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Bitcoin Technology

The Future of Bitcoin | Satellites, Sidechains, and Smart Contracts

By November 20, 2018 No Comments

What’s in store for the future of Bitcoin?

The future of Bitcoin is bright. As are the incredible minds that work on it. The level of intellectual capacity that goes into bitcoin is incredible. So incredible in fact that you can now download the Bitcoin blockchain from a satellite! Future features such as side-chains will add significant intrinsic value to the bitcoin codebase, as tokenized assets can be created off of it. Schnorr signatures are set to replace the current private and public key generation, increasing privacy and scalability. And Hash Time Locked Contracts (HTLC) seek to solve the issue of payment refundability.

For those in the know, these developments are very exciting. Each one in itself brings a whole new subset of features to bitcoin, slowly expanding it from just being a cryptocurrency.  These developments also highlight the strength and use case of bitcoin’s blockchain, and may even threaten existing cryptocurrency projects.

Either way, Bitcoin’s stature manages to soak up the leading developer talent in the world. The draw of cutting-edge innovation in decentralised systems such as Bitcoin is a draw for the best. And we as users and participants reap the benefits.

Let’s explore each of these incredible and exciting new developments that will surely rock the future of bitcoin.

Prefer to watch? Here is the video.

Bitcoin satellite

As a post-GFC answer to the centralised printing of money, Bitcoin poses a major threat to financial institutions. Because of this threat, some fear governments may ‘shut it down’ or ‘turn it off’. The truth is you can’t, you just can’t. To stop Bitcoin from running, you would need to either turn off the internet or kill the power to an entire country. The former of which is implausible and can be ruled out. But what is plausible is an internet shutdown or censorship. It’s possible for mobile telecommunications to be cut off.  This could and would stop a bitcoin miner from mining, a node from operating, or anyone from trying to send or receive bitcoin. The future of Bitcoin depends on a creative solution.

Welcome, to the Blockstream satellite.

Image depicting bitcoin user connecting to the Bitcoin blockchain from an iceberg via Blockstream's Satellite as it pertains to the future of Bitcoin

The Blockstream Satellite Network

Leading Bitcoin development firm, Blockstream, is now beaming Bitcoin’s blockchain to four satellites. You heard that right, Bitcoin is now in space, being pushed to four geosynchronous communications satellites.

These sats are Galaxy 18, Eutelsat 113, Telstar 11N (Africa & Europe Beam), and soon to be more. Each satellite covers a specific area of the globe and operates between 12,000 and 11,400 MHz. This range is known as the Kband, which is a stronger signal over the C band and allows for smaller dish sizes. A dish as small as 45cm in diameter can receive the signal.

Using ground stations known as ‘teleports’, Bitcoin’s live blockchain is uploaded to each satellite. By having a dish adequate to receive the signal and a USB receiver, blocks can be downloaded to run a full node or to keep it updated and in sync.

Graphical rendition of Blockstream's Satellite Network as it relates to the future of bitcoin

Each satellite teleport receives blocks from each other, ensuring they remain in sync. The satellite network has also been designed to form a ring around the world, providing complete coverage to most regions. This feature keeps the Bitcoin network fully redundant.

The future of Bitcoin is strong

The Blockstream satellite network is currently running and operational.  Right now, you can purchase components, set up the hardware, install the software, and connect to a satellite. There is a full set of instructions available on the Blockstream satellite github. Blockstream will even have kits available soon for purchase.

So with the satellite network up and running, Bitcoin is virtually unstoppable. If a government or other entity cuts off the internet for an entire country, and even during a power outage, Bitcoin can keep running. With a small generator and a satellite dish, you can be accessing and using bitcoin in no time.

Sidechains

An innovation many are working on in the industry right now is sidechains. A sidechain is like a sub-set of a main blockchain, but it’s fully customizable. They benefit from the underlying security from the main blockchain they are attached to.

These sidechains are a hot subject right now as the industry struggles with ongoing scaling issues. The Ethereum network congestions from Crypto Kitties and Bitcoin transaction fees in early 2018 are indicators that the technology has a significant use case.

Bitcoin is the longest running and most secure blockchain network. It’s also the oldest, rendering its code-base less feature-rich than other blockchains such as Ethereum with its smart contracts. This staved off developers looking for additional features and functionality, such as issuing their own tokens, using alternate consensus mechanisms, and requiring faster transaction times.

That was until sidechains came along.

Elements by Blockstream

Another feature by Bitcoin development firm Blockstream is the Elements project.

Logo image of Blockstream's Elements project as it relates to the future of bitcoin

Using the base Bitcoin codebase, Elements gives developers the opportunity to build a standalone blockchain or a ‘pegged’ sidechain. A pegged sidechain allows users to transfer assets (a crypto token or coin) between the main blockchain and the sidechain.

In Elements, they call this a ‘Federated Peg‘, which ensures the asset is transferred in a verifiable and trustworthy manner.

Image of Bitcoin passing between two blockchains, showing the future of bitcoin with federated pegs

Elements also provides additional features such as confidential transactions. This hides both the type of asset in each transfer as well as the transaction amount. By using the Bitcoin codebase and API, developers can leverage the 10 years of open-source development that has gone into Bitcoin.

Elements is currently operational, spawning the 2017 segregated witness implementation and ‘relative lock time’. The Liquid Network project developed by Blockstream is a sidechain built on Elements, allowing private bitcoin transactions for exchanges and brokers, issued assets and tokenized securities.

