Sidecoin: a snapshot mechanism for bootstrapping a blockchain

A snapshot records all public addresses in the Bitcoin network with a substantial balance (over about 20 cents in USD) and sorts them from highest to lowest balance. This eliminates millions of addresses from places like Satoshi Dice that have small amounts of bitcoin in them, called ‘dust’. We then save these addresses, along with their balances, and an alternative representation of the address known as a hash160. Snapshots allow us to do a few things. They can be used to examine addresses and balances to find high value holders, or to see the distribution of wealth among Bitcoiners: the economic state of the Bitcoin network. However, a much more fun use is to create altcoins – or, as coins created using this method are called, spinoff coins. To create a spinoff coin, we first take a snapshot of Bitcoin’s blockchain, then create an altcoin with an initial distribution based on Bitcoin’s. Sidecoin is the reference implementation for bootstrapping a new blockchain using Bitcoin’s present state. This technology allows bitcoin owners to trustlessly claim a proportional amount of a new cryptocurrency. Imagine a coin development team like Gridcoin’s. Gridcoin uses a proof-of-work that, in principle, benefits society through computation, by directing it to to fold proteins for cancer research. Their team would probably be pleased if a tiny bit of the enormous mining power used to mine bitcoins could be redirected to their useful proof-of-work system. It provides a principled, transparent distribution method with which ‘pre-mined’ cryptocurrencies can disseminate their tokens. One example is Ripple, which does not use mining at all. Taking a snapshot, and allowing Bitcoiners to claim coins on the Gridcoin or Ripple networks, removes the profit gained by releasing new cryptocurrencies which do not contribute new technology. Coin developers can still profit by allowing mining after the initial claiming, but only by providing a true improvement to Bitcoin or other altcoins. A snapshot-based distribution bootstraps an altcoin with a much larger user base than they otherwise would have had: any bitcoin owner is automatically ‘bought-in’ to the altcoin, provided they decide to claim their coins. Bitcoin holders who think an altcoin does not provide sufficient technological advancements over Bitcoin can simply claim their new coins, then sell them. Altcoin creators who believe that their coins hold value due to useful features are incentivized to buy more after the initial sharp selloff, because they will profit once the market realizes the value of their innovations.