What Are Sidechains in Blockchain

How Do Sidechains Work?

A sidechain is a separate blockchain that is linked to the mainchain through a special mechanism that allows assets and data to move securely between the two networks. It is designed to extend the capabilities of the main blockchain, providing higher performance, lower fees and specialized features without burdening the mainnet.

A few years after its launch, the Bitcoin network faced scalability limitations. Against this backdrop, crypto projects began to emerge that could offer significantly faster transaction processing speeds and significantly lower fees.

The concept of sidechains was described back in 2014 by Blockstream developers. They proposed the concept of an additional, independent blockchain that maintains two-way communication with the native network and allows assets to be securely transferred between them.

Blockchain Bridges: Facilitating the Connection to the Sidechain

Bridges allow users to transfer assets and data from the main blockchain to the sidechain and back, maintaining overall balance and security. This is accomplished through a two-way peg mechanism, where assets in the main network are locked and their equivalent is created or unlocked in the sidechain.

Two-Way Pegs

Two-Way Peg is based on the principle of locking and unlocking assets: when tokens are transferred from the main blockchain, they are “frozen” in the main network, and an equivalent number of tokens are created or unlocked in the sidechain. Smart contracts control this process; they automatically record the blocked assets and initiate their creation in the other network. The reverse process works the same way—tokens are “burned” or blocked again in the side chain, and smart contracts unlock their equivalent in the core network. This approach ensures transparency, security and decentralization of the whole procedure.

Sidechain Security

The security of sidechains depends largely on their architecture and consensus mechanism. Unlike the main network, side chains can use their own consensus algorithms, such as Proof-of-Stake or Delegated Proof-of-Stake, which are sometimes less decentralized and vulnerable to attacks; the 51% attack is an example. Also, an important security element is the two-way binding mechanism we discussed above. Despite all the precautions, bridges between networks can be the target of attacks, so their implementation should be thoroughly tested and secured.

The Importance of a Blockchain Sidechain

Sidecoins open up new opportunities for blockchain, offering solutions to some of the most pressing challenges. Let’s examine some of them.

Scalability

Sidechain coins help to relieve pressure on the underlying network, allowing more transactions to be processed in less time. This is especially important for large blockchains like Bitcoin and Ethereum, where high load leads to longer transaction confirmation times and higher fees.

Flexibility

Sidechains allow for different consensus mechanisms and unique rules that can be customized for specific tasks. This makes them ideal for developing customized solutions, such as gaming applications or enterprise systems.

Upgradeability

Sidechains allow testing new features and upgrades without jeopardizing the security and stability of the underlying network. This allows the blockchain to evolve, minimizing the likelihood of failures or vulnerabilities.

Functionality

With sidechains, blockchains can support new use cases such as DeFi, smart contracts, or asset tokenization. This extends the capabilities of the underlying network and makes it more versatile for users and developers.

Ethereum Scaling: How Sidechains Maintain EVM Compatibility?

The main difference between sidechains blockchain and the Ethereum core network is the ability to apply alternative consensus algorithms such as Byzantine Fault Tolerance, Proof-of-Authority, or Delegated Proof-of-Stake (DPoS). This allows for better performance and better blockchain parameters but often requires reducing decentralization by reducing the number of full nodes, which can affect security.

*A crypto node is any computer part of a blockchain network.

An important advantage of Ethereum sidechains is their compatibility with the Ethereum Virtual Machine (EVM). This means that these networks support smart contracts written in Solidity and allow for the easy deployment of applications built for the Ethereum ecosystem. In this way, sidechains help solve the scaling problem and maintain tight integration with the core network, extending its functionality.

Sidechain vs L2: What’s the Difference?

Sidechains are autonomous blockchains with their own consensus algorithm

• They are connected to the main network via bridges (Two-Way Peg).
• Have flexible settings that can be adapted to specific tasks.
• Security depends on the architecture of the blockchain sidechain, not the underlying network.
• Examples: Polygon (POL) and Liquid Network.

Sidechains provide independence and flexibility but require independent security. They are suitable for tasks that require autonomy and customization.

Layer 2 – solutions that operate on top of the core network and rely on its security.

• Operate on top of the core network, keeping it decentralized and secure.
• Utilize technologies such as rollups (Optimistic Rollups, ZK-Rollups) and state channels.
• Process transactions outside the main chain and write the results to the blockchain, reducing the load.
• Examples: Arbitrum (ARB), Optimism (OP), ZKsync (ZK).

Layer 2 is more secure and decentralized but less flexible in customization. L2 is optimal for projects that need tight integration with the core network.

Examples of Sidechain Implementation in Popular Blockchain Projects

Let’s explore the sidechain blockchain example.

Polygon: An Ethereum Sidechain

Polygon (formerly Matic) is one of the most famous sidechains for Ethereum. It provides a scalable infrastructure with support for smart contracts and EVM compatibility. Polygon provides high transaction processing speed and low fees, making it popular for decentralized applications (dapp) and DeFi platforms.

Liquid Network

Liquid Network is a Bitcoin sidechain developed by Blockstream. It focuses on fast and confidential BTC transactions, which are especially useful for large transfers and trading. Liquid also supports token issuance, which extends Bitcoin’s functionality.

Rootstock (RSK) for Bitcoin Smart Contracts

Rootstock is a Bitcoin-related sidechain that adds the ability to use smart contracts. EVM compatibility allows decentralized applications to be run using the security of the underlying Bitcoin network.

Gnosis Chain

Gnosis Chain (formerly xDai Chain) is an Ethereum-compatible sidechain originally created for micropayments but has since become a universal platform for decentralized applications. Thanks to its Proof-of-Stake algorithm, Gnosis Chain provides low fees, high transaction speeds, and eco-friendliness. EVM compatibility allows running Ethereum smart contracts and applications, making it a popular choice for DeFi, DAO, NFT and gaming projects where scalability and availability are important.

Benefits and Disadvantages of Crypto Sidechain

Let’s take a look at the main pros and cons of sidechain

How to Access Sidechains?

Sidechains are typically accessed through bridges that transfer assets and data between the main and sidechains. Access tools include cryptocurrency wallets that support sidechains, such as MetaMask, or specialized interfaces provided by projects (e.g., Polygon Bridge). The process depends on the specific project, but in most case,s it involves connecting the wallet, selecting a network, and executing the transaction through the bridge.

The Potential of Sidechain Crypto

Cryptocurrency sidechains offer the potential for continued development and innovation that will address the current limitations of blockchain technology. In the future, sidechains are likely to continue to improve in aspects of interoperability, security and performance, allowing them to become even more effective tools for scalability and functional extension of blockchains.

Conclusion

Sidechains have been an essential step towards the scalability and versatility of blockchains. They help reduce the load on the underlying network, enabling fast and cheap transactions and creating space for innovation. Using sidechains opens up new opportunities for developers, investors, and users, shaping the future of decentralized technologies.