A sidechain is a type of blockchain network that allows cryptocurrency to be transferred between multiple blockchains.
In this definition...
What is a Sidechain’s Purpose?
Sidechains add immense potential to the scale, scope, and efficiency of blockchain technology, as they allow previously isolated blockchain networks to integrate into a larger ecosystem.
Sidechains were introduced to enable cryptocurrencies, such as Bitcoin and other ledger assets, to be interoperable so users have access to new cryptocurrency systems while using the digital assets they already own. Using a sidechain can also help mitigate liquidity shortage issues with cryptocurrency as a larger network is allowed to be formed.
How is a Sidechain Used?
A sidechain connects to another blockchain, which is referred to as the mainnet or parent blockchain, through a two-way peg mechanism. These newly connected blockchains, known as the secondary blockchains, can have their own consensus protocols to allow for improved security and privacy of the network.
Once the sidechains are established, they can be used for smooth digital asset exchange or synchronization between the parent blockchains and the secondary blockchains. This allows projects to expand their ecosystem within the network in a decentralized manner.
A disadvantage of using a sidechain is that it is responsible for its security; the security is not derived from any blockchain that it connects to. To help increase the security of the sidechain and validate the transaction, a smart contract is used. The smart contract is designed to lock the digital assets once the transaction is complete.
What is the Relationship of Sidechain to Blockchain?
The relationship between a sidechain and blockchain is that a sidechain connects different blockchains to form a larger network. Blockchains have their own set of rules, functions, and purposes. This makes them independent from other blockchain systems. However, when a sidechain is used to connect blockchains, it creates a seamless ecosystem. Digital assets and tokens can move freely and securely between the blockchain systems.
What are the Different Platforms for Using Sidechains?
Here are two major platforms using sidechain technology:
The RootStock (RSK) is the type of smart contract platform used for sidechains in Bitcoin and Ethereum blockchains. It is one of the leading platforms for use of sidechains. Using RSK is a reliable and efficient way to scale up Bitcoin and Ethereum networks.
Liquid Network is another type of sidechain platform with an emphasis on the efficiency of digital transactions. It also allows for the tokenization of multiple assets. This allows users to issue all sorts of tokens, ranging from digital collectibles to securities. Another key benefit of Liquid Network is that it offers confidential transactions by masking the asset type and amount of the transaction.