Theoretically, a side-chain can be created to do the same things as Counterparty, Mastercoin, or any true altcoin. However, I wonder at the financial incentive to create an altcoin or XCP as a side-chain. Since the side-chain "currency" (not a true coin) will have to be created by burning/suspending/reserving BTC, and the second peg will unburn/unsuspend/redeem at most the same total amount of BTC, isn't the total value of the side-chain "currency" forever limited by the amount of BTC that was reserved for creation?
Let's say someone develops a really cool side-chain currency that does wonderful things, and everyone is using it and wants it. How is the value of any unit of that currency going to increase if it can only ever be redeemed for the same amount of BTC that was reserved to create it? I don't see how it's possible for the side-chain currency to have its own ecosystem and be, in a sense, detached from the original BTC reserve amount. (But I didn't major in math or economics, so maybe I'm missing something.)
The side-chain currency
is bitcoins. It's not meant to be detached from the original BTC reserve amount at all! Asking "how is the value of any unit of that currency going to increase?" is kinda silly. It's value goes up or down exactly as bitcoin does, as the two are instances of the same thing: a single, unified cross-chain currency. Indeed one of the primary points is to
prevent this scammy every-alt-has-its-own-floating-currency nonsense.
any comments on how side chains make counter party redundant?
Side chains are nothing new, and they have many limitations which make them unsuitable for our use in the short term. What's new here is the proposal for two-way pegs to BTC, which is a very interesting idea, but one that has no direct relevance to Counterparty, or the limitations of Bitcoin that Counterparty resolves.
We'll have to differ on this opinion. As I've stated multiple times in this thread, and to various counterparty and mastercoin people in person, there are significant advantages to doing asset issuance and distributed markets on a validated, merged-mined side chain. This is solving the same problem in a way that is better for the ecosystem. Although we're getting some press now, two-way pegging as a implementable idea has existed since at least December of last year, and distributed p2p markets over side chains was fleshed out in the Freimarkets paper six months prior to that. These ideas pre-date Counterparty and yes, they are frankly better than the unvalidated parasitic model. I will stop evangelizing, but I will be happy to answer specific questions.