What Are Sidechains? In-depth Compared With Layer 2


10 June 2022

Sometimes the technical parameters of a blockchain do not align with the objectives of our project. For example, the confirmation time for a block might be excessively long, or the cost of processing all the data on-chain might be excessively high. In this particular scenario, sidechains come to the rescue.

On the one hand, some of the metrics are the same as those found in layer 2 and sidechain, which might lead to confusion for users. On the other hand, they couldn’t be more dissimilar. Read this post to gain an understanding of what are sidechains, how a sidechain work to contribute to increased scalability and a comprehensive comparison of sidechains vs layer 2 protocols. All of this information will be clarified in this bePAY’s insightful post. Don’t wait anymore. Let’s dive into it.

What Are Sidechains?

What are sidechains defined as? A sidechain is a secondary blockchain that is connected to a primary blockchain through a two-way peg. Imagine a worldwide, decentralized network of blockchains, each with its own set of laws, features, and objectives, that stay independent of one another while forming a unified ecosystem. This is the sidechain perspective.

This powerful cryptographic method enables tokens and other digital assets to easily traverse the main chain. The Liquid Network is an example of a sidechain; it is a settlement layer that enables traders and trading platforms to enjoy quicker and more private transactions as well as the generation of digital assets. Because the Liquid Network is tied to Bitcoin, the primary chain in this scenario, only Bitcoin-related operations are permitted.


What are sidechains?

How Does A Sidechain Work?

Now, as straightforward as that may sound, there are a few essential components that enable sidechains to function well. These factors included:

  • Two-way peg
  • Smart contracts

Two-way Peg

Sidechains were created to ease the movement of digital assets between blockchains, regardless of the asset’s owner. Digital assets should be able to be transferred without any counterparty risk, which means that no secondary actor should be able to prevent the transfer.

A bidirectional peg is necessary to support this transfer across blockchains. This may be compared to a tunnel in which automobiles travel in both directions.

A two-way peg is described as follows in the sidechain white paper: “The method by which coins are exchanged across sidechains, a pegged sidechain is a sidechain whose assets may be imported from and exported to other chains.”

A two-way peg enables the movement of digital assets like Bitcoin between the mainnet and the new sidechain. Interestingly, a digital asset is never “transferred.” The assets are simply locked on the mainnet while an identical quantity is unlocked on the sidechain.

Consequently, every two-pegged operation must presume that the actors or “validators” engaged in the two-way peg are operating in good faith. Otherwise, fraudulent transactions might occur or legitimate ones could be prevented.


How does a sidechain work?

Smart Contracts

To move digital assets between a sidechain and its mainnet, an off-chain method that transmits data between the two blockchains must be developed. Off-chain transactions occur outside of the parent blockchain.

As stated previously, because the transfer of digital assets between a parent chain and a  sidechain is fictitious, digital assets are locked in and released on either end of the two blockchains when the transaction has been certified by a smart contract.

By requiring validators on the mainnet and sidechain to act ethically while validating cross-chain transactions, smart contracts are utilized to reduce the likelihood of fraud. Once a transaction has occurred, a smart contract notifies the mainnet of the occurrence of an event.

The off-chain mechanism will then pass the transaction data to a smart contract on the sidechain, which will validate the transaction. After the event has been validated, sidechain money can be released, allowing users to transfer digital assets across both blockchains.

>> Read also: For newbies, what are smart contracts?

What Are Some Sidechain Blockchain Examples? 

Loom Network is one sidechain blockchain example; this platform is for developing cryptocurrency-compatible applications. It consists of a blockchain called Basechain that is protected by a set of 21 validators and offers support for smart contracts based on the Ethereum Virtual Machine as well as its own smart contract engine written in the Go programming language.

Each decentralized application produced by the Loom Network is a distinct sidechain to the Basechain. Loom Network provides connectivity not just with Ethereum and Tron via gateway oracles, but also with Binance Chain and Bitcoin via threshold-based multi-signature wallets.


Sidechain blockchain examples

Rootstock (RSK) is amongst the sidechain blockchain examples, having developed an open-source testnet for its sidechains dubbed Ginger. It is pegged in both directions to the Bitcoin network and compensates Bitcoin miners (learn more about how to mine Bitcoin at home) through merged mining. RSK aims to equip the Bitcoin blockchain with smart contract capabilities and accelerate payments.

Ardor’s Blockchain as a Service business platform employs the Proof of Stake consensus process. Childchains are what Ardor names its sidechains, and they are strongly connected to the main chain. All transactions are handled and safeguarded by parent chain forgers, which increases security. The majority of transactions are delegated to childchains, while the parent mainchain retains little functionality. Through childchains, global entities such as assets and currencies may be accessible across chains.

