Sidechains have a number of use cases. Perhaps most importantly, they provide a platform for the development of certain scaling solutions, which allow the main chain to be relieved of a certain amount of traffic, considerably improving the transaction throughput. One such example was Ethereum’s Plasma.
- Sidechains are separate blockchains that stem from the main chain.
- They are often attached to the main chain via a two-way peg.
- Sidechains have potential in the development of blockchain scaling solutions.
- Ethereum’s layer 2 solution Polygon is a network based on the concept of sidechains.
How do sidechains work?
A sidechain is a blockchain that stems from the main blockchain and runs in parallel to it. It is (not necessarily, but commonly) attached to the main blockchain by means of a two-way peg. This enables the interchangeability of digital assets between the parent blockchain and its sidechain.
If they would like to transfer funds to a sidechain, users must send an amount of crypto from the main chain to an output address. Once having done so, the coins are escrowed and the user cannot spend them anywhere else. Next, a waiting period begins in order to provide extra security. As this period passes, an amount of coins equal to the amount locked at the output address is released on the sidechain. The same thing happens with transfers from a sidechain to the main chain.
The potential of sidechains
Sidechains have the potential to revolutionize the way blockchains operate. For instance, they facilitate the interaction of separate blockchains and cryptocurrencies (this is sometimes referred to as an atomic swap).
The greatest potential of sidechain technology probably lies in their utility value for the development of layer 2 scaling solutions. These are aimed at improving the transaction throughput, which is a major limitation in cryptocurrencies being established as major global payment protocols.
Sidechains can take some of the traffic from the main chain and divert it onto the sidechain. A possible use case for sidechains is conducting (micro)transactions that would have been too expensive on the main chain due to fees associated with crypto mining, for instance.
An example of sidechain design was Ethereum’s Plasma. The idea of Plasma was to build upon sidechain technology to create so-called child chains. The basic principle would remain the same: a child chain stems from the root blockchain to move certain operations off chain. But a child chain could spawn a child chain of its own, creating a hierarchical tree of side chains layered on top of the parent chain.
However, despite enjoying a lot of support, Plasma encountered many unforeseen barriers and was never fully-developed. Its developers have since moved on to other projects to look for other blockchain scaling methods. Nevertheless, through the Plasma project, we have learned a lot about what sidechains have to offer and how we may effectively scale blockchains in the future.
Sidechains can overcome several obstacles that blockchains and cryptocurrencies are currently facing. Along with other novel technologies, they are transforming the way blockchains work.