SIDECHAIN

• Peg communicates between sidechain & BC and is the mechanism for exchange rate between assets. It is possible for assets can be imported from and to other chains. Allowed to use in side chain and transfer back and forth between chains

• They require mining, reward could be TX fee or coins, many possible implementations, Raiden/Lighting are just payment channels, not sidechains

• After successful transaction, the coin signifying transfer between chains will be destroyed. The actual coin is not actually transferred, but locked on mainchain while equiv coins created on sidechain. To go back to original coin, must place back into secondary wallet to get primary unlocked.

• A 2 way peg exchanges the same coin, removing the need for altcoins. Side Chains can replace altcoin necessity, also possible to remove/create at will
• A downside is it creates centralized access, trusted 3rd party : NOT GOOD
• Benefit of sidechains are they enable developers to safely develop new applications without a risk.

Major usage of the:

SPV proof : A mathematical proof providing a way where you can determine that a particular transaction was in a block in the block chain without requiring the entire block chain to be downloaded.

Keywords:

• Confirmation period - lock duration in parent chain before transfer allowed
• Contest period- time after send to wait before coin can be used

Notes I have from a Berkeley Deep Dive:

Lightning Network

• Only have net payments on chain and all incremental payments are kept in channels. Relationships are critical to LN, overhead expensive to keep setting up TX ntwrks. Trust is the only thing needed to fund transactions. Need a liquid network: Both sides offer deposit, which limits how other people can use it.
• Possible because not all transactions are random transactions, recurrence paying friends ie the same person. It is not feasible to connect all nodes, must have some reused payments.
• Incentive to send transaction is to get their own transaction processed. Transaction fees are arbitrary, not determined how much yet. Low cost path be reused to make large transaction if same chain is used in both directions

• Paiwise Channels - Between 2 players Funding Transaction: Initializes channel w certain amount of bitcoin from each party

• Hashed Timelock Contract Provide preimage of contract hash to redeem payment else receiver can withdraw funds. Timelock created through changing sequence numbers.

Example: Open fund, close fund are only blocks to add on chain, anchors the transaction into the chain To redeem deposit, network must be closed. Also there is a temporary key swap for each transaction, not private key. Unique key for each transaction, created just for commitment transaction.

Error Handling: Payment Malfunction If payment not redeemed, sender gets their money back after time expires TX’s exist on BC layer, no actual contracts made Cost is transaction fees and time spent. If LN fails, Blockchain does not fails as well but deposits may be lost