[Bitcoin-development] Merged mining a side chain with proof of burn on parent chain

Tamas Blummer tamas at bitsofproof.com
Wed Dec 10 07:35:01 UTC 2014

We spend scarce resources external to the digital realm to create Bitcoin. Real world sacrifice is needed to avoid “nothing at stake”  and sybil attacks. With Bitcoin we now have a scarce resource within the digital realm, so it appeals my intuition to re-use it for sacrifice instead of linking again an external, real world resource. 

In following I outline a new mining algorithm for side chains, that burn Bitcoins to secure them.

The side chain block validity rules would require that a transaction on the Bitcoin block chain provably destroys Bitcoins with an OP_RET output, that contains the hash of the block header of the side chain. To also introduce a lottery, the burn transaction’s hash is required to satisfy some function of the block hash it was included in on the Bitcoin block chain. For example modulo m of the burn transaction hash must match modulo m of the block hash, that is not known in advance.

Those who want to mine the side chain will assemble  side chain block candidates that comply the rules of the side chain, then a Bitcoin transaction burning to the hash of the block candidate and submit it to the Bitcoin network. Should he burn transaction be included into the Bitcoin block chain and the Bitcoin block’s hash satisfy the lottery criteria, then the block candidate can be submitted to extend the side chain.

A side chain block header sequence would be accepted as side chain trunk if a sequence of Bitcoin SPV proofs for burn transactions prove, that linked blocks have the highest cumulative burn, if compared to alternative sequences. 

The Bitcoin miner will include burn transactions because they offer Bitcoin fees. Bitcoin miner can not selectively block side chains since the hashes associated with the burn do not disclose which side chain or other project they are for. Here you have a “merged mining” that does not need Bitcoin miner support or even consent.

Mining difficulty of the side chain could be adjusted by stepping up the required burn and/or hardening the criteria that links a burn proof transaction with the bitcoin block hash it is included in.

The difficulty to mine with burn would be dynamic and would also imply a floating exchange rate between Bitcoin and the side coin.

Tamas Blummer
Bits of Proof

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