What is Sidechains
One important development in blockchain technology is the blockchain sidechain, which is mainly intended to improve the functionality and scalability of the main blockchain networks. Limitations that can impact well-known blockchains like Bitcoin and Ethereum are addressed, including poor transaction rates and network congestion.
Definition and Purpose
Often called the parent chain or main chain, a sidechain is a separate, parallel blockchain network that runs concurrently with a major blockchain. In order to scale blockchains and enhance their overall performance, scalability, and efficiency, their primary function is to offload transactional data or network transactions off the main blockchain. This makes consumer payments and microtransactions more possible by enabling the main chain to expand farther without being overloaded. Without compromising the security or stability of the primary blockchain, sidechains also allow for experimentation, extra functionality, or alternative consensus methods.
How Sidechain Work
With a two-way pegging or “bridging” mechanism, the connection between a main chain and a blockchain sidechain is established.
Two-Way Peg: This technique enables the safe transfer of assets between the main chain and the blockchain sidechain, including tokens or cryptocurrencies. An equal number of new assets are issued or “created” on the blockchain sidechain when assets are transferred from the main chain to a sidechain. The assets are locked in a smart contract on the main chain before being moved. The initial sidechain assets are unlocked on the main chain and the sidechain assets are burnt or destroyed when they are transferred back to the main chain. The two chains’ values are guaranteed to be consistent with this procedure.
Independent Operation: Customized operations and experimentation are made possible by sidechains’ own consensus methods, regulations, and protocols. Without interfering with the main chain, they may separately process transactions and carry out smart contracts.
Periodic Synchronization: The purpose of sidechains’ periodic communication with the main blockchain is to maintain consistency and synchronize their states.
Smart Contracts: Smart contracts are essential because they secure the transfer of assets between the main chain and sidechain and automate the process. They allow specified requirements to be carried out without the need for middlemen and can improve sidechains’ flexibility and functionality.
Types of blockchain sidechain
Federated Sidechains: These are run by a group of reliable organizations that regulate their governance and consensus. For instance, the Liquid Network of Bitcoin.
Permissioned Sidechains: In a regulated setting, they limit access to a pre-approved group of people or entities.
Public Sidechains: Like the main blockchain but with the advantage of being decentralized, they are accessible to everyone who wants to join and take part.
Federated Consensus Sidechains: These blend aspects of decentralized and federated methods, frequently use a team of validators who come to an agreement as a whole.
Rollups: Rollups are categorized as Layer 2 solutions that are different from blockchain sidechains, they are a kind of sidechain that conducts transactions off-chain and publishes summaries to the main blockchain. Examples are ZK-rollups and optimistic rollups.
Custom Sidechains: These are designed to meet particular needs or use cases, using customised consensus methods or adhering to regulations.
Key Features
Separate Blockchain: Parallel to the main blockchain are other blockchains known as blockchain sidechains.
Independent Consensus Mechanisms: Delegated Proof of Stake (DPoS) and Proof-of-Authority (PoA) are two examples of their own consensus processes that they can use in place of it.
Customizable Features: Customizing blockchain sidechains to meet certain requirements, such as increased transaction speeds, improved privacy, or special smart contract features, is possible.
EVM Compatibility: The Ethereum Virtual Machine (EVM) can run decentralized applications (DApps) made specifically for Ethereum and smart contracts written in languages like Solidity on certain blockchain sidechains.
Advantages of Sidechains
Scalability: Faster transaction times and higher throughput are achieved by blockchain sidechains, which considerably lessen the burden and congestion on the main blockchain by processing transactions and smart contracts independently.
Flexibility and Experimentation: Developers may test new features, consensus techniques, and inventions in a sidechain environment without compromising the main chain’s security or stability. Faster innovation and the creation of new blockchain applications are made possible by this.
Lower Cost/Cost Efficiency: Sidechain offloading can cut expenses by reducing or doing away with the requirement for main blockchain transaction fees for every contact.
Greater Anonymity/Privacy: Since data is not sent to the main network openly or because transactions within a state channel remain secret until they are settled, offchain transactions on sidechains may provide more privacy.
