William Essex
William Essex

Block-chain, side-chain, FX-chain

An email conversation with the team at start-up Blockstream (“We transform global systems of value exchange that, by design, make it possible to trust anyone;” see www.blockstream.com) brought this fascinating account of how “side-chains” can be applied to physical asset transfers and the foreign exchange market.

First Published: e-Forex Magazine 60 / CryptoCurrencies / April, 2015

A side-chain is a block-chain that is interoperable with another block-chain. For our purposes, we discuss them in terms of being interoperable with Bitcoin, which is the most secure and widely adopted block-chain by several orders of magnitude. Side-chains are a powerful idea when it comes to asset ownership and transfer. There are a number of possible examples, but let’s consider deeds of home ownership. A house is an expensive thing to transfer as the ownership transfer of a deed between counterparties tends to be costly to adjudicate. In a side-chain environment, we would take the deed to a house, take the particulars of the deed and attach them to an electronic asset that represents ownership of the house. This sets an irrevocable, permanent record of the deed on the side-chain. In this case, the deed will now exist attached to that issued asset for all time. Due to the unique qualities of Bitcoin, it’s not able directly to represent other asset types today. We, therefore, create a parallel...continued

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