Cosmostation has been actively researching various decentralized bitcoin sidechain models and is working on building an innovative, decentralized, secure Peg Zone within Cosmos Network. We presented a Peg-Zone prototype and shared our insights at the Cosmos Meetup in Seoul.
In the PDF file below, you can check the result of every txid and address on the Bitcoin Testnet Explorer.
Note that this prototype only demonstrates basic operations of the Reserve Wallet and the Relayer which are key components in depositing and withdrawing funds from the sidechain.
Cross-blockchain crypto-asset transfer between Cosmos Hub and non-Tendermint chains that have different settlement finality require a bridge called Peg Zone.
The link below will give you an in-depth explanation of a Peg Zone.
Based on the design of Nomic, you can see the Reserve Wallet, which is the wallet that actual Bitcoin is stored and managed in. The ownership of the Reserve Wallet is split into a number of validators who secure the network by using multisignature technology. As you can see in the image, each Reserve Wallet consists of various validators, such as A, B, C, and etc. Each validator has a specific amount of voting power(stake) in the network. Reserve Wallet A is created first and Reserve Wallet E is the most recent wallet.
The voting power changes as follows: A is -30, C is +20, and E is +10 from the previous validator set of the network. If there is any change of voting power within the network, there will be an event called checkpoint. When a checkpoint occurs, it will create a new Reserve Wallet, and transfers all BTC amount from the previous wallet to the new wallet managed by a new set of validators reorganized by current voting power.
There will also be a checkpoint when there is a new validator in the validator set or any existing validator falls out of the validator set due to different reasons. In this case, Peg Zone creates a new Reserve Wallet D and move all BTC from Reserve Wallet C to Reserve Wallet D.
Let's say a user deposits BTC in Reserve Wallet A, 0.05 CBTC is minted as soon as the deposit is verified. The user can withdraw this 0.05 CBTC to the Bitcoin Network at any time through the Peg-Zone.
We are actively conducting research on how we can build an innovative, decentralized, secure, user-friendly Peg Zone connecting to the Cosmos Hub. In the meantime, we are also analyzing various sidechain mechanisms used in Nomic, tBTC, Liquid, etc.