Blockchain network has become congested because of its popularity. This increases Ethereum network fees and also leads to two other major factors: speed and scalability that are making this technology very challenging. But still blockchain is favorable because of its immutability, transparency, and security reasons. Sidechains are mechanisms that are trying to solve the mentioned problems and make blockchain more scalable and efficient. It allows digital assets such as tokens to be securely used from one blockchain in another blockchain and can move back to the original blockchain when needed.
What is sidechain?
The sidechain mechanism aims to enhance the capabilities of existing blockchains. It is a separate blockchain which uses two-way peg to attach its parent blockchain so whole process is reversible. Sidechains can be divided into two categories: separate blockchains and interdependent. In the first category, sidechain of a blockchain is equal to the main blockchain and both blockchains will have a native cryptocurrency of their own.
In the second case, one sidechain is considered as parent chain and the other as the dependent (child) chain. In these cases, the child chain often derives its assets through transfers from the original chain instead of creating assets of its own.
Sidechains – Advantages
- Faster and cheaper transactions by transferring a certain kind of transaction to a different chain with a protocol specially designed for that sort of transaction.
- New software can be deployed and tested on a sidechain. If the software causes harm to the blockchain, the damage is contained within the sidechain.
- DeFi applications which lend or borrow money have access to other chains’ assets so more people will have access to assets.
Sidechains – Disadvantages
- Sidechains are solely responsible for their security as it is not dependent on the main chain. Popular blockchains like Bitcoin can’t provide any security level to smaller blockchains.
- Sidechains are dependent on their own miners. Miners can gain less profit from newer chains so they must try hard to expand their mining ecosystem and this is tough.
- Some users may make assumptions about their assets in a blockchain that may be incorrect when those assets are transferred to another.