A major proposal to increase the functionality of the Bitcoin network is making the rounds on Twitter, and it is stirring heated debates among developers.
With Bitcoin's programmability and scalability relatively limited compared to other blockchains, one way to improve the protocol's capabilities is through “Drivechains.” This promising yet complex addition to the Bitcoin ecosystem allows the creation of sidechains linked to the main Bitcoin network but remain separate and operate independently with their own rules and functionalities.
Defined by BIP 300 and BIP 301, this soft fork upgrade is proposed by Paul Sztorc and aims to create a native sidechain mechanism for Bitcoin. The sidechain will allow Bitcoin to be “trustlessly” bridged to separate chains.
Today, we'll look at this scalability mechanism, what it has to offer to the Bitcoin network, and why it is causing so much controversy in the industry. So, let's get started!
What is Drivechain?
First introduced in 2015, Drivechain presents a way of scaling Bitcoin using sidechains. Sidechains run side to side with each other, usually have their own unique coins, and typically derive their security from the blockchain they run parallel to. For instance, Stacks is a layer 2 blockchain that borrows its security from the Bitcoin blockchain but has its own unique token called STX.
Drivechains, meanwhile, are special sidechains, referred to as child chain, that does not have a native asset but borrows it from the parent chain. This way, Drivechains would allow Bitcoin users to lock up BTC in these drivechains using a decentralized two-way peg, which utilizes a cryptographic proof to mint altcoins with their own unique characteristics.
These chains operate as independent blockchains and are later merge mined by Bitcoin miners, much like how the RSK sidechain is merge mined.
When it comes to Drivechain's implementation, they require a soft fork to be activated but with only minimal changes to the base layer. In case something doesn't go right, the changes can also be forked out. By going this route, Sztorc aims to stop Bitcoin's fragmentation caused by hard forks that arise from consensus disagreements, as happened in 2017 during the SegWit upgrade, which gave rise to Bitcoin Cash.
Hence, drivechains allow Bitcoin to take the desired or most successful features and use cases from existing altcoin chains without modifying Bitcoin's core design.
This way, Drivechains would provide miners with additional fees and increase the network's hash rate and security. It would further allow for new features and use cases like stablecoins, security tokens, Decentralised Finance (DeFi), and Non-Fungible Tokens (NFTs), built on and backed by Bitcoin, which have seen massive adoption on Ethereum and other altcoin chains. By allowing for experimentation on Bitcoin without harming the base L1 blockchain, Drivechains has the potential to make Bitcoin interesting.
How Does Drivechain Work?
Now, the way Drivechains work is they utilize sidechains and a two-way peg for the movement of Bitcoin.
For the two-way peg, Drivechains use Simplified Payment Verification (SPV) proofs that allow users to send BTC to and from a sidechain. This method is used to check if a transaction is on the Bitcoin blockchain but without storing the blockchain itself, like a node. It is a form of light client that only stores the block headers instead of full blocks.
To move Bitcoin, first, the crypto asset is locked in a special address on-chain. Once locked, the sidechain checks for this transaction, and once detected, an appropriate amount of native sidechain tokens are created.
This altcoin token could have any characteristics, features, or tradeoffs which isn't possible on Bitcoin's layer one. On top of this, they can enjoy faster blocks and lower fees.
Now, to convert the sidechain tokens back into on-chain BTC or to transfer BTC back to the Bitcoin blockchain, once again, an SPV proof of possession on the sidechain is required.
The sidechain first validates the withdrawal transaction on the sidechain itself and ensures that it is indeed a valid transaction on the base layer, which pays out the coins stored in the special address.
This validation happens on the sidechain as well as the withdrawal transaction. Once done, the funds are frozen on the sidechain, and the transaction is submitted to the miners of the Bitcoin blockchain to verify that it is a valid spend. The withdrawal crypto asset would then be sent to a special address, which all miners agree upon through voting.
The Proposals: BIP 300 and 301
Layer 2 Labs CEO and founder Sztorc is a well-known Bitcoin researcher and developer who has been working on drivechains since 2015.
His company, Layer 2 Labs, raised a $3 million seed round in Dec. 2022 from angel investors to bring drivechains and other innovative technologies to Bitcoin. “We believe that drivechains have the potential to kill altcoins, increase bitcoin adoption, and provide the catalyst for hyperbitcoinization,” the company said in a statement at the time.
Sztorc outlined the concept of drivechains in BIPs 300 and 301, which were first proposed six years ago in 2017. BIPs or Bitcoin Improvement Proposals contain technical specifications on introducing changes to the Bitcoin protocol's code and are discussed within the Bitcoin community.
Now, let's take a look at these proposals:
Bitcoin Core developer Luke Dashjr recently submitted a rough draft for implementing drivechains. The draft proposal consists of 17 commits and focuses on reimplementing drivechains using a UTXO-like model.
According to a post in the Bitcoin Core repository on GitHub, the main goal of the change is to create a new version of drivechains with a design that's modeled after the way Bitcoin tracks transactions and ownership. Instead of creating a separate database for sidechains, this method would utilize existing database structures for a cleaner and more reviewable approach, Dashjr said.
As of now, the proposal cannot be deployed in its current form and has room for further development, significant additional changes, and possibly a shift in approach based on community feedback.
This proposal would unlock “blind merged mining” for sidechains. In regular merged mining, a miner mines for two or more blockchains at the same time, leveraging the same hashing algorithm to collect fees on both chains.
