You may have heard of mainnets and sidechains if you’re familiar with blockchain technology.
Their number one goal is to find a way to make blockchain more widely adopted by solving the scalability trilemma.
Sidechains and other Layer 2 scalability solutions like rollups and Plasma aim to increase the speed and reliability of mainnet transactions while bolstering their security.
Sidechains are often lumped in with other Layer 2 solutions, but they are unique.
Thanks to decentralized security and consensus protocols like Proof-of-Stake, they can extend their functionality.
How do Sidechains work?
The term “sidechain” refers to a blockchain network that operates independently from the network’s main chain but is connected to it via a two-way peg.
The two-way peg allows assets to be transferred between the main blockchain and the sidechain at a fixed exchange rate.
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Most commonly, the term “main chain” refers to the first blockchain, and “sidechains” refer to any subsequent blockchains created.
Ardor’s childchains are its alternative blockchains.
Before a parent chain user can spend their coins, they must send them to an output address, where they will be locked.
There is a waiting period for added security after the transaction has been confirmed across the chains.
Once the timer expires, the corresponding number of coins will be made available on the sidechain.
The inverse occurs when switching back from a sidechain to the main chain.
Federations
A federation is a group that acts as a bridge between the main chain and a sidechain.
Because of this committee, a user’s spent coins are locked away and unlocked.
It is up to the developers of the sidechain to decide who joins the federation.
The federation structure’s additional layer between the main chain and the sidechain is problematic.
Security
To ensure the safety of their data, sidechains must take charge of their encryption.
A sidechain that doesn’t have enough mining power to keep it safe could be compromised.
Since each sidechain operates independently, any damage done to one will not affect the other chains.
On the other hand, if the main chain is compromised, the sidechain will continue to function, though the peg’s value will be significantly reduced.
Independent miners are required for sidechains. Merged mining provides an incentive for these miners by allowing them to mine two different cryptocurrencies using the same underlying algorithm.
What role do federations have in sidechains?
An intermediary is needed to ensure the security of transactions between the mainnet and the sidechain.
Federations can be either a set of computer programs or a collection of people overseeing this intermediary step.
Federations are responsible for ensuring the integrity of the locking mentioned above and releasing procedures.
It checks to see if the released coins match the locked ones, preventing the value of the sidechain from ever rising above the mainchain.
Advantages of Sidechains
Although originally developed to increase blockchain’s scalability, these separate chains actually provide various benefits that boost the technology’s effectiveness.
Scalability
One of sidechains’ most compelling features is the ability to address blockchain’s scalability issues.
Sidechains allow for more data to be processed without the risks of network slowdowns or failures because they increase the transaction capacity.
In addition, they lessen the financial burden of business deals. This paves the way for blockchain technology to soon become the de facto standard.
Easily Adaptable Mechanisms
Since blockchain is distributed, consensus on improvements and new directions can be difficult.
To improve efficiency, speed up consensus, and ensure the steady development of the technology as a whole, sidechains allow for new updates to be tested independently from the mainchain.
Flexibility
The ability for two different blockchain-based cryptocurrencies to communicate with one another is another major advantage brought about by sidechains.
Various cryptocurrencies could each have their separate sidechain linked to the mainchain to facilitate trading.
Functionality
Sidechains can increase the process performance when used in conjunction with the mainchain.
For instance, they can use smart contracts and allow for the development of various dApps on blockchains that would not normally be able to, such as Bitcoin.
Risks
While sidechains have the potential to improve blockchain technology, it’s important to be aware of the dangers they present.
Limited security
Layer 1 does not guarantee the safety of sidechains, which must rely on their own independent validators.
Gathering a large number of interesting validators can be challenging for chains without their own tokens that can be used as incentives.
Because of their smaller size, these chains are more susceptible to harm.
Reduce the level of decentralization
Most people agree that sidechains are more centralized than their parent chains. They are less decentralized in terms of transaction processing than the primary blockchains because they rely on a smaller number of miners. There may be issues with the decentralized nature of blockchain if this is the case.
The Existing Sidechain Infrastructures
Ginger, an open-source testnet for RSK’s (short for Rootstock)Â sidechains, was developed. It’s tied to the Bitcoin blockchain in both directions, and it uses merged mining to reward Bitcoin miners.
The primary objective of RSK is to improve the speed and efficiency of Bitcoin blockchain transactions by adding smart contract functionality.
Ardor’s enterprise Blockchain as a service platform:Â Ardor is based on a consensus method called Proof of Stake.
Childchains are Ardor’s term for its sidechains, fully integrated with the main chain. All transactions are processed and secured by parent chain forgers, increasing safety.
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While the parent mainchain may retain some functionality, most transactions now occur on the childchain. Childchains provide access to global entities, such as assets and currencies, that exist across chains.
Conclusion
With the help of sidechains, many digital currencies can interact.
They provide more leeway and a testing ground for new features in software or cryptocurrency before they are released to the main chain.
Sidechains can be used to pilot-test core banking features like issuing and tracking share ownership before implementing them on production networks.Â
The potential for massive blockchain scalability lies in sidechain technology, provided that its security mechanisms can be improved.
