Blockchain Scaling Solutions Part 2: Sidechains

by | Jul 22, 2021

Disclaimer: Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. or the authors take no responsibility for any damages or losses.

This is 2nd part of our blockchain scaling solutions series of blog posts. Read the first part here: Introduction to Blockchain Scaling Solutions

In our last part, we discussed the need for blockchain scaling solutions and introduced various methods and proposals through which the scaling requirement of blockchain networks can be met. In this blog post, we’ll understand a specific 2nd layer scaling solution known as – Sidechains. So, let’s start, shall we?

What are Sidechains?

Sidechains are already a growing mechanism aimed at making blockchain networks more scalable and efficient. This mechanism/solution refers to creating a side blockchain parallel to the main chain with a bridge mechanism through which tokens or crypto-assets can be moved from the main chain to the side chain and vice versa.

Consensus Mechanism

It’s worth mentioning that sidechains deploy their separate consensus mechanism independent of the main chain. For example, one of the biggest 2nd layer solutions of the Ethereum network known as Polygon is a sidechain solution. Polygon leverages the PoS (Proof of Stake) consensus mechanism independent of the main chain (Ethereum’s PoW) consensus mechanism.

Incentives & Security

To align the incentives of node validators and ensure the security of the sidechain, the Polygon network requires stakeholders to stake their MATIC (Polygon’s native token) on the main chain. Hence making sure the stake can be sliced for the malicious actors even if they’re able to manipulate the sidechain.

In exchange for locking their MATIC tokens on a deposit contract on Ethereum, these stakeholders receive yearly staking rewards as well as voting rights to nominate eligible block creators. The block creators act as nodes facilitating transactions on the sidechain by validating new blocks and settling all the transactions.

How Does it Work? (From a user’s perspective)

In the above explanation, we understood the theoretical sense of a sidechain and how it works.

Now, let’s have a look at the sidechain solution from a user point of view and how it helps you as a normal user and how can you interact with a sidechain to save on transactions costs.

So, here it goes. Let’s say you want to use Polygon sidechain to settle your transactions efficiently while saving on the transaction costs. Here are the steps one should follow:

  • First of all, the user needs to move their funds from the main chain to the side chain by interacting with a bridge.
  • A bridge can be defined as a portal to move funds between the main chain and the side chain.
  • In order to move funds to the sidechain, the funds on the mainchain will be locked in the bridge smart contract so that users cannot spend them elsewhere. Once the bridge transaction is settled, the funds will appear on the output address on the sidechain.
  • It’s worth noting that some sidechains might have a waiting period for additional security from the time funds are locked on the main chain and to appear on the side-chain.
  • Once the tokens or funds appeares on the sidechain, users can now access these funds and make the transactions more efficiently with lesser transaction costs. For example, transactions costs on Polygon networks are far lesser than of its main chain Ethereum.
  • In case, the user wants to move funds back to the main chain, the reverse process can be accessed using the same bridge protocol.

That’s all you need to know for a basic understanding of sidechains such as Polygon (Ethereum’s sidechain) or Liquid (Bitcoin’s sidechain). In the next series of articles, we’ll dig deeper into the working of other 2nd layer scaling solutions.

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"
Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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