What Is a Sidechain?

Last Modified:
March 26, 2024

A sidechain is a secondary blockchain designed to independently handle transactions outside a main blockchain network (mainnet) and send the transaction data back to it to be recorded. This helps prevent the blockchain from being overloaded. Furthermore, because sidechains require fewer resources, are designed for efficiency, and have less user traffic compared to main blockchains, they also speed up processing time and lower transaction fees.

They use their own independent consensus mechanisms (eg. Proof-of-Stake or Proof-of-Authority) to confirm new transactions. For instance, Polygon was developed as a sidechain of Ethereum which used Proof-of-Stake to process transactions almost instantly while Ethereum was limited by using Proof-of-Work.

Sidechains remain connected to the mainnet and may either use their own tokens or derive their tokens from the mainnet. When a user transfers crypto from the main blockchain to a sidechain, the funds don’t actually move. Instead, smart contracts lock up crypto on the main blockchain and unlock the equivalent amount on the sidechain.

Let's say you want to transfer ETH from the Ethereum blockchain to the Ronin network (an Ethereum sidechain developed for the game Axie Infinity). A smart contract locks ETH on the main Ethereum network and creates an equivalent amount of ETH on Ronin in the form of Wrapped Ethereum, or WETH and places the funds in your crypto wallet. If you want to transfer the funds back to Ethereum, a smart contract will burn the WETH and unlock the equivalent amount of regular Ethereum in your wallet for you to use.

Image source: Phemex.com

Examples of Sidechains

Liquid Network

A Bitcoin sidechain for sending and receiving digital assets such as stablecoins and security tokens.

Skale

An Ethereum sidechain that focuses on decentralized applications. Skale offers on-chain file storage for dApps and NFTs and supports game development.

Gnosis

A community-run Ethereum sidechain that makes it easy for members to participate in verifying blockchain transactions, keeping the network secure and fees low.

Overall, sidechains make blockchain technology more efficient and practical for different uses. By opening up more possibilities for users and developers, they help bring widespread Web3 adoption within our reach.