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All You Need to Know About Sidechains

One of the biggest problems facing blockchain technology is the inability to support the increasing load of transactions and the rising number of nodes on the blockchain. This limits the transactions that can be processed per second, restricting the utility of blockchain-based technologies.

Fortunately, sidechains offer a solution to this problem and have now provided a means by which blockchain transactions can be processed more efficiently. So today, we’ll discuss sidechains, how they work, their practical applications, and what they offer the cryptocurrency space.

What Are Sidechains?

A sidechain is a blockchain network that functions parallel to a primary blockchain. Sidechains enable the transfer of digital assets between multiple blockchains.

gold bitcoin surrounding by yellow digital graphic

This blockchain technology was designed to improve the efficiency and speed of transactions and boost the security of mainchains. This is possible because the sidechain uses a smaller number of miners, causing the process to be more centralized and, consequently, less secure than the parent chain.

Sidechain technology was initiated by Adam Back and eight other authors in an academic paper published on Blockstream in 2014. When they wrote the piece, crypto assets could not be transferred from their host blockchain network to other blockchain networks.

Back then, to transfer tokens, bitcoins would be destroyed publicly to allow the creation of new bitcoins. The authors proposed sidechains to transfer bitcoins from Bitcoin to other blockchains and back.

Similar to other blockchain networks, a sidechain is an independent ledger based on the technology of its mainchain (the blockchain where the digital assets are created and held) that validates data from other blockchains. Sidechains can duplicate their mainchain’s protocol or modify the transaction rules and consensus algorithm. They also have validators, histories, and regulations separate from their mainchain.

a picture of hand putting bitcoin in pocket

A separate consensus algorithm enhances a sidechain’s goal to be more efficient than its parent chain because it has more suitable options without relying on the latter.

Some of the other protocol options that sidechains use for transactions include the following:

Some sidechains create native tokens separate from the native token of their mainchains. In these cases, the sidechains are charged with maintaining scarcity for the native tokens.

How Do They Work?

Chart showing Bitcoin, Ethereum, Monero cryptocurrency is seen in front of a man

The typical sidechain is connected to its mainchain through a bridge, also called a two-way peg. Sidechains have constant contact with their mainchain, which contains crypto tokens, and can hence allow the transfer of these tokens between the parent network and the sidechain.

There are different combinations of connections between sidechains and mainchains. These connections depend on the design of the parent blockchain and could be as follows:

  • One sidechain to one mainchain;
  • Multiple sidechains to one mainchain; and
  • Sidechain to sidechain, using mainchain as an intermediary.

The typical mainchain-sidechain interaction involves creating a transaction contract by locking the assets to be transferred on the parent network using a two-way peg. This is immediately followed by the creation of another transaction on the sidechain.

Depending on the algorithm used, proof of locked assets on both chains is provided to confirm the transfer. Because the digital assets to be transferred are held on mainchains, sidechains may generate proxy assets.

The two-way peg is a major facilitator of the transaction as it serves as the channel between the main and side chains. It ensures that the locked tokens are unavailable to either party until the transaction is completed. As the name infers, the two-way peg also permits a vice-versa transaction, allowing assets to be returned to the original chain.

Sidechain Projects That Exist Today

As blockchain technology constantly develops and has now adopted sidechains in its transactions, many projects have been created using this mechanism. There are different projects for every blockchain.

As a result, you have a large variety to pick from when you want to use a sidechain. Below, we’re reviewing two sidechain projects commonly used to carry out crypto transactions:


Screenshot from Polygon website

This decentralized platform is a sidechain connected to Ethereum. Polygon helps solve the scaling problem that limits Ethereum without sacrificing security. This platform allows you to create autonomous decentralized applications while providing them with utility. Transactions on this sidechain incur much lower transaction fees than the Ethereum mainnet.

Polygon is regarded as a combination of two sidechains. It uses the Ethereum framework called Plasma and provides you with its token, MATIC, through a Proof-of-stake consensus algorithm. This allows the platform to be easily compatible with different blockchains apart from the Ethereum mainnet.

Rootstock Platform (RSK)

Screenshot from Rootstock Platform

Rootstock Platform was one of the first-ever sidechains based solely on the Bitcoin blockchain. It helps establish a connection between Bitcoin and other blockchains, such as Ethereum and Binance Coin chains.

The RSK sidechain adds value to Bitcoin, improving transaction speed and scalability by using smart contract protocols to reduce network congestion. These automated smart contracts also reduce the need for personal trust between transacting parties as it is self-executing.

Compared to Bitcoin, the RSK smart contract platform delivers an improved payment experience with near-instant confirmations. Compared to Ethereum, RSK provides 40x to 50x lower gas fees, 10x quicker transaction speed, and outstanding interoperability.

What Are the Potentials of Sidechains?

Sidechains have great potential to be a lasting solution to the problem of scaling in the blockchain ecosystem. Scaling entails the limited capacity of the major networks, such as Bitcoin and Ethereum, which hinders them from properly completing their many transactions simultaneously.

Sidechains provide a platform for transactions using the most suitable consensus protocols. The mechanism behind sidechains is a good promoter of interactions between different blockchains in the ecosystem.

It enables the exchange, borrowing, and lending of crypto assets across various networks. Additionally, assets from other blockchains can be made available to a broader audience.

Advantages of Sidechains

graphic of blue digital chain

Here are a few benefits of using sidechains in transactions:

  • Increased Versatility: sidechains enable easy connection and exchange between crypto tokens in the blockchain.
  • Better Scalability: sidechains increase the transaction capacity of the parent chain handling the immense load of transactions that slows the network.
  • Faster Transactions: sidechains use a suitable consensus protocol, increasing the speed of blockchain transactions.
  • More Utility: the use of smart contracts, the higher transaction speeds, and the better scalability that sidechains provide increase the blockchain’s functionality and utility.

Risks of Sidechains

While there are many perks to using sidechains, some shortcomings could put assets transferred at risk. These are some of them:

  • Sidechains, being independent, are responsible for their security and tend to be more prone to attacks and hacks.
  • The requirement of their miners can also be a drawback to using sidechains, as it could be difficult for them to develop a mining ecosystem.

Are Sidechains the Next Best Thing?

Sidechains are, undoubtedly, a game-changer in this space as they solve a large percentage of the problems with blockchains. This also gives a significant boost to the global growth of cryptocurrency.

This blockchain technology can help turn cryptocurrencies from a niche currency and an investment and trading product into something that everyday users use for regular transactions.

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