In a previous article, we spoke in detail about blockchain’s biggest challenge, scalability. This is often known as the cryptocurrencies world’s ‘holy grail’ and one of the key elements holding it back from hitting the mainstream and competing directly with payment systems like Visa and Paypal. In this piece, we’ll delve deeper into another promising solution to the issue, which are sidechains. Read on to learn what sidechains are, how they work, and which ecosystems are using them.
What is a Sidechain?
A Sidechain is a discrete blockchain linked to the main blockchain
A Sidechain is a discrete blockchain linked to the main blockchain (mainchain) using a 2-way peg. Sidechain enables token or digital assets to be transferred between mainchain and sidechain at a predetermined rate. Sidechain was invented by Dr Adam Back published in his paper ‘Enabling Blockchain Innovations with Pegged Sidechains.’
Sidechains need to interact with the mainchain and require tokens to be locked on the mainchain. A sidechain can be public or private. Each sidechain is an independent blockchain network with its own token, protocol, consensus and security. There can be multiple sidechains connected to the mainchain depending upon the design of the blockchain. Inter-sidechain communication is also possible using the mainnet as a relay network.
Sidechains can be used to run blockchain applications (decentralised apps or dapps) and take a load off the mainchain. This way, blockchain can be scaled by adding sidechains. Sidechains can also be coupled with other scaling solutions.
A typical sidechain implementation creates a transaction on the first blockchain (the mainchain) by locking the assets, then creating a transaction on the second blockchain (the sidechain) and providing cryptographic proofs to the transaction that the assets were locked correctly on the first blockchain.
Although sidechains look to be a promising solution, there’s no such thing as a free lunch. Sidechains required a lot of effort and investment for the initial set-up. They also add complexity to the blockchain design. Since sidechains are independent blockchains, they can be compromised if network power distribution is inappropriate, needing a cautious design. If a sidechain is compromised, it won’t affect the mainchain, so they can be used to experiment with new protocols and improvements to the mainchain.
Unlike sharding, sidechains do not require tight coupling. Except for the initial set-up cost, sidechains generally perform better over payment channels. Unlike payment channels, transactions are not private on sidechains. Also, users are not required to be present online to execute the transaction as in payment channels. The payment channel requires an extra cost to add or remove a participant, which is unnecessary for sidechains.
Noteworthy projects working on sidechains are Rootstock (RSK), Ardor, Loom, Polkadot.
Examples of Sidechain Protocols
How it Works in Detail: the Plasma Sidechain
Plasma is a layer two scalability solution for the Ethereum blockchain. It’s a framework for creating a sidechain (also known as child chains or plasma chains) that interacts with the Ethereum blockchain. Sidechains are independent blockchain and can also create another sidechain. The plasma architecture can be seen as a hierarchical tree of sidechains. Since each side chain operates independently and runs parallel to mainchain and other sidechains, the speed and efficiency are optimised. In addition, each sidechain can be used to process unique applications in the same secure ecosystem. Plasma uses proof-of-stake as a consensus mechanism instead of proof-of-work to provide faster transaction execution.
A smart contract is created and deployed on the mainchain (parent blockchain) at the time of sidechain creation. This smart contract contains rules, token exchange rate and state hashes of the sidechain. A sidechain periodically submits state information to the parent blockchain. Block commitments flow down, and exits can be submitted to any parent chain, ultimately being committed to the root blockchain. The lighting network can be implemented on the top of the plasma layer (i.e. sidechains) to facilitate instant transactions.
If you want to learn more about what else helps speed up and scale blockchain, also give our article on the different types of consensus a read.