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What are Sidechains?: Different types and components

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Swen Keller
In the crypto world Swen has consistently found success through his effective communication skills and the unique ability to navigate the details.
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Sidechains are independent blockchains connected to their parent blockchain through a two-way peg. This two-way peg lets you seamlessly transfer assets between the two blockchains. For this transfer to work, these secondary blockchains also rely on smart contracts along with the blockchain bridge. Sidechains are often used to run blockchain applications such as DApps. They reduce the computational load on the main blockchain which improves scalability.

In this article, we will discuss what are sidechains and all the components that are involved. You will learn about how sidechains work and their different types. In the end, the article will go over why we need sidechains and what benefits they offer.

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    Sidechains: A Separate Blockchain

    Dr. Adam Back first mentioned the concept of a sidechain in his white paper ‘Enabling Blockchain Innovations with Pegged Sidechains.’  By using the two-way peg, you create a bridge between the original blockchain and other blockchains. Think of the two-way peg as an overhead bridge connecting two roads that allow you to transfer tokens, like Bitcoin Cash, and other crypto assets between the parent chain and the sidechains.

    With the proper blockchain technology design you can connect the root blockchain with multiple sidechains simultaneously. The main chain network can also act as a relay network that connects two sidechains allowing you to transfer assets between them. However, the primary benefit of sidechains is the ability to reduce the load on the main chains. This drastically improves processing times and efficiency and tackles the issue of scalability.

    The improvements in scalability come from running blockchain applications on the sidechain as well as combining them with other scaling solutions. While all these advantages seem very attractive, sidechains also increase the complexity of your blockchain design and need a lot of effort and capital for the initial setup.

    How Do Sidechains Operate?

    The easiest way to understand sidechains is to imagine them as fast lanes running parallel to the highway. Think of the main blockchain as a busy highway with loads of traffic where you can divert some of that traffic to the fast lanes. Sidechains operate similarly by reducing the congestion your crypto transaction has to pass through.

    The transaction capacity of the primary blockchain gets reduced because of this congestion. Imagine the time it takes to travel on a heavy-traffic road compared to one that is mostly empty. A sidechain is a separate network that can handle some of the load you transfer assets from the main blockchain. Moving crypto assets to different chains allows you to process transactions much more quickly.

    Moreover, transactions can be verified and finalized without running into the problem of network congestion. Sidechains are independent blockchains with dedicated security, consensus mechanisms, and native coins that can be both public and private. The dedicated consensus mechanism that the main blockchain takes on has no impact from a security breach in the sidechain.

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    Components Of Sidechain Technology

    Now that you have a basic idea of how this blockchain technology works, you need to learn about the components that make it so effective.

    Two-way Peg and Its Use in Sidechains

    One of the defining features of these chains is the ability to send cryptocurrency back and forth between the main blockchain and the sidechain. Side chains have to ensure that no external entity should have the ability to control or stop this transfer of assets.

    This is made possible because of the two-way peg. You can think of this connection as a two-way tunnel where you can drive in both directions. When you transfer assets to the sidechain, the equivalent amount will get locked on the main blockchain. This locking mechanism ensures that the assets can’t be spent until the transaction has been finalized.

    After the waiting period, assets appear on the sidechain to represent the main chain’s assets. Once the assets have been verified on the sidechain, they are free to use on the main chain due to releasing mechanisms.

    Smart Contracts and Sidechains

    When you send funds to the output address, there isn’t any actual transfer of assets from the main chain. The assets you choose will stay locked on the root chains, and new assets will appear on the sidechain to represent them. Since there isn’t an actual transfer, you need something to maintain the two-way peg and help with the connection. This is where smart contracts become crucial.

    Smart contracts automate and secure asset transfers between the main chain and the sidechain. This assures that only assets locked up in smart contracts on the main blockchain are visible on the sidechain, and vice versa. When you send assets to the output address, the sidechain smart contract is informed, and an equivalent quantity of assets is created.

    When you want to move assets back from a separate chain to the main blockchain, the process is reversed. The sidechain smart contract gets the withdrawal request and destroys the same amount of sidechain assets. As a result, the corresponding number of assets on the main blockchain is unlocked, allowing you to withdraw them from the output address.

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    Examples of Sidechains

    After learning about the way these chains work, we can move on to discussing some examples of sidechain implementation. Leading examples of sidechains include Polygon, RootStock, and Liquid Network.


    The Polygon network is based on the Ethereum blockchain framework called Plasma. Polygon was initially known as the Matic network. Plasma makes it possible to create child chains that can process transactions. These transactions are also regularly finalized on the Ethereum blockchain.

    The Polygon network is compatible with Ethereum Virtual Machine, which makes it easy to connect with other compatible blockchains. It issues its MATIC token by using proof-of-stake validators. It also features a two-way peg, one through Plasma and the other through the proof-of-stake validators.


    The RootStock or RSK sidechain for the Bitcoin platform was built in 2016, with an emphasis on smart contracts. It enables the creation of smart contracts and DApps on the Bitcoin blockchain network, which is not normally possible. RootStock secures assets on the Bitcoin mainnet and issues smart Bitcoin, the sidechain’s native token. This eliminates the requirement to exchange Bitcoin for other crypto assets to use smart contracts.

    Liquid Network

    The Liquid platform was built as an open-source sidechain on top of the Bitcoin network. It takes advantage of sidechain efficiency to minimize block discovery time to one minute, as opposed to 10 minutes for Bitcoin Sidechains. The key advantage of this sidechain is its capacity to aid in private transactions with digital assets by concealing the quantity and asset kind.

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    Reasons To Use Sidechains

    Sidechains come with three main benefits that make them worthwhile for users. These include scalability, flexibility, and upgradability.


    A sidechain is frequently seen as a suitable scalability solution. A sidechain can deliver faster and cheaper transactions by implementing a range of optimizations, such as transferring a specific type of transaction to another chain whose protocol is designed specifically for that type of transaction. This should help to clear up the first chain, making it faster and less expensive.


    Sidechains give developers more flexibility than main blockchains. Developers can test new applications and features on a sidechain without endangering the mainnet’s security or stability. Additionally, these tests are far less expensive because sidechains have less congestion.


    Sidechains can be updated very easily. Sidechain features and functionality can be readily modified and upgraded by developers without affecting the main blockchain. Furthermore, developers can test network upgrades on sidechains to avoid bringing flaws into the main chain.

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    Sidechains are a blockchain technology that will certainly be around for a long time. They can develop and grow blockchains while also making them more accessible by allowing for the efficient and easy transfer of assets. Customers are likely to adopt this approach because of its efficiency and straightforward user experience. Moreover, it makes validating and finalizing transactions considerably easier and safer. With the help of two-way pegs and smart contracts, side chains have become the ideal solution for scalability issues with the blockchain.


    Most frequent questions and answers

    Sidechaining entails securely transferring assets between the main blockchain and a secondary network. It promotes scalability, experimentation, privacy, and interoperability while also enabling specialized smart contracts and asset tokenization. Projects like RSK and Polygon provide examples of sidechain implementations.

    Ethereum sidechains include Polygon for quicker and cheaper transactions, xDai Chain for stablecoin-based transactions, and Binance Smart Chain for cross-compatibility. Optimism and Arbitrum are Layer 2 techniques for increasing network capacity.

    xDai Chain is another example of a sidechain in the crypto realm. xDai is an Ethereum stablecoin-based sidechain that seeks to enable speedy and cost-effective transactions. It uses the xDai token, which is linked to the DAI stablecoin’s value. Because of its fast transaction processing, xDai Chain is ideal for payments and microtransactions.

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