What are sidechains? [2022 Guide]

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what are sidechains

Sidechains are independent chains that work adjacent to a parent blockchain, also called a mainnet. They have one core mission – to resolve the scalability trilemma that is currently preventing blockchain from turning into a mainstream technology. 

Alongside other Layer 2 scalability solutions like rollups and Plasma, sidechains attempt to enhance transactions’ efficiency, speed and boost the mainnet’s security. Although they are often thrown together with other Layer 2 solutions, sidechains actually differ from the rest. They rely on independent security and consensus protocols, like Proof-of-Stake, empowering them to provide more functionalities. 

How do sidechains work?

Think of sidechains that work as fast lanes on the road. They enable digital assets and transactions to be passed on from blockchain’s mainnet to a separate chain of blocks, where data can be processed more quickly and more transactions can be verified without causing network congestion. 

Because they use their own validators and consensus mechanisms, they do not have to cede sovereignty to the mainnet. Importantly, this sovereignty also means that if security breaches occur on a sidechain, they will not compromise mainnet security.

Communication between these chains and the mainchain is facilitated via two key components – two-way pegs and federations. 

What are two-way pegs?

Two-way pegs facilitate the transfer of digital assets or tokens between sidechains and the main blockchain. Assets or coins from the mainnet are sent to the sidechain via a locking mechanism. This prevents the assets from being spent before the transaction has been finalized. Once the assets are successfully verified on the sidechain, they can be spent and utilized via a releasing mechanism. Two-way pegs also enable data and assets to be moved back to the original blockchain, facilitating interoperability. 

What role do federations have in sidechains?

To guarantee the integrity of transactions between the mainnet and the sidechain, a middle party is required. This intermediate point is managed by federations, which can be both code-based or a group of individuals. Federations are in charge of verifying the locking and releasing processes mentioned earlier. They inspect whether the locked-up coins match the released coins, ensuring that the sidechain’s value never exceeds that of the mainchain.

Advantages

Although initially created as a scalability solution, these independent chains offer a number of different advantages that help improve the overall efficiency of blockchain. 

Scalability

Perhaps one of the greatest strengths of sidechains is their ability to solve blockchain’s scalability problems. By increasing the transaction capacity, sidechains enable more data to be processed without any risks of network slowdowns or failures. They also reduce the cost of transactions. This facilitates the evolution of blockchain technology as a prevailing solution for the future.

Easy upgrades 

Because blockchain is decentralized, oftentimes, reaching a decision about upgrades and new ideas is a challenge. Sidechains enable new updates to be tested separately from the mainchain, leading to more efficiency, faster consensus, and more reliable evolution of the technology as a whole.

Flexibility

Another important benefit that sidechains bring to the table is the interaction between two separate cryptocurrencies in the blockchain system. Independent sidechains could be created for different cryptocurrencies, which could be connected to the mainchain, permitting exchanges.

Functionality 

Sidechains can make the mainchain more functional. For example, they can utilize smart contracts and facilitate the creation of different dApps for blockchains that are otherwise unable to, like Bitcoin

Risks

As beneficial as sidechains may be for blockchain technology, they do come with several risks that should be noted. 

Limited security 

Sidechains are not secured by Layer 1 and instead depend on their own validators for security. Attracting a large number of interested validators can be difficult, especially for chains that do not native tokens that can serve as incentives. As smaller chains, they are more vulnerable to potential attacks.

Less decentralization

Sidechains are considered more centralized than parent chains. Compared to main blockchains, they rely on a smaller number of miners, making transaction processing less decentralized. This raises questions regarding compatibility with blockchain’s decentralized nature. 

Sidechain projects

Sidechains are a rather new solution that is still undergoing experiments. There are a few projects that have already gained popularity as solutions with game-changing capabilities. 

Polygon 

Polygon was initially introduced to the blockchain world as the Matic Network. It aims to tackle Ethereum’s scalability challenge via Layer 2 solutions and sidechains, providing a connection between blockchains. The solution also features compatibility with the Ethereum Virtual Machine. You can read more about Polygon in our detailed overview of the platform  

Skale

Skale is a Layer 2 sidechain network that runs on Ethereum that facilitates dApp development in an affordable, fast, and efficient environment. The blockchain network supports a wide range of blockchains and sidechains, unlocking Ethereum’s potential for users via SKALE chains.

SmartBCH

SmartBCH is among the first types of sidechains designed for Bitcoin Cash and is compatible with the EVM and Web3. It was created with the purpose of supporting DeFi application migrations into the Bitcoin Cash system. 

Shaping the future of blockchain

In conclusion, sidechains are one of the Layer 2 scaling solutions that are undoubtedly here to stay. The scalability trilemma is among the biggest concerns when it comes to the usability of blockchain around the world. With the creation of sidechains and other similar alternatives, the adoption of decentralized blockchain technology becomes easier than ever. 

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