While this SPV model originally showed promise, Poelstra said the poor security tradeoffs made with this sort of system were better understood after discussions on the Bitcoin development mailing list between Bitcoin developers Peter Todd , Mark Friedenbach , Greg Maxwell , and others. According to Poelstra, the co-authors of the original sidechains white paper wanted to create a trustless two-way peg mechanism for sidechains based on simplified-payment-verification (SPV) security.
Miners are able to effectively steal money through these blockchain reorganizations by spending the same coins twice . A similar issue exists with SPV-based sidechains where miners are able to fake SPV proofs and steal all of the funds on the sidechain if they have enough hashing power. Recently, the issues associated with blockchain reorganizations have been in the news due to the increasingly common practice of 51% attacks on smaller, less-secure blockchains such as Ethereum Classic .
Try yourself to generate SHA-256 for a text string here. Let’s suppose I ask you to calculate SHA-256 of the below block of text, it will take you seconds using a simple algorithm to give me an answer.
A cryptographic hash (sometimes called ‘digest’) is a kind of ‘signature’ for a text or a data file. SHA-256 generates an almost-unique 256-bit (32-byte) signature for a text. This is known as a hashing function. What it means is whenever an SHA-256 algorithm is applied to any length of string or text, it will give back a unique 256-bit string like below.
Back in 2014, a white paper co-authored by many of the individuals who co-founded Blockstream , which is a blockchain technology company mostly focused on Bitcoin, was released to much fanfare. The paper, titled Enabling Blockchain Innovations with Pegged Sidechains ( PDF ), was generally viewed as a death blow for the various altcoins that were becoming more popular at the time because it promised to allow for Bitcoin
to inherit any of the features found on alternative public blockchains.
"The more money you have in the sidechain, the greater the incentive is for somebody to do this massive [ blockchain reorganization ]," said Poelstra. "In our original sidechains proposal, we weren’t very explicit about that security model, mostly because we did not fully grok that that was our security model."
This string will always be different for each string or content i.e. "My name is Crypto
Purview" and "My name is CryptoPurview" will have different SHA-256. (Note there is just space difference between 2 strings) no two different strings in the world can have the same SHA2 even if they differ just by one bit.
"We came to understand that the SPV model that we were pursuing created very bad incentives and was ultimately untenable with — and this is just my opinion — the current state of bitcoin
mining centralization," said Poelstra.
This process consumes a lot of computation power. You try this again with different Nonce values and arrange the above transactions in a different order. In order to crack this "puzzle", miners use different permutations of Nonce value and order. Hard luck for you, not starting with leading five 0s.
For example, you can swap the position of line 1 and line 2, but the resulting SHA256 should start with leading five 0s. You can choose Nonce to be any number example 123234 or 22123 and move lines in any order.
So, that’s where we’re at [with sidechains]," said Poelstra. "[This research] is moving us towards a world where we maybe have those kinds of zero-knowledge proofs, and then suddenly we can go revisit that stuff and get a stronger security model that I’m more comfortable with.
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