Fedimint vs Sidechains

Originally published on the Bitcoin Fundamentals Report #201. Subscribe.

Fedimint came across my radar this week, mainly because CK mentioned it on Fed Watch. I have not done any research on it yet, that will come in the next couple of weeks. I did however read through their website, which gives you a quick intro to the idea.

Fedimint is not an altcoin, it is software very similar to a sidechain, but without blocks. So, let's do a quick and dirty intro to sidechains first...

Sidechains, conceived by Adam Back, are a way to expand the functionality of Bitcoin. The money used in the sidechain is bitcoin, or more precisely, it is a token pegged cryptographically 1:1 with bitcoin. Sidechains still have a block chain but can have new rules. For example, the most popular sidechain today is Liquid, that enables confidential transactions, complex smart contract execution, minting of NFTs and other tokens, all using bitcoin as its money.

I still have a lot of hope for sidechains in the future, even though they have failed to take off in popularity yet. They are isolated environments for different properties and rules, but importantly use bitcoin. They would be perfect for countries who would like to use the monetary unit of bitcoin, but under their own unique rules.

One of the defining characteristics of sidechains is that they are still block chains. For example, Liquid has one minute block times versus Bitcoin's 10 minutes. A difference, however, is that Liquid doesn't use miners, they have a federation of centralized players to sign off on all blocks. That's okay, because decentralization is really only useful in this sense to create a neutral and scarce digital asset. Since that is accomplished by Bitcoin itself, sidechains being federated is a way to alleviate many trade offs in design and function.

Okay, back to Fedimint

Fedimint is a form of a Chaumian mint (crypto-token printing with a peg). These types of mints have been around a long time, but never caught on due to their centralization making them sitting ducks for regulators or other attacks. What Fedimint has done is to make a federated Chaumian mint, meaning many people or entities share signing authority. This federated design addresses its weaknesses, while retaining the benefits.

Sounds a lot like federated sidechains doesn't it. Sidechains use the same tactic for the same reason. However, where a sidechain has its own block chain, and having block chain naturally constrains design choices, Fedimint doesn't. Fedimint is a federated server protocol with pegged bitcoin tokens. So, it's not an altcoin or a sidechain. It is a simple and modular layer 2 protocol that you can use bitcoin with.

While federated sidechains have the possibility to scale to the size of an entire country's payment rails, Fedimint seems to have a different audience. It is targeting smaller networks between trusted agents, like a family, community, school or something of that size.

Sounds interesting, I'll be looking into it more in the future.