Why you should care about Drivechain

There’s an upgrade for Bitcoin that’s been in the works for years, it’s of critical importance, and you might have never even heard of it. It’s called Drivechain, a proposed soft fork that would allow Bitcoin to take on the capabilities of other cryptocurrencies.

Waaaaay back in the early days of Bitcoin, there was an idea called “sidechains”. A sidechain is a type of blockchain, but what differentiates it from alternative cryptocurrencies (“altcoins”) is that it’s backed by bitcoins (BTC). So instead of its exchange rate floating independently of BTC, one whatevercoin would be pegged to the price of 1 BTC.

Sidechains would have numerous advantages over altcoins:

• The exchange rate wouldn’t fluctuate between the sidechain and BTC, so applications which require low trust would still benefit from BTC’s liquidity.
• There would be no altcoin pushers encouraging everyone to buy the new coin and make them rich.
• Investors wouldn’t need to worry about missing out on gains from new technology— they could just buy BTC and hold it.
• There would be little to no pressure on Bitcoin to add new features to its base layer in order to compete with other cryptocurrencies. Much like how IPv6 is independent from HTTP/3.

This concept initially had a great deal of support within the Bitcoin community, and was a big part of why Blockstream was founded. In 2014 they used to have an excellent infographic about sidechains right on the company’s front page. It was a great time to be optimistic about Bitcoin development!

Indeed, it is very likely that as soon as the Ethereum genesis block launches, there will be side-chains for Bitcoin, Litecoin and Dogecoin implemented as contracts within three months.

— Vitalik Buterin, Side Chains: The How, The Challenges and the Potential

On a technical level, sidechain transactions are validated with SPV (Simple Payment Verification) proofs, similar to the ones used by lightweight clients like the Electrum Bitcoin Wallet. Blockstream succeeded at writing an SPV sidechain, but ran into a snag: you need to download the sidechain to check the proof.

• Without users checking, miners could steal all the BTC in a sidechain for free using an invalid proof.
• With users checking, Bitcoin’s bandwidth requirements would include the bandwidth requirements of all sidechains.

Sidechains had hit a dead end.

Federated sidechains

Blockstream basically gave up on peer-to-peer sidechains, instead going in the direction of federated sidechains. A federated sidechain maintains its peg with multisignature transactions; a majority of the parties maintaining the peg (not miners) need to validate and approve each withdrawal from the sidechain.

Liquid is operated by a federation of members which include exchanges, trading desks, and other cryptocurrency companies.

— Liquid website

So with Liquid, you’re placing your trust in companies like Ledger to hold the keys to “your” BTC for you. It’s much cheaper to hack/bribe/threaten these companies than it is to attack the Bitcoin blockchain. If you want to run Ethereum-like smart contracts, or use anonymous ring signatures like Monero, or just move coins cheaply like Litecoin, then you’ll need to either trust corporations or exchange to an altcoin.

The implication that Bitcoin users would need to avoid high fees by downloading a Liquid wallet was a big part of the Bitcoin Cash schism in 2017. If you’re just moving money between exchanges, then Liquid makes sense. But corporations are useless for censorship resistance: the only thing that makes the inefficiency of blockchains worthwhile.

Drivechain

This is where it starts to look a little less bleak.

In 2015, Paul Sztorc proposed Drivechain, a peer-to-peer sidechain that avoids problems with stale block theft by requiring miners gradually “approve” withdrawals by voting on their validity. Instead of just a single SPV proof needed to withdraw, you’d need to withdraw over 3 months, during which time a theft attempt would be noticed and the withdrawal could be blocked by users. This core concept behind Drivechain is formalized as Bitcoin Improvement Proposal 300.

“But wait!” you might say. “I need my money in less than 3 months!” Fortunately, you’ll still be able to trustlessly exchange across blockchains using atomic swaps; the only people actually using this peg will be maintaining a stable price between the main chain and the sidechain, or who were planning on holding bitcoin for >3 months anyways.

And the bandwidth issue? If we’re worried that miners will be centralized by the pressure to mine sidechains, then small-time miners can outsource that work with Blind Merge Mining, aka Bitcoin Improvement Proposal 301. You could make some extra cash by running a sidechain node, picking the highest-fee transactions, and offering the block up to miners without any mining hardware yourself.

So what are we waiting for?

Drivechain’s first release was in 2018, and it’s been in development ever since. Right now it’s mostly done, although it has a low chance of completing peer review and activating in 2021.

It’s going to be a long, drawn out internet drama, because it’s got a lot of new concepts and moving parts to understand. If you were around during the Segwit controversy of 2017, expect something of that severity. Many of the top developers still work with Blockstream, and Drivechain is “not invented here”. Since Drivechain requires miners voting on each sidechain anyways, its activation will be up to a miner vote, not user activated like Segwit. But ultimately, it adds the functionality of every altcoin to Bitcoin, without introducing new risks to Bitcoin users who aren’t using it, so it would make Bitcoin worth more and will likely activate eventually.

So the reason you should care about Drivechain is because it’s the writing on the wall for altcoins, and the method by which Bitcoin will back an entire financial system with limitless capabilities.