The Difference Between Sidechain Vs Layer 2

Sidechain Vs Layer 2 In Comparison

The primary distinction between sidechain and layer 2 can be seen in their infrastructure. Since Matic operates its own network secured by nodes unrelated to Ethereum, it is classified as a sidechain. It is compatible with EVM and ETH Dapps will operate on it, but the Matic chain is an entirely distinct blockchain.


Sidechain vs layer 2

Arbitrum is a true layer 2 solution because it leverages ETH security and uses ETH as its native currency to settle transactions. If Ethereum were a tree, Arbitrum would be a branch, whereas Matic would be an entirely separate tree growing alongside it.

In other words, a layer two solution should be able to leverage the security of layer one, whereas a sidechain is responsible for its own security. According to documents on Ethereum.org, these are their respective meanings.


A sidechain is a parallel blockchain that functions independently from the Ethereum mainnet. It is equipped with its own consensus algorithm (e.g., proof of authority, delegated proof-of-stake, proof-of-stake, proof of work, or Byzantine fault tolerance). It is connected to the mainnet through a bidirectional bridge.

The fact that a sidechain operates identically to the main Ethereum chain because it is built on the Ethereum Virtual Machine (EVM) is what makes it so intriguing. Instead of utilizing Ethereum, it is Ethereum. This means that if you wish to use your Dapp on a sidechain, all you need to do is deploy your code to the sidechain. It appears, feels, and operates identically to the mainnet; you write Solidity contracts and communicate with the blockchain using the Web3 API.

Layer 2

Layer 2 refers to a collection of technologies meant to let you extend your application by managing transactions outside the Ethereum Mainnet (layer 1) while leveraging the robust decentralized security mechanism of the mainnet.

When the network is congested, transaction performance suffers, which can negatively impact the user experience for some types of decentralized applications. And as network traffic increases, gas fees rise as transaction senders compete to outbid one another. This could make the use of Ethereum exceedingly costly.


How is sidechain vs layer 2 different?

Which Is Better?

If you believe in the Ethereum philosophy and the general decentralization narrative, you will likely advocate for layer 2 solutions over sidechains. They are part of the same infrastructure and contribute to the growth of the local ecology. When ETH transaction costs began to rise, Matic and BSC began offloading a significant amount of traffic, but this came at a cost. Less security is provided to users, and liquidity is syphoned away from the main network.

If you are unfamiliar with the blockchain dilemma, you should definitely do some research. It basically illustrates why security, decentralization, and scalability cannot exist simultaneously. The only requirement is to sacrifice one of these, which is precisely what BSC and Matic did.

At the time of its inception, the Binance Smart Chain was secured by a small number of nodes that were entirely under Binance’s control. Because sidechains (for the time being) are predominantly centralized databases, there is little you could do if they ran off with all of your money.

All of them, to be fair, have a long-term decentralization strategy, but many pieces must fall into place before they can become a reality.

Sidechain vs layer 2: Quick reviews:

Compared traits Sidechain Layer 2
Operational method Run alongside with mainchain Run on the top of layer 1 
Consensus mechanism It has its own consensus mechanism Rely on the main chain
Security Not secured by layer 1 blockchain but by itself Secured by layer 1 blockchain
Scalability Yes Yes

FAQs About Sidechain

Are Sidechains Secure?

Sidechains are responsible for securing themselves. If there is insufficient mining power to protect a sidechain, it might be compromised. If a sidechain is hacked or compromised, the harm will be limited to inside that chain and will not impact the main chain.

How Do I Create A Sidechain Crypto?

Many implementations are still in the experimental phase. It is not an effortless task. Some individuals use State Channels, some develop Plasma Chains, and yet others employ non-blockchain-based solutions and calculate using conventional languages. You should have a thorough understanding of the core concepts and an advanced understanding of scalability on the blockchain if you intend to build up a sidechain.


How do I create sidechain crypto?

Is Lightning Network A Sidechain Or Not?

Yes, the Lightning Network is a sidechain that provides users with a rapid settlement network and services.

>> More information on the mission of the Lightning Network

Sum It Up

Sidechains can substantially increase the capabilities of cryptocurrencies, cut transaction fees, and facilitate the movement of assets between blockchains. There are several methods. For integrating diverse blockchains with varying levels of security compromises. Building a sidechain is a relatively hard undertaking in and of itself, but utilizing a pre-existing solution can simplify the application’s design, allowing it to handle numerous cryptocurrencies with a single codebase.