The concept of sidechains was conceived as a way to extend the use of bitcoin to other chains providing trust-minimized functionality not available in Bitcoin. We already had a way to produce other trust-minimized functionalities—altcoins are almost as old as Bitcoin itself. But, for those believing that bitcoin should become the only currency in the world, creating any network with a different token was heresy.
The proponents of the original idea gave up on its feasibility soon after publishing the paper and moved on to create the Liquid federation (compromising on the trust-minimization aspect). But Paul Sztorc, who needed a sidechain for his Truthcoin project, claimed to have squared the circle. His Drivechain proposal supposedly creates a way to move bitcoin to sidechains and back without additional trust requirements. He envisioned Drivechain to enable trust-minimized oracles, solve the “problem of Bitcoin fees”, “kill altcoins” and whatnot.
According to Paul, Drivechains pose no concern to bitcoiners. Bitcoin nodes don’t need to validate Drivechain transactions so bitcoiners can forget they even exist. Bitcoiners would only need to enforce two new soft-forks allowing miners to enjoy their new Drivechain incentives. After all, nothing can stop miners from doing whatever business they want in their spare time. So, why should bitcoiners not give them explicit permission?
He may think bitcoiners will happily embrace his fantasy of a polyamorous relationship with miners and focus on the supposed advantages of a greater hash rate that Drivechain fees bring. But I’d say bitcoiners have very good reasons to behave more like jealous wives as soon as the interest of miners starts shifting even the slightest to something other than scrupulously ordering bitcoin transactions, helping to maximize the bitcoin price.
The idea of miners maximizing the security of multiple different systems (eg. Bitcoin and Drivechains) is not less of a fantasy than a man being able to maximize the happiness of many women at the same time. Assuming miners can take the hashrate escrow side job for Drivechains without upsetting bitcoin holders is like assuming you can share your life with a few new girlfriends without upsetting your wife. Expect to get dumped!
Imagine a drivechain providing privacy/mixing became popular and generated fees worth 0.02 btc per block versus 0.13 btc miners get from bitcoin transactions. Now imagine this new utility leads to a lower bitcoin price. This can be due to stricter regulation or a thousand other reasons difficult to foresee right now.
- Do you think a heavy Drivechain user holding little bitcoin would care? No!
- Do you think miners would care? No! (0.13 + 0.02 btc) * $25,000 > 0.13 btc * $25,900
- Who would care? The cuckold bitcoin holders!
The tokens of a Drivechain are not actual bitcoins, even if they are backed 1:1 by bitcoin. They are units of a different asset with a peg-out risk that, given the 3-month peg-out period, will be discounted in their price, fluctuating relative to bitcoin. Unlike wBTC or other IOUs issued by a trusted third party who can adjust the offer until it matches the demand at par, the discrepancies between the offer of DC tokens and their demand can only be adjusted via price in the short run, so they will trade like altcoins.
It is important to understand that it is only rational for bitcoin miners to secure a Drivechain if the net present value of the cash flows they expect it to provide is greater than the locked funds. This is a necessary condition for the tokens to have a positive value without relying on an uncountable trusted third party.
Any drop in the expected fee revenue will increase the peg-out risk, which will boost the volatility of the Drivechain token relative to bitcoin and in turn reduce further its supposed utility relative to an altcoin or a spacechain implementing the same functionality. And less utility implies even less fees… Can you see how easy it would be for a death spiral to be triggered, leaving Drivechain users with worthless bitcoin claims? With this weakness being public knowledge, Drivechain tokens would be like dollar-pegged Argentinian pesos. They would have the whole market betting for a depeg from the first minute.