IOHK | Cardano whiteboard; Sidechains, Dionysis Zindros.

The idea behind sidechains is that they will allow multiple blockchains to work with one another, as opposed to traditional cryptocurrencies where each blockchain is independent. As such, sidechains are a key component of third generation blockchains in that they enable interoperability. An asset on one blockchain would be able to be moved to another and back without going through a counterparty. Sidechains are being developed for use in Cardano, a third generation blockchain being designed and built by IOHK. Blockchain protocols such as bitcoin provide decentralized consensus mechanisms based on proof-of-work (PoW). In this work we introduce and instantiate a new primitive for blockchain protocols called Noninteractive-Proofs-of-Proof-of-Work (NIPoPoWs) which can be adapted into existing proof-of-work-based cryptocurrencies. Unlike a traditional blockchain client which must verify the entire linearly-growing chain of PoWs, clients based on NIPoPoWs require resources only logarithmic in the length of the blockchain. NIPoPoWs solve two important open questions for PoW based consensus protocols. Specifically the problem of constructing efficient transaction verification clients, sometimes called “simple payment verification” or SPV, and the problem of constructing efficient sidechain proofs. We provide a formal model for NIPoPoWs. We prove our construction is secure in the backbone model and show that the communication is succinct in size. We provide simulations and experimental data to measure concrete communication efficiency and security. Finally, we provide two ways that our NIPoPoWs can be adopted by existing blockchain protocols, first via a soft fork, and second via a new update mechanism that we term a “velvet fork” and enables to harness some of the performance benefits of NIPoPoWs even with a minority upgrade.