What is the best Ethereum scaling solution? Part 3: Sidechains
This is part three of a multi-part series exploring Ethereum scaling solutions. In this piece, we will explore sidechains.
To learn about Layer 2 basics and Optimistic rollups head to Part 1: Optimistic Rollups.
To learn about ZK rollups, head to Part 2: ZK Rollups.
Let’s start answering the basic questions.
What are sidechains?
A sidechain is a separate blockchain network that runs independently of Ethereum. However, it is connected to Ethereum Mainnet by a two-way bridge. Through this two-way bridge, users can send their Ethereum tokens to a smart contract’s exit address on Ethereum that locks the tokens, and after a “contest period” the funds equaling the value that is locked up in Ethereum are released into the sidechain. The same process happens when transferring funds from the sidechain to Ethereum.
So essentially, sidechains are separate blockchain networks with their own block parameters and consensus algorithms, meaning that they do not have Ethereum’s security properties. However, sidechains are designed for the efficient processing of transactions that result in lower fees and higher throughput.
Also, virtually all sidechains are Ethereum Virtual Machine (EVM) compatible, which means that smart contracts written for Ethereum work on sidechains right away. Allowing decentralized app developers to easily allow their projects on Ethereum to be launched on sidechains to reap the benefit of affordable fees and faster transactions of sidechains.
What is the difference between sidechains and Layer 2 scaling solutions?
The biggest difference between Layer 2 scaling solutions and sidechains is that Layer 2 scaling solutions run on top of the Ethereum mainnnet, by compressing bundles of transactions and submitting them to the Ethereum mainnet thereby relying on the security of the Ethereum mainnet.
Sidechains run parallel to Ethereum while Layer 2 scaling solutions run on top of Ethereum.
Sidechains, on the other hand, run in parallel with the Ethereum network but are connected via a two-way bridge to move tokens in and out of the separate chains. This means that in contrast to layer 2 scaling solutions, sidechains do not post state changes and transaction data back to Ethereum Mainnet, and must rely on security to its validators and consensus mechanism.
Sidechains
Polygon PoS
Polygon, formerly known as Matic, is the leading Ethereum sidechain that was launched in 2017. With the move of Ethereum from proof of work to proof of stake, Polygon has also evolved into a PoS “commit chain” where it periodically compiles the Merkle root of all transactions on the chain and submits it on Ethereum. Transactions on Polygon achieve finality once the transactions are submitted on Ethereum and added to an Ethereum block. About $1 billion is locked in Polygon today.
Polygon PoS is comprised of two chains, Heimdall and BOR. Heimdall is a chain consisting of validators that selects the block producers and BOR is the chain that produces the Polygon blocks. Heimdall coordinates the information between the Polygon staking contracts on Ethereum and the validators on Polygon to produce blocks on BOR.
Token:
Polygon’s native token is MATIC which is an ERC-20 token on Ethereum. MATIC is used to pay for the transaction fees on the Polygon network and to stake and secure the chain.
Notable dApps:
Over 37,000 dApps are in the Polygon ecosystem including dApps like:
Uniswap
Aave
Sushiswap
Curve Finance
Gnosis Chain
Gnosis Chain was launched in 2021 by combining the ecosystem between xDai and GnosisDAO. Gnosis Chain is an EVM-compatible chain that used a PoS consensus model before Ethereum to allow for faster and cheaper transactions. About $53 million is currently locked in Gnosis.
Token:
Two tokens run the Gnosis chain ecosystem, xDai, and GNO.
xDAI stablecoin to facilitate transactions and pay for fees on the Gnosis chain. xDai is a stablecoin that is pegged to DAI, which is pegged to USD.
GNO is the governance token to participate in the transaction validation process on the Gnosis chain and thereby receive additional GNO tokens as a reward for helping to secure the network.
Notable dApps:
Curve Finance
1inch
Skale
Skale was launched in 2018 and governed by the SKALE DAO. The Skale network creates made-to-order elastic sidechains where developers can define sidechains to fit their needs, adjusting the sidechain they want to use for Dapps to fit certain specifications, so they can select consensus protocols, virtual machines, parent blockchain, and define the security protocol on the sidechain.
Token:
The SKALE (SKL) token grants a right to participate as a network validator, stake as a delegator, or access a share of the network’s resources as a developer.
Loom Network
The Loom Network was launched in 2017 and operates by creating DApps chains that are composed of multiple sidechains. When DApp developers want to create their application, separate sidechains are allocated for them, which are then integrated into Layer 1 mainnets like Ethereum to ensure the interaction and reliability of sidechains.
In addition to Ethereum, Loom Network works with Bitcoin, Binance Chain, and Tron, allowing developers to use their assets from all of the above networks.
Token:
The LOOM token is a PoS token used to secure Loom Network’s mainnet, Basechain. LOOM holders can stake their tokens to help secure Basechain and earn staking rewards.
In conclusion
Sidechains are a different way where developers have found a solution to the scaling problem of Ethereum mainnet.
As the name suggests, sidechains are their own separate blockchain network with interoperability with Ethereum, contrasting them from optimistic and ZK rollups. Due to sidechains’ separate consensus mechanisms, many sidechains allow for cheaper transaction fees than rollup solutions but it is unable to take the full benefit of Ethereum’s security.
Through these discussions about the different scaling solutions, we can see a pattern where each advantage comes with a corresponding disadvantage.
In the next part of this series, we will look at another interesting scaling solution, Validium.
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