<p>Sidechains cannot create the same asset that is pegged to Bitcoins to use as a reward for mining. Obviously, it would be problematic if anyone could put in a certain amount of Bitcoins into a sidechain, and get out more/less than what was originally put in. </p>

<p>However, there are many other ways to reward miners. Transaction fees is one example that is also used in Bitcoin. The sidechains paper lists some alternative reward mechanisms in section 6.1 such as demurrage (percentage of held coins are redistributed automatically to miners) and creation of a seperate unpegged asset on the side chain to reward miners. </p>

CC BY-SA 3.0
2014-11-08T02:34:31.163Z
So, in the case where the incentive to mine on the side chain is a separate asset, does this mean the bitcoins moved over and the new asset cannot be used in the same transaction?
morsecoder
CC BY-SA 3.0
2014-11-10T15:41:30.033Z
not sure what you mean exactly here, but different assets on a single blockchain can be exchanged for each other without any problem.
k kurokawa
CC BY-SA 3.0
2014-11-10T16:15:53.763Z
Call the main bitcoin chain is chain 1, and some new side chain chain 2. If we move BTCs (chain1-assets) over to chain 2, then we hope that we can move them back to chain 1. But now chain 2 is making it's own BTCs (chain2-assets). Can these chain2-assets be moved back to chain 1? If they can, then isn't that messing up the 21 million coin distribution? If not, is it safe to do transactions on chain2 that mix chain1 and chain2 assets? Because after such a transaction, the resulting UTXOs are not fully chain1 or chain2 assets... ?
morsecoder
CC BY-SA 3.0
2014-11-10T17:16:27.140Z
the chain2-assets cannot be moved back to the main chain for the reason you state. chain1 and chain2 assets cannot be "mixed" on the side chain because they exist as different coins on the sidechain blockchain. You can exchange a chain1 asset with a chain 2 asset on the side chain with someone, but you can't just magically convert a chain1 asset into a chain2 asset and vice versa.
k kurokawa
CC BY-SA 3.0
2014-11-10T17:18:01.120Z
So there would essentially be 2 different coins on chain2, and you couldn't do transactions that spent both chain1-assets and chain2-assets?
morsecoder
CC BY-SA 3.0
2014-11-10T17:21:17.703Z
yes there are 2 different coins on chain2 - see colored coins or counterparty for example on how they implement multiple coins on a single blockchain.
k kurokawa
CC BY-SA 3.0
2016-08-31T18:59:08.743Z
Yeah, that's lame. This approach gives the sidechain its own altcoin in order to incentivize mining. But avoiding creating an altcoin was the whole point of creating a pegged sidechain.
Michael Matthew Toomim
CC BY-SA 3.0
2014-11-08T02:02:54.260Z
2014-11-08T02:02:54.260Z
k kurokawa
<p><strong>How would mining, theoretically, work in Pegged Side chains?</strong></p>

<p>If mining can be done on these side chains, then it seems like too many coins could be created. And once they were used in transactions, how could they be accounted for to know which coins can and which coins can't be moved back to the main chain?</p>

<p>If mining cannot be done on side chains, then it seems like the side chain system could be very insecure, unless there is another way to secure the system.</p>

CC BY-SA 3.0
2014-11-07T06:03:53.917Z
I assume you're talking about [this sidechain proposal](http://www.blockstream.com/sidechains.pdf).
Nick ODell
<mining-reward><sidechains>
Mining on Pegged Side Chains
morsecoder
# Mining on Pegged Side Chains

(Asked by: username_0 on 2014-11-07)

**How would mining, theoretically, work in Pegged Side chains?**

If mining can be done on these side chains, then it seems like too many coins could be created. And once they were used in transactions, how could they be accounted for to know which coins can and which coins can't be moved back to the main chain?

If mining cannot be done on side chains, then it seems like the side chain system could be very insecure, unless there is another way to secure the system.

**Tags:** mining-reward, sidechains

> **Comments:**
> **username_1**: I assume you're talking about [this sidechain proposal](http://www.blockstream.com/sidechains.pdf).  

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## 1 answers

### Answer by username_2 on 2014-11-08. Score: 3 | Accepted answer

Sidechains cannot create the same asset that is pegged to Bitcoins to use as a reward for mining. Obviously, it would be problematic if anyone could put in a certain amount of Bitcoins into a sidechain, and get out more/less than what was originally put in.

However, there are many other ways to reward miners. Transaction fees is one example that is also used in Bitcoin. The sidechains paper lists some alternative reward mechanisms in section 6.1 such as demurrage (percentage of held coins are redistributed automatically to miners) and creation of a seperate unpegged asset on the side chain to reward miners.

> **Comments:**
> **username_0**: So, in the case where the incentive to mine on the side chain is a separate asset, does this mean the bitcoins moved over and the new asset cannot be used in the same transaction?  
> **username_2**: not sure what you mean exactly here, but different assets on a single blockchain can be exchanged for each other without any problem.  
> **username_0**: Call the main bitcoin chain is chain 1, and some new side chain chain 2. If we move BTCs (chain1-assets) over to chain 2, then we hope that we can move them back to chain 1. But now chain 2 is making it's own BTCs (chain2-assets). Can these chain2-assets be moved back to chain 1? If they can, then isn't that messing up the 21 million coin distribution? If not, is it safe to do transactions on chain2 that mix chain1 and chain2 assets? Because after such a transaction, the resulting UTXOs are not fully chain1 or chain2 assets... ?  
> **username_2**: the chain2-assets cannot be moved back to the main chain for the reason you state. chain1 and chain2 assets cannot be "mixed" on the side chain because they exist as different coins on the sidechain blockchain. You can exchange a chain1 asset with a chain 2 asset on the side chain with someone, but you can't just magically convert a chain1 asset into a chain2 asset and vice versa.  
> **username_0**: So there would essentially be 2 different coins on chain2, and you couldn't do transactions that spent both chain1-assets and chain2-assets?  
> **username_2**: yes there are 2 different coins on chain2 - see colored coins or counterparty for example on how they implement multiple coins on a single blockchain.  
> **username_3**: Yeah, that's lame. This approach gives the sidechain its own altcoin in order to incentivize mining. But avoiding creating an altcoin was the whole point of creating a pegged sidechain.  

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