sidechain

A sidechain is a separate blockchain that operates in parallel to a main blockchain and is interoperable with it through a mechanism known as a two-way peg. The primary purpose of a sidechain is to enable scalability, experimentation with new features, or specialized transaction types without changing the main chain’s consensus rules.

How a sidechain works involves transferring assets between chains. Typically, a quantity of the main-chain asset is locked on the main chain, and a corresponding amount is minted or released on the sidechain. When funds are moved back, the process is reversed. Sidechains can use different consensus mechanisms, block times, and rules from the main chain, and may employ various bridge designs, including federated or notary-based bridges and SPV proofs.

Security and risk are important considerations. The main chain’s security does not automatically extend to the sidechain; the sidechain’s validator set or bridge operators must be trusted to protect the assets. If the sidechain is compromised or the bridge is exploited, users can lose funds. Therefore, security models, audits, and careful bridge design are critical.

Benefits and use cases include higher throughput, the ability to test new protocol features or smart contract capabilities, customization for specific applications, and the potential for privacy or asset-issuance experiments. Sidechains can complement Layer-2 solutions by offering alternative paths for scalability and innovation.

Notable implementations include Blockstream’s Liquid Network, a Bitcoin sidechain focused on faster settlement and tokenized assets, and RSK, a Bitcoin smart contract sidechain. Ethereum ecosystems often reference Polygon (formerly Matic) as a prominent sidechain-like extension that connects to Ethereum via bridges.