Pegged Sidechains
For existing blockchains like Bitcoin to evolve and become more accessible, sidechains have become crucial. A separate blockchain connected to the primary blockchain is known as a sidechain. A Sidechain is a separate blockchain connected to the mainchain by a 2-way peg. A preset rate of token or virtual asset transfers between the mainchain and sidechain is made possible by the sidechain. Dr. Adam Back after a detailed analysis and planning created the sidechain, described in his work titled “Enabling Blockchain Developments with Pegged Sidechains.”
Tokens must be secured on the mainchain for sidechains to communicate with it. A sidechain might be either private or public. As a separate blockchain network, each sidechain has its token, methodology, consensus, and security; according to how the blockchain works, several sidechains connects to the mainchain. Inter-sidechain communications are also feasible by using the blockchain system as a conduit.
Blockchain applications, also known as decentralized apps or daps, can be operated on sidechains to relieve the mainchain of some of the strain. By including sidechains, blockchain can be grown in this manner. Additionally, we can connect sidechains with various scaling techniques.
In a typical sidechain implementation, the assets are locked to generate a transaction on the first blockchain (the mainchain). Afterward, when a transaction on the sidechain with cryptographic evidence that we secure assets successfully on the first blockchain.
In this article, we will discuss the following:Â
- History of Pegged Sidechains
- Key Element of Pegged Sidechains
- The Plasma Sidechain
- Bitcoin Sidechains
- Advantages of Sidechain
History of Pegged Sidechains
The Hash Cash creator and executive Chairman of Block stream, Adam Back, introduced the idea of a sidechain in a research paper on October 22, 2014. Legendary Bitcoin engineers, including Matt Corallo, Luke Dashjr, co-founder of Block stream Mark Frieden Bach, and others, were also involved.
Many authors who wrote the paper contributed significantly to the development of Satoshi Nakamoto’s concept of an electronic currency system, particularly in incorporating HashCash’s proof-of-work consensus protocol into Bitcoin’s blockchain. However, they also recognized that there was still room for development if Bitcoin was to serve a global audience.
The developers of the sidechain white paper emphasized that, at the time, capacity and decentralization trade-in in Bitcoin’s architecture. Additionally, there were worries about the privacy and censorship of Bitcoin. Therefore, new technologies enhancing Bitcoin’s cryptographic security are required only if more people start using bitcoin (BTC) money.
The authors proposed the following: “We offer a revolutionary technology, pegged sidechains, which permits the transfer of bitcoins and other ledger assets between multiple blockchains. Thanks to this, users can now access cutting-edge cryptocurrency systems utilizing their existing funds.
Key Element of Pegged Sidechains
One of their fundamental features is the ability of sidechains to enable a more seamless asset exchange between the public and the secondary blockchain. So this allows projects to expand their ecosystem in a decentralized manner by safely transferring digital assets like tokens between blockchains.
A user of the Bitcoin blockchain system must send bitcoin to an output number to use it. This address might be a sidechain, a hot wallet, or a hard wallet. A notice of the successful process is broadcast throughout the Bitcoin network once we confirm the transaction. Although sidechains appear to be a promising option, nothing comes for free. For the initial setup, sidechains took significant time and money. They also make the blockchain design more complex. Because sidechains are independent, they can be vulnerable to attack if we disturb network power improperly, necessitating careful design. On the other hand, they can test new protocols and mainchain enhancements because if something corrupts the sidechain, it won’t affect the main chain.
Sidechains do not involve tight connections, in contrast to sharding. Except for the initial setup fee, sidechains typically outperform payment channels. On sidechains, transactions are not confidential like on payment channels. Additionally, unlike payment channels, users do not need to be online to complete the purchase. For sidechains, adding or removing participants is unnecessary; the transaction channel requires this.
The Plasma Sidechain
However, the Ethereum blockchain’s layer two scalabilities work via Plasma. It’s a framework for building a sidechain that communicates with the Ethereum blockchain (sometimes called a child or plasma chain). Sidechains are standalone blockchains that can spawn other sidechains. We can consider the sidechain hierarchy in the plasma structure as a tree. The speed and effectiveness are optimized since each sidechain functions independently and runs concurrently with the mainchain and other sidechains. We can utilize every sidechain to process different applications within the same safe ecosystem. To enable quicker transaction execution, Plasma substitutes proof-of-stake for proof-of-work as the consensus mechanism.
