By Kapil Rajyaguru
A sidechain is a separate blockchain network that connects to another blockchain, called a parent blockchain or mainnet, via a two-way peg.
These secondary blockchains have their own consensus protocols allowing a blockchain network to improve its privacy and security, and minimize the additional trust required to maintain a network.
A key component of sidechains is their ability to facilitate a smoother asset exchange between the mainnet and the secondary blockchain. This means that digital assets such as tokens can be securely transferred between blockchains, allowing projects to expand their ecosystem in a decentralized manner.
In practical terms, an individual using the Bitcoin mainnet needs to send bitcoin to an output address. This address could be a hard wallet, a hot wallet or a sidechain. Once the transaction is confirmed, a notice of the completed transaction is broadcast across Bitcoin’s network.
Following a brief security check, the sent bitcoin is transferred onto the sidechain, allowing users to freely move their assets across the new network.
Now, as simple as that may sound there are a few key components that allow sidechains to operate effectively. These components include:
- A two-way peg
- Smart contracts
Two-way peg
According to the sidechain white paper, a two-way peg is defined as:
“The mechanism by which coins are transferred between sidechains, a pegged sidechain is a sidechain whose assets can be imported from and returned to other chains.”
Smart contracts
Smart contracts are used to ensure that foul play is minimized by enforcing validators on the mainnet and sidechain to act honestly confirming cross-chain transactions. Once a transaction has occurred, a smart contract will notify the mainnet that an event has happened.
Real-life examples of sidechains are Bitcoin’s Liquid Network and RootStock (RSK).
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