Topic: Bitcoin on Litecoin (LTC as Bitcoin L2) using Counterparty or similar tech (Read 87 times)

You're right, I only thought about the initial stage so I assumed it has to be less so more people will come forward to be a part of the side chain to support the network to be decentralised on the other hand it has to be decent enough for abusers to not messing around. Is there anyway to make that amount to be dynamic according to the volume of transactions coming in so it will keep the things balanced.

In reality it's quite similar to tBTC (the Keep Network pegged currency) which can be used in the form of wBTC alongside the "centralized custodied" wBTC, only that tBTC has also a dependency on a premined token

I disagree, the security deposit unfortunately has to be quite high, because otherwise large peg-outs would be dangerous, and even a single case of misbehaving (even if the daminified party then gets all the slashed funds) would cast doubt over the sidechain's feasibility. I guess it has to be in a similar order of magnitude than the security deposits on typical PoS chains. Perhaps not ETH, but let's say Avalanche, Tron, Polygon etc.

LTC has also a finite block capacity, so at some moment an equilibrium would be reached - once the LTC fees get so high that they are already too similar to Bitcoin's, then people would return to the main chain - and alternatively, which is very likely, the L2 model could "spread" to other decentralized altcoins like Doge or NMC (similar to what occurred with Ordinals). Particularly Namecoin is interesting I think, because NMC has practically no use today but is somewhat respected in the Bitcoin world, perhaps more than Litecoin.

Yes, but most of them are quite centralized, often with a single custodian which is a single point of failure. One notable exception is tBTC (Keep Network) on Ethereum which I have already mentioned and has a similar "dynamic federation" model.

The DeFi aspect is of course important for the existing "Bitcoin on XAltcoin" tokens, that's the main wBTC selling point - people would not use wBTC to save transaction fees. The idea of "Bitcoin on Litecoin" instead is indeed to benefit from the additional capacity the LTC chain can provide. Basically you could imagine as a 50-80% block size increase or a scaling solution for Bitcoin. It would for sure also benefit the selected altcoin, like LTC, due to the added visibility.

The reason I'm considering an existing altcoin as base for this concept is that it would be quite difficult to build up a really decentralized Bitcoin L2/sidechain from the ground up. You would need first a distribution phase to ensure there's enough "value" present on the chain for incentives to reward and penalize the custodians. LTC is already a strong blockchain so it wouldn't have this problem. Doge is also interesting but it is more volatile than LTC (well, this year it's not so much the case, but historically it is, and excessive volatility could be a risk because it would affect the security deposits) and depends on LTC's security due to merged mining. On the other hand, Doge has more capacity because it's less used for transactions than LTC.

Did you even read anything at all? I mean look you did exactly what he thought about this board.

If you want something for investment then why would you even bother to go through all these, just by BTC, and sell when you think you made enough profits because it's just pegged to 1:1 to BTC and not going to give any extra money than BTC.

Besides this isn't even a thing yet, he just made a proposal and of BTC on alternative blockchain but in more decentralized manner.

I would like to invest the project operating on the fundamentals of BTC. We have seen in the past the BTC has some secret strategies through which they can make the project successful. We have seen the over the past decade BTc had made people billionaires. wBTC is also a good approach of BTc and it is better than the other networks.

The market cap is also good and people are showing interest In the project because of the confidence BTc had gained in the past years. We could be wrong also but let's see what happens in near future.

I just want you to show the market cap value of WBTC which is $10,629,671,933 means people are still using BTC in the form of tokens so this might be better compared to a centralized network like Ethereum where WBTC is operating.

Another thing these transactions will be recorded on-chain whether it's even on different networks which is a positive as well compared to LN.

Bitcoin-pegged tokens exist on altcoin chains so that it can be used for DeFi purposes. Litecoin, Dogecoin, and other fairly launched altcoins don’t have DeFi. The only benefit you would get would be cheaper fees,  but since it would be token on top of LTC or DOGE, the fees would still be higher than just using the native currency on those blockchains.

