Element

How Elements Works

Building with Elements and Liquid Network

How Elements Works

Strong Federations
Block Signers
Elements as a Sidechain - Watchmen and the Federated 2-Way Peg

Elements provides a technical solution to problems blockchain users face daily: transaction latency, lack of privacy, and risk to fungibility.

Elements overcomes these problems through its use of Federated Block Signing and Confidential Transactions.

Unlike the Bitcoin network, the process of block signing within Elements is not reliant on Dynamic Membership Multiparty Signatures (DMMS) and Proof of Work (PoW). Instead, Elements uses a Strong Federation of signatories, called Block Signers, who can sign and create blocks in a reliable and timely manner. This removes the transaction latency of the PoW mining process, which is subject to large block time variance due to its random Poisson distribution. The Federated Block Signing process enables the creation of reliable blocks without relying on third-party trust.

Elements can run as a sidechain to another blockchain, such as Bitcoin, or as a standalone blockchain with no dependencies on other networks.

When used as a sidechain, the Strong Federation also contains members who enable the secure and controlled transfer of assets between a main chain and an Elements sidechain. The controlled transfer of assets is referred to as the Federated 2-Way Peg, and members who perform the role of asset transfer are known as Watchmen.

The processes involved in running an Elements network and the roles of the participants within the network are crucial to understanding how Elements works.

Whether implemented as a sidechain or a standalone blockchain, Elements utilizes Strong Federations of Block Signers to produce blocks.

Strong Federations

Elements utilizes a consensus model first proposed by Blockstream, known as Strong Federations. A Strong Federation does not need Proof of Work (PoW) and instead relies on the collective actions of a group of mutually-distrusting participants, called Functionaries.

The roles a Functionary can fulfill within a Strong Federation are: Block Signers and Watchmen. Block Signers are required if you run Elements in either sidechain or standalone blockchain mode, whereas Watchmen are only required in a sidechain setup.

The actions a member of a Strong Federation can perform are split between two distinct roles in order to enhance security and limit the damage an attacker can cause.

When combined, the roles of these participants enable Elements to deliver both rapid block creation (faster and final transaction confirmation) and assured, transferable assets (pegged assets that are directly linkable to another blockchain).

You can read the Strong Federations whitepaper here: https://blockstream.com/strong-federations.pdf

Block Signers

A blockchain, such as Bitcoin's, is extended when anyone forming part of a dynamic group of block signers extends the chain by demonstrating proof of work expended. The dynamic nature of the set introduces the latency issues inherent to such systems.

By using a fixed signer, a Federated model replaces the dynamic set with a known set, a multi-signature scheme. Reducing the number of participants required to extend the blockchain enhances the system's speed and scalability, while validation by all parties ensures the integrity of the transaction history.

Federated block signing consists of several phases:

Step 1 - Block Signers propose candidate blocks in a round-robin fashion to all other participating Block Signers.
Step 2 - Each Block Signer signals their intent by pre-committing to sign the given candidate block.
Step 3 - If the given threshold for pre-commitment is met, each Block Signer signs the block.
Step 4 - If the signature threshold (which may be different from that of step 3) is met, the block is accepted and sent to the network. The Strong Federation has reached consensus on the latest block of transactions.
Step 5 - The next block is then proposed by the next Block Signer in the round-robin, and the process repeats.

Because a Strong Federation's block generation is not probabilistic and is based on a fixed set of signers, it will never be subject to multi-block reorganizations. This allows for a significant reduction in the wait time associated with confirming transactions. It also removes the incentive to mine for profit (i.e., the block rewards) and replaces it with an incentive to productively participate in a network where all participants have the same shared goal; ensuring the network continues to function in a manner that is beneficial to all. It does this without introducing a single point of failure or requiring higher trust.

Elements as a Sidechain - Watchmen and the Federated 2-Way Peg

When run as a sidechain, some members of the Strong Federation have an additional role to fulfill, that of the Watchmen. Watchmen are responsible for transferring assets into and out of an Elements sidechain, processes known as Peg-In and Peg-Out.

For a sidechain to operate in a trustworthy manner, it must enable participants to verify that the supply of assets is controlled and verifiable. An Elements sidechain uses a 2-Way Federated Peg to enable the two-way transfer of assets in and out of an Elements blockchain. This satisfies the requirements of provable issuance and inter-chain transfers.

The Federated 2-way Peg feature enables an asset to be interoperable with other blockchains and represent another blockchain's native asset. By pegging your blockchain to another, you can extend the capabilities of the mainchain and overcome some of its inherent limitations.

At a high level, transfers into the sidechain occur when someone sends mainchain assets to an address controlled by a multi-signature Watchmen wallet. This effectively freezes the assets on the mainchain. Watchmen then validate the transaction and release the same amount of the associated asset within the sidechain. The released assets are sent to a sidechain wallet that can prove a claim to the original mainchain assets. This process effectively moves assets from the parent chain to the sidechain.

To transfer assets back to the main chain, a user initiates a special peg-out transaction on the side chain. This transaction is verified by Watchmen, who then sign a transaction spending from the multi-signature wallet they control on the main chain. A threshold number of participants in the federation must sign before the mainchain transaction before it becomes valid. When the Watchmen send an asset back to the main chain, they also destroy the corresponding amount on the side chain, effectively transferring the assets between blockchains.