Sidechains

Sidechains are separate blockchains that run parallel to a main blockchain (the parent chain) and are interoperable with it via a two-way peg. They enable assets and data to move between chains, allowing experimentation and specialized functionality without altering the operation of the parent chain.

Operations typically involve locking a quantity of the asset on the main chain and minting an equivalent amount on the sidechain, and vice versa for withdrawals. This linkage is achieved through mechanisms such as federated or SPV-based proofs, or dedicated bridging contracts. Sidechains may have their own consensus rules, shorter block times, or support for features not present on the parent chain, such as smart contracts or privacy features.

Security and trust: The security of a sidechain depends on its own validators or miners and the bridging mechanism. If the two-way peg relies on a federation or centralized validators, security is not identical to the parent chain. Some designs emphasize strong adherence to the peg, while others rely on economic incentives or cryptographic proofs.

Examples: Notable Bitcoin sidechains include Liquid Network, which offers faster settlement and confidentiality for exchanges and institutions, and RSK, which provides Turing-complete smart contract functionality. Ethereum-compatible sidechains include Polygon and xDai (Gnosis Chain), which aim to provide scalable execution with varying consensus models. Plasma represents a related scaling concept for Ethereum that has evolved over time.

Limitations: Peg risk, custody of assets on the sidechain, cross-chain replay protection, and liquidity requirements can affect reliability and user experience. Sidechains illustrate a modular approach to blockchain design, balancing experimentation with the security guarantees of the parent chain.