks — think exchanges — are the established ways to achieve cross-chain compatibility minus one key element — decentralization. Federation Blockchains are partially decentralized, allowing control of transactions to a set of nodes, and use a side-chain pegged to a single blockchain. Exchanges fully rely on a centralized third party to confirm transactions between blockchains.

Neither is fully trustless and neither is fully decentralized.

IOHK’s development on side-chains is at the review stage, claiming 85% completion, however no information on further developments or release is available. Implementing side-chains into proof-of-stake blockchains appears to be the next step toward interoperability, as they currently require at least one proof-of-work blockchain. It is likely we will see further development in the near future.