Bitcoin Sidechain (Echo)

General Overview

Bitcoin Sidechain (BS) is an Echo extension functioning as a gateway between Echo blockchains and Bitcoin blockchains, which allows to use Bitcoin within the Echo blockchain and withdraw it out of the Echo network back into the Bitcoin network.

The functionality is implemented by freezing the assets on the corresponding address of the Bitcoin side and activating the corresponding amount of funds on the Echo side (to deposit assets in Echo). The reverse process can be carried out for withdrawing funds back to the Bitcoin network.

The participants of the Echo network serve as intermediaries that implement the connection between the two blockchains.

User Steps

For any action on deposit or withdrawal of funds, the user must create an account first and request a Deposit Address:

  1. register a new account in an Echo wallet;
  2. set an operation: a request to create a new Deposit Address.

Bitcoin Deposit

  1. transfer the BTC in the Bitcoin network to the previously generated Deposit Address;
  2. wait for the confirmation of the transfer to the Echo network to be able afterwards to use the corresponding balance in eBTC in the Echo network.

Bitcoin Withdrawal

  1. send eBTC in the Echo network to the Bitcoin address;
  2. wait for confirmation of the transfer to be able to use the corresponding balance at the specified above address in the Bitcoin network.

Sidechain Operation Protocol

Main Sections of the Protocol

  1. Creation of a Bitcoin Deposit Address.
  2. Processing of the deposit in Bitcoin.
  3. Processing of the withdrawal in Bitcoin.

Creation of a Bitcoin Deposit Address

  1. Request of an operation to create an address.
  2. Address generation

The address represents a segwit multisig (a custom script). The script of the given address allows to return the funds to the sender in case of gateway malfunction.

The user generates a transaction containing the operation 'Create Bitcoin Address' and sends the transaction to the Echo network. During the transaction processing the user gets a new bitcoin address linked to the user account.

Processing of the deposit in Bitcoin

  1. monitoring of transactions to the Deposit Addresses

All the participants listen to the Bitcoin blockchain. Each of them checks each block to find possible transactions to Deposit Addresses.

  1. Informing the network about the transaction

On receiving a Bitcoin block containing a transaction with an address generated in Echo, the participants set an operation with the information about the given BTC deposit to the Echo blockchain. The operation creates a new object which stores the information about the BTC deposit. A new object is created in case there is no such object yet. If such an object already exists the operation calls an increase in the value of the counter. When the object's counter has a value that exceeds the two-thirds of the number of active participants, it can be considered valid. When processing an Echo block, the protocol creates an object that stores the Bitcoin transaction for transferring BTC from the Deposit Address created by the user to the address of the funds repository. The action is possible if the protocol contains deposits/withdrawals which are valid.

  1. Transferring of funds to the Repository Address

When the transaction is formed, the participants are requested to sign the transaction, which is located in the object, with their own private keys. As soon as the transaction is signed by 2/3 + 1 active participants, it will be sent to the Bitcoin network (by all the participants).

  1. Transferring of funds to the user account

When the transaction sent on the Bitcoin side is confirmed, the user in the Echo network gets the eBTC.

Processing of the withdrawal in Bitcoin

The user creates a transaction containing a BTC deposit operation and sends it to the Echo network. On the processing of this transaction, The Echo protocol generates an object containing the information about the deposit. When processing an Echo block, the protocol creates an object that stores the Bitcoin transaction. Afterwards, the participants are requested to sign the Bitcoin transaction, which is located in the object, with their own private keys. As soon as the transaction is signed by more than 2/3 of the active participants, it will be sent to the Bitcoin network (by all the participants). When the transaction sent on the Bitcoin side is confirmed, the user on the Bitcoin side can use the received BTC.

Change of Funds Repository

Problem Description

When changing the active participants, the keys from the Sidechain of managing account should be replaced and a new address for the storage of funds, based on the keys of the new active participants should be created. It is necessary due to the fact that all the BTC deposited into Echo are stored in one vout of the Funds Repository and the keys of all the active participants are located in the script of the Funds Repository.

It is also necessary to make a transfer from one Funds Repository Address to the new one. For doing this, the number of changeable active participants for one maintenance must be limited. This was done with the purpose to always preserve a certain number of active participants who could sign a vin for the transfer to the new Funds Repository Address.

One more problem is that transferring BTC from one address to another is not that simple for the fact that it's not really clear who is to pay the fee for the transaction in the Bitcoin network.

The current change of funds' repository cannot be made until the transaction on the previous change is confirmed.

This is done for the following reasons:

Suppose the current change of funds' repository is confirmed without waiting for the transaction on the previous change to be confirmed. When both transactions get into the Bitcoin chain, the Bitcoin network becomes forked and the transactions appear on one of the branches which will subsequently be removed. The original number of the active participants operating before the shifts remained less than it is required to sign a new transfer to the repositories. 2. That is why it's necessary to block the change of active participants (or funds repository) until the transaction on the previous one is confirmed.

According to our scenario, the change of repository address will be performed in the following way:

A list of new active participants is determined. At the time of maintenance, a certain number of active participants will be changed. The remaining number should remain sufficient for signing a transaction to change the repository of funds. If at the time of maintenance, during the vote counting, there is a situation in which the number of old active participants is fewer than it is required to sign the transaction, then there remain as many active participants as necessary for signing. All the rest change for new ones. The remaining participants who were supposed to be changed but did not do it, change at the next maintenance, after the transfer to the new Funds Repository Address is confirmed.

  • Keys of the active participants that have been removed from the list of active participants at the maintenance are consequently removed from the Sidechain of the managing account.
  • Based on the keys of the new active participants, a new Funds Repository Address is created.
  • Next, the network expects a BTC deposit/withdrawal.
  • As soon as a new deposit or withdrawal is made, the active participants whose keys are stored in the old Funds Repository Address sign the transaction.
  • The transaction gets the vout to the already new Funds Repository Address.
  • The transaction is sent to the network.