Each sidechain is a full-fledged blockchain with its own rules, algorithms, users, methods of receiving rewards, protection mechanisms, and other basic components. However, this is not an autonomous platform, since any sidechain is always connected in some way with the main chain. This ensures the interchangeability of assets - the ability to transfer coins from one chain to another.
There are several ways to enable this transition. Most often, by depositing funds at a special address and receiving the equivalent amount in coins of another side chain. This process is carried out automatically, so it may take some time. Plus, very often it is necessary to wait for an additional “waiting period”, which needed for additional security. An alternative is to send funds to the account of the custodian person or even the “custodian federation” and receive an equivalent amount of assets within the sidechain. However, the use of intermediaries by reducing anonymity and adding the need to provide a mechanism of trust.
Why is this needed?
Because it one of the basic principles of operation of any blockchain is permanence. And making additions, improvements and alterations are possible only if it is approved by most network users. But you need to somehow check how all these changes will work in practice before you begin to actively implement them. For this, sidechains are created - “testing ranges”, which allow experimenting with new approaches, ideas and algorithms.
In addition, in the process of introducing new changes, it may happen that a significant number of users refuse to accept them. They will continue to use the old protocols, due to which a fork situation arises. If it turns out that the new protocols seriously conflict with the old ones, then there will be a hard fork and the chain will be divided into two - the basic blockchain and the alternative side chain.
It is also possible that the sidechain remains an “additional add-on” for the existing blockchain chain. This is usually used to solve the problem of scaling and increase the speed of work. The fact is that the Bitcoin blockchain, for example, is a reliable and practical system, but not suitable for instant small transactions - such as paying a bill in a cafe. You will have to wait in line from 10 minutes or longer - only a few can afford it.
It is this problem that sidechains solve. They work much faster, and hundreds of transactions within one sidechain can be combined into two blockchain ones - transferring funds to a deposit address and withdrawing funds from it upon completion of work. And in case if there are only few transactions, then the commission and overall time will be smaller. In addition, sidechains are not bound by the same rules and algorithms as blockchains. This also significantly facilitates the speed of transactions in them.
Moreover, many of these “daughter chains” also support mining technology. And “merged mining” - “combined mining” - allows you to simultaneously mine tokens in both the base chain and the alternative one.
However, there is some problem. The fact is that sidechains don't have too much computing power at an early stage of use, so they are more vulnerable to a 51% classic attack. Therefore, their creators have to come up with additional ways to ensure security. However, if the “daughter chain” is hacked, it will not affect the state of the main blockchain. And, on the contrary, the problems of the main chain will not affect your assets in the sidechain in any way, except that their price will drop, because the cost of sidecoin (any coins used in sidechains) directly depends on the state of the main cryptocurrency. All this is extremely useful for the diversification of cryptocurrency assets.
Some interesting examples
- Rootstock is an open-source test network with test-code “Ginger”, which has two-way binding to the Bitcoin blockchain and supports unified mining. The main point is the introduction of the ability to use smart contracts and increase the speed of work.
- Ardor is a further development of the Nxt blockchain, which allow users to create their own sidechains for businesses and institutions. The central chain that ensures security and its own tokens is the Ardor chain itself, from which "daughter chains" are already built. As a consensus algorithm, it uses the “proof of stake” mechanism. It provides a free exchange of resources and assets between various subsidiary chains within this blockchain.
Using sidechains significantly expands the capabilities of existing cryptocurrency networks, increases their speed and allows you to cope with the problem of scaling. And besides, to test and introduce new ideas that theoretically can seriously improve the efficiency of working with cryptocurrency in total.