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Crypto Insights

What is a sidechain? Blockchain scaling solution analysis from A-Z

Posted on by Anna

To solve the problem of scalability, a technological solution called sidechain was born. What is a sidechain and how do they solve blockchain scalability problems?

  1. What is a sidechain?

A sidechain is a separate blockchain that runs in parallel and operates independently of the main blockchain.

The main job of the sidechain is to process and validate data for the main chain and add many other functions such as running smart contract for blockchains that do not.

  1. Why was the sidechain born?

Sidechains are an idea proposed by Dr. Adam Back in the paper titled “Enabling Blockchain Innovations with Pegged Sidechains,” which allows for the creation of separate blockchain networks that can connect to the main blockchain.

what is sidechain

Sidechains operate independently and can transfer assets between themselves and the main blockchain via a “two-way peg”. Also because sidechains operate as independent blockchains, they have their own tokens, consensus and security mechanisms. However, sidechains are capable of communicating with each other and with the main blockchain at the same time without the main blockchain, the sidechain cannot function either.

Sidechain helps run dApps (decentralized applications) on the blockchain and reduces the load on the main blockchain. Sidechain implementations usually begin with locking assets on the main blockchain and creating transactions on the sidechain with cryptographic proofs. This enhances the flexibility and scalability of blockchain systems.

  1. How does the sidechain work? 

The mechanism of operation of the sidechain is a way to connect and interact between the secondary blockchain (sidechain) and the main blockchain (mainchain) in a two-way peg model.

what is sidechain

The process goes like this:

  • Locking up: If you want to transfer assets from the mainchain to the sidechain, you need to perform an action called “locking assets.” This means that the assets will freeze on the mainchain and cannot be moved or used on the mainchain until the security process is complete.
  • Create transactions on the sidechain: After the assets have been locked on the mainchain, users can create transactions on the sidechain. For example, they can transfer these assets to others on the sidechain or use them to perform other operations.
  • Security mechanism: To ensure the integrity and reliability of transactions on the sidechain, the two-way peg mechanism uses cryptographic proofs and data structures such as Merkle Trees. Transactions on the sidechain are recorded and include cryptographic proof, indicating that the asset has been correctly locked on the mainchain.
  • Asset Release: This process is for transferring assets back from the Sidechain to the main chain. When users want to transfer assets from the sidechain back to the mainchain or to another sidechain, they need to provide cryptographic proof and request the release of assets on the mainchain. This cryptographic proof provides proof that the asset has been duly used on the sidechain and can be returned.
  • Unlock assets on the mainchain: Once cryptographic proofs are verified and accepted, the assets are released on the mainchain and returned to a free state. Users can use this asset on the mainchain or switch to another sidechain if needed.

  1. General Review of the Sidechain

General reviews of sidechains

4.1. Advantages

  • Scaling: Sidechains allow the scaling of the blockchain by reducing the computational load off the mainchain. This improves the speed and processing capabilities of the system.
  • Flexibility: Sidechains facilitate flexibility by allowing separate rules and applications to be implemented on each sidechain. This is suitable for diverse use cases.
  • Segregated security: Each sidechain has its own security and consensus mechanism, ensuring that if one sidechain is hacked or compromised, then the other sidechains remain safe.
  • Communication between blockchains: Sidechains allow blockchains to interact with each other through two-way bridges. This opens up many opportunities for the exchange of data and assets between different blockchains.

4.2. Disadvantages

  • Poor security issues: Security issues often occur on sidechains because they are small blockchains that are easily exposed to 51% attacks (PoW mechanisms) or untrusted nodes (PoS mechanisms).
  • Technical limitations: Sidechain implementations often face many technical difficulties and require a high level of complexity in planning and implementation.
  • Transaction separation problem: The separation of transactions between the mainchain and the sidechain can cause problems related to the integrity of the blockchain system.
  • Depends on the mainchain: The sidechain depends on the mainchain to ensure the safety and transparency of transactions, so if the mainchain goes down, the sidechain can be affected.

  1. Some Sidechains Stand Out in the Crypto Market

5.1. Polygon (formerly Matic Network)

  • Integration with Ethereum: Polygon was built to solve the problem of transaction fees and scalability of Ethereum. Polygon is a sidechain of Ethereum and provides a suitable environment for developing decentralized applications (DApps) and trading with low fees.
  • Layer 2 integration: Polygon is not only a sidechain but also a platform for various Layer 2 solutions, including Plasma and zk-Rollups, to improve performance and scalability.

5.2. Binance Smart Chain (BSC)

  • dApps and trading support: BSC is a sidechain of the Binance exchange and offers the ability to run decentralized applications (DApps) and execute transactions with low fees. It has attracted many projects and users thanks to its convenience and low fees.
  • Easy integration with Binance Exchange: Since BSC is a Binance product, integration with Binance exchange is easy, helping the project take advantage of this exchange.

5.3. RSK (Rootstock)

  • RSK (Rootstock) is a sidechain for Bitcoin’s blockchain (Bitcoin Blockchain) designed to support smart contracts and decentralized applications on the Bitcoin platform.
  • Rootstock allows tight integration with Bitcoin, using 25 validators to control the two-way peg of transactions from Bitcoin to rootstock and vice versa. Rootstock supports smart contracts.
  • Easy integration with existing Bitcoin, and the potential for decentralized finance (DeFi) applications. Rootstock uses a merge-mining mechanism to ensure safety and reliability.

5.4. The Liquid Network

  • The Liquid Network is a Bitcoin sidechain developed by Blockstream. It was created to improve security and speed in making Bitcoin transactions.
  • Liquid Network allows transactions to be confirmed faster and more securely than the main Bitcoin network, while also supporting the issuance of custom token assets on the platform. Liquid also offers interoperability with exchanges and financial services to promote liquidity and use Bitcoin in more advanced financial applications.

  1. Conclusions

Despite a limitation related to security, sidechains have the potential to revolutionize the blockchain ecosystem by enhancing performance and solving the scaling problem of blockchain. With the support of two-way bridges and smart contracts, sidechains provide smooth asset transfer and promote interoperability between blockchains, paving the way for dApps to grow.

Currently, blockchain’s scaling solutions are constantly evolving, some sidechains are considered outdated and do not receive much attention from investors. Therefore, sidechain solutions need to be continuously optimized to increase their competitive advantage and applicability.

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