Amid the digital transformation era, blockchain technology has presented a new paradigm in various aspects of life.

 

The concept of sidechain networks emerged as an innovation that aims to improve blockchain networks’ scalability, efficiency, and functionality.

 

Sidechain is a mechanism that allows blockchain transactions to run more scalably and efficiently.

 

Sidechain is a term that often appears in discussions about blockchain and is considered a solution when block confirmation in a blockchain feels too time-consuming or costly to process all information directly on the main chain (on-chain).

 

To better understand what Sidechain is, from how it works to its benefits and examples, check out the full review below.

 

What is Sidechain?

 

A sidechain is a self-contained network that functions in parallel with the main blockchain or mainnet. It is designed to address the scalability challenges that current blockchain systems often face.

 

Like Layer-2 networks, sidechains are designed to improve the efficiency, security, and speed of transactions on the main blockchain.

 

One of the key aspects of sidechains is their ability to operate with various consensus protocols and security models, such as Proof-of-Stake (PoS).

 

This gives it greater flexibility and provides solutions that suit the unique needs of each network.

 

How Sidechain Works

 

 

The way sidechain networks work is essentially similar to existing blockchain networks. At its core is the ability to exchange assets between chains using a two-way mechanism called “pegging.”

 

In this mechanism, each asset is locked on the main chain when moved to a sidechain and can be accessed and moved back to the main chain if needed.

 

Sidechains accomplish this through a validation process, where nodes verify, process transactions, generate blocks, and store blockchain data. Nodes are responsible for the security and integrity of the sidechain.

 

Benefits of Sidechains

 

Sidechains provide three main benefits, ranging from scalability, the ability to experiment and improve the system, to diversification. Here is a review of each of these benefits, namely:

 

• Scalability

Sidechains can provide faster and more economical transactions through various optimizations. One is by moving certain types of transactions to sidechains that have protocols optimized specifically for those types of transactions.

 

This can reduce the load on the main chain, making it faster and more economical. In addition, sidechains can also adopt new technologies that are faster and more efficient.

 

• Experiment (Upgradeability)

The upgrade process on blockchains is often complex and time-consuming. Sometimes, reaching a consensus takes a considerable amount of time.

 

Sidechains allow for the testing and deployment of new ideas without having to achieve widespread consensus. This ability to experiment and upgrade provides many efficiencies that contribute to scalability.

 

• Diversification

More individuals can access assets from other blockchains. Applications such as DeFi Lending (decentralized lending and borrowing) can be used within the sidechain.

 

Sidechain Disadvantages and Challenges

 

Sidechains have their security responsibilities; the security of the sidechain is independent of the connected main blockchain.

 

The advantage in terms of security is that the security of one blockchain does not affect the security of other connected blockchains. However, the downside is that sidechains can become vulnerable to attacks.

 

Sidechains also require a network of miners. A large and diverse pool of miners is one of the main ways most blockchains keep their networks secure.

 

Newer chains should strive to build their mining ecosystems, although this can be difficult as newer chains are usually less attractive to miners.

 

Sidechains may complicate this situation, especially in parent-child relationships, where child chains often don’t have their native coins.

 

This is unfavorable for miners as their main source of income usually comes from issuing native coins.

 

Examples of Famous Sidechains

 

The following are some famous Sidechain examples that are important to know, including:

 

• Polygon

Polygon is a platform that combines both types of sidechains. It uses an Ethereum framework known as Plasma, which allows the creation of child chains that can process transactions before they are periodically settled on the Ethereum blockchain.

 

Polygon is also compatible with the Ethereum Virtual Machine (EVM), a virtual sandbox environment integrated within each full Ethereum node. The EVM is responsible for the execution of the contract bytecode.

 

In addition, Polygon issues its native token called MATIC through a proof-of-stake validator mechanism. The platform has two bidirectional bridges, one through Plasma and one through the proof-of-stake validator.

 

Polygon’s main goal is to provide interoperability between various blockchains. Since Polygon is compatible with EVM, it can connect with other supporting blockchains.

 

• Liquid Network

Liquid Network is a Layer 2 sidechain network built on the Elements platform to improve the efficiency of Bitcoin transactions.

 

Unlike Bitcoin, which uses a proof-of-work algorithm to mine blocks, blocks on the Liquid Network are signed by specialized hardware units called “functionaries.”

 

On the Liquid Network, a synthetic asset called Liquid Bitcoin (L-BTC) is available, which represents the amount of BTC held and operates with a different security model than the main Bitcoin blockchain.

 

Difference between Layer-2 Vs Sidechain

 

 

Several key factors that are important to understand differentiate the second layer from the sidechain. These differences include the following:

 

• Network Security

Layer 2 relies on the security of the main network and is directly tied to the consensus algorithm of the mainnet.

 

In contrast, sidechains have an independent security model that does not rely on the main chain. Its own protocol and consensus mechanism completely govern its security.

 

• Network Dependencies

Layer 2 is integrated with the main network and depends on its functionality, often used as an extension of the main chain.

 

Meanwhile, sidechain networks operate as independent systems that do not depend on the main chain and allow interaction with the mainnet through a two-way mechanism.

 

• Scalability

Layer 2 was created to reduce load, increase scalability, and improve the performance of certain aspects.

 

On the other hand, sidechains are often more flexible in optimization for specific use cases and can be used for experimentation and development of new features on a system.

 

• Interoperability

Layer 2 often has limitations in interoperability with other networks due to its primary focus on the main chain.

 

Meanwhile, sidechains enable interoperability and exchange with the mainnet and other networks. They can act as intermediaries between different blockchain networks.

 

Conclusion

 

In conclusion, sidechains play an important role in improving the efficiency and scalability of blockchains by enabling faster and cheaper transaction processing and facilitating experimentation and development of new features.

 

The advantages of sidechains include their ability to improve the performance of the main blockchain, provide flexibility in optimizing for specific use cases, and enable the exchange of assets between different blockchain networks.

 

However, using sidechains also faces several challenges, including security that requires special attention due to the independent security model and the potential risk of attacks.

 

In addition, interoperability with other networks and maintenance of the miner ecosystem must also be considered.

 

On the other hand, well-known examples of sidechains include Polygon and Liquid Network, each of which offers unique solutions to improve the efficiency and functionality of the blockchain.

 

Furthermore, it is important to understand the difference between sidechains and other concepts, such as Layer-2, where sidechains operate independently from the main chain, whereas Layer-2 is usually integrated with the main network to improve transaction performance and efficiency.

 

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