The federated peg is the mechanism we use in Elements Alpha and Liquid to transfer coins from Bitcoin to sidechain and back. While the high level design has been described in the sidechains whitepaper this post focuses on the actual implementation.
The federated component means that the transferred coins are locked on the main chain using a multisig output controlled by a federation of signers instead of an SPV-lock. The peg mechanism doesn’t require more than introducing two new opcodes to the Script language and is designed to ensure that it can be easily soft-forked into Bitcoin in order to evolve to the full SPV peg.
On the heels of the Scaling Bitcoin workshop in Hong Kong, we’re excited to announce the release of the New Elements Project. The Elements Project is a community effort to create and test new extensions to the Bitcoin protocol. Core Developers have already announced several of these new Elements, including Confidential Transactions by Gregory Maxwell and Segregated Witness by Pieter Wuille, which have undergone extensive testing on existing sidechains.