Rootstock

Abbreviated ‘RSK’, Rootstock is an open-source sidechain project built on Bitcoin that brings smart contracts, instant payments and scalability to the table.

Logo image of Rootstock, an open-source sidechain project, as it relates to the future of Bitcoin

Starting in 2015 with a whitepaper, RSK’s roots stem from a 2013 project called ‘QixCoin‘. The QixCoin project’s original design was for a new cryptocurrency, one specifically for peer 2 peer gaming, such as with poker or blackjack. Developer Sergio Lerner is behind both projects.

Rootstock’s primary aim is to bring smart-contract functionality to bitcoin. Using a purpose-built sidechain, smart-contract development is possible using a Turing Complete Virtual Machine.

Turing Complete is when a programming language, say Javascript for example, can run all functions such as addition, multiplication, etc. A Virtual Machine is a computer file, or an ‘image’, that behaves like a standalone computer. Think of it like a computer running inside a computer.

Similar to Blockstreams Elements, RSK uses a 2-way peg to securely facilitate bitcoin transfers between mainchain and sidechain. Any bitcoin transferred to the RSK sidechain becomes ‘SmartBitcoin’ (abbreviation is SBTC), which pays miners using something called ‘merge-mining’. Bitcoin miners can actively participate in Rootstock’s sidechain through this process, helping secure contracts and earning SBTC for their efforts.

RSK’s additional features include scalability, with over 100 transactions per second now achievable. Instant payments are also possible, opening the door for gaming applications.

Other Bitcoin sidechain projects

Other projects currently exploring Bitcoin sidechain technology are Hivemind, Mimblewimble, and BTC Codex. I will cover these in further detail in future blogs.

Schnorr Signatures

Bitcoin uses several forms of cryptographic functions for mining, key generation, and transaction authentication. The main algorithm for generating keys and authenticating transactions is ECDSA. This stands for Elliptic Curve Digital Signature Algorithm. To break it down into simple terms, it’s an equation based on a coordinate system. Think of it like geometry, you have an X plane, a Y plane, and a Z plane, and the equation uses these planes to generate large numbers.

The secp256k1’s parameter

Now the equation’s parameters are called secp256k1’s. The ‘sec‘ component stands for ‘Standard for Efficient Cryptography‘, which is described in a paper from Certicom research. The ‘p’ stands for a prime number, which is part of a set called a finite field. The ‘256′ component stands for 256 bits, which is a commonly used key size in cryptography. The ‘k1s‘ component stands for ‘Koblitz curve‘, which is a curve cryptography function developed by Neal Koblitz.

The equation is y2 = x3 + 7, and when plotted with real numbers, looks like this.

Image of a plotted graph of the Koblitz curve as it relates to Schnorr Signatures and the future of Bitcoin

However, the equation does not use real numbers as it is defined over the prime finite field. This means when plotted on a graph, it just looks like a bunch of dots. You can read up more about it here from a post by Bitcoin developer Pieter Wuille.

Replacement of secp256k1’s with Schnorr signatures

For the future of bitcoin, the secp256k1’s function is under consideration for replacement. Its replacement will be ‘Schnorr signatures‘, which is known for its simplicity and efficiency.

With up to 9 contributors on Github, the Schnorr signature Bitcoin improvement proposal has some real weight behind it. But why does the old function need replacement? Well, let’s review the benefits as described in the proposal:

  • The Schnorr signature allows for proofs, meaning the authentication can be checked and proved if necessary. This does not exist for ECDSA.
  • They are non-malleable, which means existing signed transactions cannot be altered by a third party.
  • Schnorr signatures improve efficiency and privacy through linearity, allowing collaboration for generating signatures. Uses cases such as multi signatures can benefit from this.

In addition to the benefits above, the developers want to standardise the Schnorr signature.

All in all, its pretty complicated and tech-heavy stuff, but exciting nonetheless. The general end-user will likely not see a big change in the way they use and interact with bitcoin, but the network will.

Hash Time Locked Contracts

Last but not least, the future of bitcoin includes getting better at payments. A new feature proposed in BIP199 lays out a piece of code called a ‘Hash Time-Locked Contract‘, or HTLC for short.

This will allow a seller to spend some bitcoin by showing a portion of the transaction hash. The essentially allows the spending of funds before the transaction has been confirmed on the blockchain. In addition, it will allow a buyer to spend bitcoin after reaching a timeout in a refund situation.

The motivation for this feature is the one-time nature of bitcoin transactions. If I send you some bitcoin by accident, there is no safety mechanism, no insurance, no bank to get it back. I must rely on and trust you to send it back to me.

By using Time-Locked contracts, both parties can agree to a set amount of time before the transaction is settled. An example might be a merchant that requires a 10-minute time-lock on a customer purchasing an item. The customer may send the funds, but the transaction has not yet been confirmed on the blockchain. After 10 minutes of waiting for the confirmation, the contract automatically returns the bitcoin to the customer. This is an example of an automatic and successful refund mechanism that doesn’t use a third-party intermediary.

It’s also an example of how Bitcoin’s development is continuing to improve its use case as a true decentralised payment system. The future of bitcoin is full of promise and lies just over the horizon.

Beau is the Founder & Chief Editor at Cryptocurrency Australia Media, an educational platform designed to help anyone learn about cryptocurrency investment and blockchain technology. Beau is also the Founder & Principal Consultant of Blockchain Management Solutions, a specialist technical and project management consultancy, is an advisor with Masternode Ventures, a blockchain incubator, and is an advisor with THORChain, a new decentralized exchange protocol.