I don’t see there being much interest in a BTC token on Litecoin. People wanting to use BTC with lower fees already have options like Lightning or Liquid. Lightning, in its current state, might be too cumbersome and Liquid is too centralized, but in my opinion they are better than a band aid solution built on an altcoin blockchain.

I will definitely put my money on LTC over centralized networks like ETH, BNB and whatever networks are available and the concept is pretty simple and similar to the concept of WBTC but in a more decentralized way which is like custodians versus dynamic federation.

This could work if the Bitcoin maximalists got rid of the centralization and paid huge fees due to inscription spams aka brc20.

I would want the security deposit for the federation to be affordable so that more people can join which will make it as decentralized as possible unlike other BTC tokens and also I am curious what if they decided to use just LTC over BTC over the period of time when they get used to it?

In the discussion about sidechains and L2s (see this thread and this thread) I got the following idea:

There are already working "L2s" or "sidechains" for Bitcoin. They use often a codebase with a turing complete smart contract language/virtual machine, compatible with Ethereum/EVM/Solidity. However, what I don't like, and what also reduces the acceptance by Bitcoin maximalists, is the premined token all these L2s use.

What if we build a similar model on an existing, reasonably decentralized altcoin chain like Litecoin or Dogecoin? There are also other possible alternatives among the few decentralized altcoins (for example, Dash, Ravencoin, Namecoin, Peercoin, Slimcoin, Gapcoin ...). The problem with smaller coins however is that they could be attacked easier. Monero wouldn't work because it doesn't allow scripting and we need at least a language like Bitcoin Script.

Bitcoin and Litecoin users could then transact BTC on the Litecoin chain for a fee of 0.01 cent or so

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OK, let's see the general concept:

Step 1:

An auxiliary currency is started on the altcoin's (e.g. Litecoin's) chain, which allows transactions to contain turing-complete smart contracts. The currency is strictly distributed via 1:1 proof-of-burn minting, i.e. in the case of LTC you need to burn 1 LTC to get one of these auxiliary tokens. An example is the Counterparty EVM version which until now never left alpha state.

Step 2:

A smart contract is set up on LTC with this auxiliary currency, which manages a dynamic federation (like on BEVM, Nomic or Stacks).

Basically, the smart contract creates incentives for a 2-way peg.

The system works the following way:

- On the Bitcoin chain, federation members create multisig addresses where users can send their BTC to.
- On the Litecoin chain, the federation members have to deposit a certain amount of the auxiliary currency as a security deposit.
- If 1 BTC is sent by an user (let's call her Alice) to one of the multisig addresses, the federation members create a proof for this on the LTC chain. If Alice sends 1 BTC address, and the federation has proven that, Alice is thus allowed to create a sBTC (sidechain Bitcoin) on the Litecoin chain.
- If the federation members don't create the proof immediately after Alice's BTC transaction has been confirmed, their security deposit will be slashed regularly for 10% (e.g.) until they create it.
- Alice can now transact her sBTC on the LTC network. After some payments, her sBTC are owned by Bob and Charlie.
- Bob needs mainchain BTC. So he burns the sBTC.
- The federation members vote now if his sBTC are legitimate - their ancestry needs to go back to Alice's BTC deposit.
- If 66% of the federation members vote positively, Bob gets BTC on the main chain. He pays a fee to the federation for the peg-out, incentiving the federation members to behave well.
- If any user sees a federation member misbehaves, e.g. voting for a peg-out of an illegitimate sBTC, or stealing BTC sent to the multisig address, he can submit a proof on the chain (like on an Optimistic Rollup). If the proof is correct, after it is confirmed with enough confirmations the federation member gets slashed his entire security deposit.
- The federation members change each X blocks. If a member don't want to participate anymore, it can leave the federation at any time. The security deposit however will only get unlocked if more time has passed and no user has submitted a proof that this member has not misbehaved.

Thoughts?

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I purposefully started that thread in the altcoin forum as an experiment if technical discussion is still possible here (or again). Constructive participants with any signature are welcome and good contributions will get merited.