While most miners are involved in some form of merged mining, they must explicitly choose to run the sidechain's software. Blind merged mining eliminates this need by letting a third party run the sidechain, receive its fees, and later pass on those funds to miners as BTC transaction fees.
The conversation surrounding drivechains picked up on social media recently as a new wave of Bitcoiners showed renewed interest in revisiting Sztorc's ideas. Drivechains offer several benefits, but of course, it is not without some tradeoffs that need to be considered.
Already, there has been controversy surrounding Ordinals, which brought NFTs to Bitcoin by leveraging some of the new capabilities provided by the recent Taproot soft fork's Taproot spend scripts. However, unlike the widely popular Ordinals, drivechains do not require a new asset; rather, they can be used for strictly BTC purposes, like more private and scalable transactions.
According to Sztorc, Drivechains aims to address two key issues with Bitcoin, the largest cryptocurrency by market cap. First, it seeks to combat the stagnant innovation that has plagued Bitcoin since its inception. Second, it aims to prevent the dispersion of efforts caused by the challenges of implementing changes in the Bitcoin blockchain.
This inability to change for innovation is seen as a “heterogeneity” problem, which implies that core developers refuse to change Bitcoin due to various factors. So, by implementing Drivechain, the idea is to allow anyone to build permissionless on top of Bitcoin, bringing innovation and new features that can fail without compromising the base layer.
Scaling is another issue that could be addressed with Drivechain, allowing for creating sidechains with bigger block sizes and onboarding users directly to them.
Besides bringing more users, these sidechains would add value to the Bitcoin ecosystem in the form of tokens built on top of Bitcoin that will bring in more fees for the miners. Drivechains will further allow the application of concepts like zk-SNARKs, higher blocksize, Turing-complete scripts, MimbleWimble, Monero ring signature, or more on different sidechains, creating a free market for the implementation of all kinds of ideas into Bitcoin.
Drivechain proponents argue that sidechains and the apps and tokens built on them are necessary drivers of transaction fees for Bitcoin miners, as without them, the Bitcoin miners might one day find themselves in an unprofitable situation.
The thing is, most Bitcoin miners' revenue comes from block rewards, which is the amount of new BTC issued by the protocol as a form of subsidy. This block subsidy is declining at a steady rate, and around 2140, no more BTC will be released as a subsidy by the protocol. Hence, miners will completely depend on transaction fees as their revenue sources by then.
As such, with this declining block subsidy, transaction fees will increasingly have to compensate for the revenue that miners currently receive in the form of block rewards. This is where drivechains can help create traffic on top of Bitcoin and, subsequently, transaction fees that will ultimately be paid to Bitcoin miners.
However, drivechains involve a security tradeoff in the form of blind merged mining to secure the drivechain and the pegging mechanism. Under this, miners don't need to run a drivechain node but can still collect all the transaction fees from them by simply contracting with someone else running a drivechain full node.
According to Bitcoin Core developer Dashjr, drivechains would make a hypothetical 51% attack against Bitcoin far more dire because, besides conspiring to reverse the blockchain, miners would also have the power to steal users' coins.
“With the current state of mining centralization, IMO, it would be pretty dumb to send any bitcoins to a drivechain,” wrote Dashjr recently. “There are better ways to burn bitcoins or donate to miners.”
However, the developer said he remains “neutral” on Drivechains, and if there's enough community support, they should be available to those who want to use them.
BitMEX, meanwhile, called the technicalities of the peg-out mechanism “controversial” and that this draft “proposal embraces the reality that under any known peg-out system… Bitcoin miners could either censor data, fake data, or cooperate with the administrator and steal the sidechain Bitcoin.” But at the same time, it noted that “increased usage of sidechains could potentially be positive for Bitcoin's utility.”
Besides the concerns about miners stealing user funds, drivechain opponents also argue that merge mining will make nodes more expensive and mining less profitable. In contrast, miners will earn additional fees, and blind merge mining is opt-in only.
Drivechain critics further argue that it is an attack on Bitcoin and just a way to bring “shitcoins” to Bitcoin that won't deliver much utility to the largest cryptocurrency. But advocates argue that these critics are just wary of change.
As we saw, there is a lot of conflict surrounding Drivechains, which are secondary blockchains that interact with a primary blockchain and aim to offer a better user experience. However, it is not a new development and has been discussed for many years.
On the positive side, Drivechains will help the Bitcoin network to scale effectively, allow for permissionless experimentation, and boost adaptability. With this upgrade, Bitcoin users will gain optional access to features like privacy measures, smart contracts, and additional tokens, thereby paving the way for new and innovative use cases and products within the Bitcoin ecosystem.
However, it is not without its issues, as this would require a soft fork to implement and may include vulnerabilities and added complexity. But with just one upgrade, drivechains could allow future development to take place on top of Bitcoin with no further changes needed to the base layer.
Earlier this year, when Ordinals first started gaining traction, a similar debate broke out in the Bitcoin community, but so far, they have been making up the majority of Bitcoin transactions.
Now, the Drivechain proposal, according to Sztorc, is “inevitable” and will eventually be activated, as it pays fees to miners and allows for direct onboarding of funds to sidechains on top of Bitcoin. But for now, the community is debating the proposal with vigor, and it remains to be seen if and when it will be finally activated.