Functionality and Customization: Additional features that the parent chain can not support natively can be added by sidechains, such as Bitcoin smart contracts. They may be customized to fit particular uses, improving network compatibility.
Disadvantages of Sidechains
Security Risks: If not adequately protected, sidechains might be more susceptible to attacks due to their varying security mechanisms. For example, the security of a Proof-of-Authority (PoA) sidechain is totally dependent on its validators; user money might be stolen if a majority conspire. Risks may also arise from problems with the smart contract code in bridges.
Complexity: The implementation and administration of sidechain solutions complicates the system and calls for extra synchronization, settlement, and channel management techniques.
Trust Issues/Decentralization Trade-offs: A smaller group of validators or external organizations may be required by some sidechains, which may compromise the decentralized character of the blockchain. It is frequently necessary to give up some decentralization in order to achieve high throughput.
Interoperability Issues: It might be difficult to guarantee safe and smooth communication between the main chain and several sidechains.
Channel Capacity (for State Channels, which can be part of sidechain solutions): The funds that are locked in a state channel limit its capacity, which may prevent excessively large or frequent transactions from using it.
High Operational Cost: Infrastructure, upkeep, and development costs can make running a sidechain costly.
Fragmentation: Numerous sidechains that are specialized for certain use cases may cause the blockchain ecosystem to become fragmented, which might restrict cooperation and interoperability.
Use Cases of Sidechains
There are several uses for sidechains in different industries:
Payment Channels/Microtransactions: Enabling regular off-chain low-value payments while resolving final balances on-chain.
Scaling Solutions: Reducing congestion and increasing throughput by offloading smart contract executions and transactions from the main chain.
Testing and Innovation: Before implementing new features, consensus methods, or protocols on the main chain, they should be tested.
Specialized Applications: Customized for certain applications, such as regulatory compliance, high-speed trading, or privacy-focused transactions.
Financial Services: Better privacy, quicker transaction processing, and effective cross-border payments.
Supply Chain Management: Logistics process automation, tracking, and verification in real time.
Gaming and NFTs: A large number of transactions and special token features without overtaxing the primary blockchain.
Smart Contract Execution: Permitting smart contracts to be used on blockchains that do not support them natively.
Sidechain Blockchain Example
Polygon (formerly Matic Network): An efficient sidechain deployment on the Ethereum network that retains Ethereum compatibility while offering improved scalability and quicker, more affordable transactions. Polygon employs a hybrid architecture that combines Proof-of-Stake with Plasma.
Liquid Network: A sidechain that is based on the Bitcoin blockchain and offers traders and exchanges quicker, more private transactions, facilitating safe, quick asset transfers.
Rootstock (RSK): Smart contracts and decentralized apps (dApps) use the Bitcoin blockchain are made possible by this Bitcoin sidechain. It enables the release of Smart Bitcoin (SBTC) on the sidechain and the locking of Bitcoin on the mainnet.
Gnosis Chain (formerly xDai): A popular option for applications needing fast and inexpensive transactions is an Ethereum sidechain that employs xDAI as its native currency for smart contract execution and gas costs.
SKALE: Enables scalable and high-performance decentralized applications by utilizing elastic sidechains.
Loom Network: Focusses on leveraging DPoS to create social applications and games that are bigger.
Ardor: A parent-to-child chain blockchain network in which the Ardour main chain provides security to its offspring networks.
Sidechains vs. Other Scaling Solutions
A Layer 2 solution or off-chain technique to increase blockchain scalability, sidechains are separate from the main blockchain.
Offchain Solutions: In order to increase efficiency and lessen stress, there are more general ways to conduct transactions or calculations outside the primary blockchain network. Being distinct blockchains connected to the main chain, sidechains are a more integrated type of off-chain solution.
State Channels: The main blockchain only records the start and end statuses of these private, off-chain channels of communication between participants for numerous transactions. The difference between sidechains and state channels is that the former use a different blockchain, while the latter do not.
Rollups: Although rollups and sidechains both deal with scalability, rollups use the main chain’s security and consensus procedures by operating directly on top of it, combining off-chain transactions, and sending a single proof or summary to the main chain. The opposite is true for sidechains, which are distinct, autonomous blockchains with unique consensus processes.