Recently there is a new development idea that Bitcoin developers have carefully focused on: Statechain. What is Statechain and how does the system work?
Many people have come up with studies, ideas and new ideas to ensure Bitcoin scalability. The method we’re going to review today is occupying the last few newsletters in the Bitcoin developers newsletter.
What is Statechain?
Statechain is a secondary layer solution, meaning it doesn’t load any load on Bitcoin’s main network, just like Lightning Network. However, it does not provide as much confidence as the Lightning Network.
The idea underlying Statechain is actually a 2-sided multi-signature protocol. The parties here are the Statechain institution and the user. If users want to make any transfers, they transfer their private keys to another user. In Statechain, this concept is called a transistory key instead of a private key. Anyone who owns Bitcoins can see these pass keys at Statechain, but Statechain promises to cooperate only with the last transferred account. In this respect, the institution model of Statechain is realized when 8-12 members sign the transaction. This system is similar to the Liquid Network network that currently includes BtcTurk from our country.
So what happens to the users of the traders if things don’t go well at Statechain?
Our answer is very short and clear: nothing. Statechain has one of two keys needed to access assets, that is, it cannot move assets alone in the Bitcoin blockchain. Only the last owner of the assets can access their assets in the Bitcoin blockchain with the key they hold.
Statechain performs UTXO (unspent transaction outputs) transfers in a nutshell and allows the transfer of temporary private keys off-chain.
So let’s remember what UTXO is. When X person sends 1 Bitcoin to Y person, Y person’s wallet generates 1 BTC worth of UTXO. Let’s look at the example that Y person sends this UTXO value to another user.
Y person needs to spend 0.5 BTC to buy a book. The Bitcoin protocol sends 1 BTC UTXO value (you can think of it as paper money) in Y person’s wallet to the bookstore. Meanwhile, the UTXO transfer request is transmitted to the nodes. On the node, UTXO (this part should be considered as a cashback transaction) is sent to the BTC bookstore, which is supposed to go, and the part that we call the money back is returned to Y person’s wallet as another UTXO in 0.5 BTC.
UTXO is mostly traded at large values such as paper money. So how will Statechain help us with small transactions? By joining forces with Lightning.
Statechain & Lightning Network
While Statechain provides out-of-chain movement of large assets and easy recovery scenarios by the owner, large assets within UTXO can be converted to micro transfers on the Lightning Network, enabling very flexible and fast transfers of both large and small values outside the chain.
You can watch this topic that Ruben Somsen told about in the “Breaking Bitcoin” event in 2019.
1)Bitcoin-dev Digest vol 58