I am one of the unnamed core developers working with Adam Back on this project. (Though as a part-time consultant - most of my time is still spent on self-directed projects paid for by community donations.)
a) It appears that the side chains cannot offer any block rewards.
They absolutely can. We just think that unless there is an economic difference from bitcoin and other existing p2p issued coins, there's absolutely no justification for doing so.
b) They would need to achieve a certain level of hashing power.
I am not sure how b) would be possible without a)
You realize that bitcoin has the same problem, once the subsidy drops to a negligible amount?
Transaction fees are one solution, or you can have the coins demurrage in the side chain allowing for a perpetual reward. (Demurrage with pegged currencies is possible, as the pegging mechanism provides friction). There are other mechanisms being considered as well.
c) Another note, I read elsewhere is that. The value of the 'betacoin' on the side chain can never exceed 1 BTC. As coins can always be moved from the Bitcoin blockchain into the side chain.
While this seems like a nice way to experiment. I am not sure what are the incentives for the AltCoin developers (zero profit).
Approximately the same incentives as Counterparty, which also forgoes the scummy currency issuance model.
The asset issuance and smart property contracts layer is free infrastructure that is difficult if not impossible to monetize directly, yes. But there are an infinitum of profitable services that can be built on such a layer.
Defending 'type-b Bitcoin' as economically viable (with unlimited one way issuance) shows a complete misunderstanding of very basic economics - in order for proper functionality as a store of value, or financial instrument (it's not the same as buying your bitcoins in the morning and spending them for some lsd on silkroad in the evening - the medium of exchange type use) - there has to be a relative stability in price (or minimally the instability has to be relatively predictable). In this case it is
- because you always have to sell to someone to get regular Bitcoins, but they never have to buy to get type-b bitcoins: no one is going to use a decentralized system that is far higher risk than a centralized one.