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This paper is a HUGE DEAL in the bitcoin community. Sidechains in theory could address lots of the scalability issues of Bitcoin and could accelerate the roll out of new features.

However, there are many strong opinions on both sides as to whether sidechains are desirable and/or technically possible.

I'm one of the co-authors. AMA.

EDIT: There will also be a reddit AMA on Thursday at 12pm eastern time.

Why so soon? It doesn't give people much time to read, think, ponder.
We're always open to questions! But some people have some immediate concerns and we'd like to address those right out of the gate.
Some interesting criticisms here: http://www.reddit.com/r/Bitcoin/comments/2k070h/enabling_blo...
I find the proposal that Bitcoin may want to setup central authorities (that can be federated) to support 2-way sidechains more. A lot of the Bitcoin luminaries now seem to be coming around to the idea that regulation is OK and that trusting authorities (instead of just math) isn't the end of the world.

But that raises again the question of why one would use a value-transfer system designed to be wasteful of electrical power (with the amount of waste going up as Bitcoin price goes up) instead of a distributed network that handle secure value storage/transfer as efficiently as possible. E.g. patio11 has described such a system (Stellar, https://www.stellar.org/) and while I don't know enough about Stellar to speak intelligently about it, even without Stellar there's good ol' fiat-based networked systems. Visa alone can handle 47,000+ tranx/sec vs. Bitcoin's 7.

It seems to me that Bitcoin's unique strengths have been reduced to international remittance use case, and even that appears subsumed by Stellar (and if Stellar doesn't pan out, by existing money remittance services who can easily drop their cost below the equivalent cost to transact in Bitcoin, unless Bitcoin suffers an extreme price drop).

The only other area I see is that Bitcoin will become simply a digital commodity (a virtual gold or silver), but if this happens the price speculation would destroy the usefulness of Bitcoin as a unit of account and as a means of efficiently exchanging value.

> A lot of the Bitcoin luminaries now seem to be coming around to the idea that regulation is OK and that trusting authorities (instead of just math) isn't the end of the world.

That definitely deserves a citation needed. Accepting regulation? Yes, sure. "Trusting authorities (instead of just math)"? Absolutely not. If you are ok with that, then why use bitcoin at all? A simple ledger on a central server works just fine and saves a lot of trouble.

The federated two-way peg is at best a temporary measure. The first most obvious improvement is to conjunctively add the SPV security trustless peg as well, such that using a peg requires signatures of the functionaries AND a valid proof. Then the worst they could do is freeze your coins, which we're still not happy with.

Another improvement not in the paper is to spread the functionaries out into multiple jurisdictions and selected from multiple distrustful groups. E.g. it would be nice if there were functionaries in Iran and China as well as the U.S. and Europe.

> E.g. patio11 has described such a system (Stellar)

Stellar's consensus algorithm (the same as Ripple's) is broken by design. It will not work as advertised, and provides little better security than the existing fiat system.

Can you say a bit more about what's wrong with Ripple's consensus algorithm? Or link to a critique?
My opinion is the Ripple consensus algorithm doesn't yet meet the security claims its stated to in their whitepaper. There's an ongoing discussion here: https://forum.ripple.com/viewtopic.php?f=2&t=7801#p56432
> Can you say a bit more about what's wrong with Ripple's consensus algorithm? Or link to a critique?

https://wiki.ripple.com/Consensus#More_Details

https://ripple.com/wiki/Unique_Node_List

Something like ".... ripple consensus is local, the cost to join is zero, membership is defined by who trusts you.." but I'm forgetting the exact link where this is fleshed out.

Excellent explanation of how Bitcoin works and its shortcomings. Bit of a Bitcoin newb, but how are decisions currently made in regards to implementing new features? Are Alt-Coins similarly hard to change (mostly thinking about Litecoin) ?
Ultimately it comes down to every node defining what they consider a bitcoin or Xcoin. Suppose we're the only two nodes on the network and we disagree about what a bitcoin is (we're running different validation code, either intentionally or not). You'll mine some ebel-coins and I'll mine some bdcs-coins. We won't agree that they are bitcoins and so we'll have a blockchain fork.

So yes, changing anything (hard-fork) is very difficult because it requires 100% consensus to be done well. Two-way pegging is technology that allows almost endless permissionless innovation on top of bitcoin WITHOUT requiring consensus. This is killer. I cannot wait to see what comes of this.

There is now a huge space to be filled for dev APIs and useful abstractions for creating, running, and updating side-chains.

> So yes, changing anything (hard-fork) is very difficult because it requires 100% consensus to be done well.

I'm fairly certain this isn't the case. It needs 51% to be done (nevermind done "well"), and then in theory more and more miners will cut their losses and start operating under the winning chain's rules.

Unless by "done well", you mean that transacting users and merchants aren't inconvenienced. Because a hard fork battle would be inconvenient for commerce if it wasn't a large majority. But miners don't necessarily need to care about that :)

There's a distinction here between soft-forks, which require majority mining hashpower and a definite super-majority to avoid possible transition risks, and hard-forks which absolutely require every node on the network to upgrade.