I've been reading the sidechains white paper (slow Wed). It pretty interesting.
I read it as well and also found it interesting - in fact quite awesome in terms of technology.
Despite that, I just can't square the business case for it. Why would you want to technologically fix the value of an altcoin (in terms of bitcoin) rather than allow the market to set its value ?
I realise that the stated basis is to protect the holder from the "risk and volatility" of freely floating markets, but think this through and you'll find it doesn't. The reason it doesn't is because it doesn't protect the holder from fluctuations in supply and demand (which is what price is simply a representation of).
For example, lets say demand for liquidity in a particular economic sector supported by a sidechain rises. Since the sidechain is pegged to bitcoin, the only way to meet the demand is to pump more bitcoin into the sidechain which will put pressure on the price of the whole of bitcoin. (That's actually the whole idea of sidechains).
But now you've simply transmitted a genuine economic demand in one sector to all other sectors, where it manifests itself as "unwanted volatility" - exactly the thing you were trying to avoid in the first place. You've shoved up the price of all other sidechains even though there was no justification for it in their sectors. (The words "Germany", "Greece" and "Euro" spring to mind). In particular, if one sidechain becomes dominant (not an unlikely scenario) then you potentially render the rest of the coin supply almost unusable due to the amount of commercial buffeting from the dominant sector.
The architects of sidechains IMO have taken critical economic concepts that are essential to the effective functioning of money and just tossed them on the scrapheap as 'unwanted volatility' as if thats something that you can simply code out of the system.
Hey ! That's unwanted volatility - we'll just code that out of the system
The arrogance (or, to be more kind, "innocence") of this approach kind of leaves me a bit dumbfounded since it comes from highly respected developers. However, I can understand it because I work in the software industry and it's normal that if you let the programmer solve the business problem, they'll usually do it from a "programming point of view", thinking that that's "obviously" the business point of view as well when in fact, nothing could be farther from the truth.
Does it not occur to people designing this crazy logic to ask themselves why no other market works this way ? i.e. why doesn't the government just peg the price of hamburgers to save people from needless "risk and volatility". Why doesn't it peg the price of wheat or airline tickets ? (Answer: because someone will always turn up with a barbecue in their back garden, ignore the peg and deliver a correctly priced hamburger. 'Correctly' in this case meaning one that allows supply to stabilize against demand without causing volatility in unrelated markets).
By inventing the concept of sidechains in the first place, the need for diversity in cryptocurrencies has been acknowledged. We don't even need to debate that any more. The question is, what crazy justification can there be for creating such a Frankensteinian monetary monster (FMM) ? It totally ruins the fungibility of bitcoin for a start because a section of the supply has to be locked up and "transmuted" in order to populate a sidechain. From that point on, your bitcoin trades as an altcoin on a sidechain, so it's in no way, shape or form "fungible" from either other bitcoins nor coins from other bitcoin sidechains.
There are more issues with the monetary analysis concepts behind this approach - specifically in the confidential transactions stuff which borrows many concepts from the "obfuscation" technologies like cryptonote.
In one of G Maxwell's talks, he makes the remark that "privacy has always been an important property of a money like good". (I paraphrase because I haven't got the exact quote to hand).
This is just plain wrong IMO. Privacy has never been a part of any "money-like-good". He is confusing "money" with the process of "accounting for money". Imagine if you somehow tried to bake privacy into precious metals - what would you do ? Disguise the colour so that it could only be identified by atomic mass or something ? Fiat "money" is backed by debt. Debt is backed by future economic contribution, so future economic contribution is the "base money" in question here. How would you "bake" privacy into that ? It's simply not a compatible concept.
Bank accounts are private, but they are just "accounts" - numbers in a bookkeeping system that represent a call on a portion of the debt base generated by the commercial banking sector. The bookeeping for gold is also private. So privacy comes from OUTSIDE of the "money-like-good", not from it itself and any attempt to bake privacy into it will simply diminish that good's value. (In this respect, if a confidential sidechain operated as merely a bookeeping system, it might have a more relevant role. However, cryptocurrency is the re-invention of BASE MONEY. You can't blur the distinction between the monetary medium itself and the accounting processes that support it without adversley impacting its value).
Fungibility, on the other hand, IS an essential part of money. This is where Dash scores way higher than all this obfuscation nonsense that's going on in sidechains and cryptonote. Just to remind people, the cryptonote (approach) was designed in the 1990's to support fiat bank accounts - i.e. it was designed for bookkeeping systems which tracked some other money. The system was not the money and it was only any use because at that time there was a bank in the loop. Now, with obfuscation, you've just got the transport mechanism without the bank.
Dash is the only technology in this space (apart from 3rd party bitcoin mixers) that address fungibility directly without confusing it with concepts more appropriate to confidential bookkeeping. It does not attempt to "hide" the money because it is not a bookkeeping system and it's not its job. Instead it massively improves on bitcoin's fungibility directly, with no loss of visibility.
This is the correct approach from a monetary point of view, IMO, because it implements a true "cash paradigm" on which true financial privacy strategies can in turn be based.