In the case of a sidechain, an intelligent contract distributes on the mainchain (parent blockchain). Rules, the accurate cryptocurrency exchange, and sidechain state hashes are all contained in this smart contract. A sidechain sends updates on its state to the main blockchain regularly. For example, we make Block commitments downward, exits, and transfer to any parent chain before being submitted to the parent blockchain. So to enable immediate transactions, deploy the lighting network on top of the plasma layer (i.e., sidechains).
The given bitcoin is moved onto the sidechain after a quick security check, enabling users to freely move their assets around the new network.
As straightforward as it may sound, sidechains require a few essential elements to function correctly. These elements consist of the following:
- A two-way peg
- Smart contracts
Two Way PegÂ
We create Sidechains to make it easier for anyone, regardless of who owns the assets, to move digital assets between blockchains. Furthermore, no subsequent actor should be able to prevent the transfer of a digital asset. Hence there should be no counterparty risk when moving these assets.
A two-way peg is necessary to transmit this back and forth across blockchains. We can compare this to a two-way tunnel with traffic moving both ways.
A two-way peg is “The method by which coins are exchanged between sidechains […] a pegged sidechain is a sidechain whose assets can be exported from and remitted to other chains”. In the sidechain white paper, a two-way peg enables the transfer of digital assets like bitcoin back and forth between the main net and the brand-new sidechain. Fascinatingly, a digital asset never actually “transfers” hands. The investments are locked on the main net while the corresponding amount unlocks in the sidechain; they don’t move genuinely.
Any two-pegged operation must proceed under the presumption that the players, or “validators,” involved in the two-way pegged are sincere. Without this, legitimately occurring transfers could be stopped or fraudulently made.
Smart Contract
However, building an off-chain process—transactions taking place outside of the parent blockchain—that transmits data between the two blockchains is required to store and transfer assets between a sidechain and its blockchain system.
Digital assets are held in and discharged at the end of the two blockchains once an intelligent contract has confirmed the transaction. As described above because the transmission of digital assets between a parent chain and a sidechain is hypothetical. Intelligent contracts ensure the avoidance of fraud by requiring validators on the blockchain system and sidechain to perform honestly while validating cross-chain transactions. A smart contract will alert the blockchain system that an occurrence has transpired once a transaction has taken place. A smart contract on the sidechain will then get the transaction information from the off-chain mechanism and verify the transaction. Funds can be transferred on the sidechain when the event authenticate, enabling users to transfer digital assets between the two blockchains.
Remember that this procedure can go from the blockchain system to the sidechain or the other way around.
Bitcoin Sidechains
Sidechains in practice include the Liquid Network for Bitcoin and Rootstock (RSK). Only Bitcoin transactions are feasible due to both sidechains’ connection to the blockchain system of the cryptocurrency.
Block stream developed The Liquid Network, an open-source sidechain built on top of the blockchain of Bitcoin. The Liquid Network’s block discovery time is only one minute because of the advantages of sidechains, which is far faster than Bitcoin’s 10-minute block time. So this implies that the sidechain can add ten times as many blocks as the Bitcoin network. The network also enables users to exchange digital assets more discreetly by hiding the quantity and asset type sent. The network allows users to exchange digital assets more discreetly by suppressing the amount and asset type sent.
A sidechain called RSK intends to run decentralized applications. Users do not need to exchange their bitcoin for other assets to use the smart contract, thanks to RSK’s expertise with them. So this indicates that they are compatible with various blockchain networks, including Ethereum.
Advantages of Sidechains
The breadth, scale, and reactivity of blockchain technology have the potential to be significantly expanded via sidechains, enabling the fusion of isolated blockchain networks into a single ecosystem.
Imagine a global blockchain network comprised of many blockchains, each with its consensus method, set of governance guidelines, and mission, all of which are kept separate. However, users could move quickly between these numerous projects thanks to the cross-chain interoperability made possible by sidechains. So this is the core benefit that sidechains offer.
