Deconstructing sidechains — The future of Web3 scalability

189
SHARES
1.5k
VIEWS

So far, the innovation with the most impact in the web3 world this year has been sidechains. The largest volume blockchain providers in the world – Binance, Polygon, Anker and Avalanche – have recently released sidechain functionality. They are investing millions in these new implementations – and with good reason.

Sidechains are the most likely multichain solution to the scalability problem of crypto. Many projects have failed or stalled after hitting a certain level of traffic. Ethereum gas fees are extremely expensive, while Solana is constantly overcrowded to the point that it needs to be shut down. Needless to say, Web3 cannot develop unless transactions are fast, low cost and secure.

READ ALSO

Layer-2 (L2) solutions did not solve the problem despite much expectation and implementation. Sidechains are different when cryptocurrency enters the mainstream and may prove to be the best answer.

Just what is a sidechain?

A sidechain goes by many different names from different providers. Anker calls them App Chain; Avalanches call them subnets; Polygon refers to them as supernets. You may also hear the term parachain, nested blockchain, or application-specific blockchain, which Binance refers to as an application sidechain. Like all things in the software development world, there are different features and implementations. For example, some sidechains may be identical and interdependent, others in a parent-child relationship where the child inherits properties from the parent.

related: What Are Parachins: A Guide to the Polkadot and Kusama Parachins

However, sidechains offer increased scalability as developers can launch a new blockchain or sidechain to accomplish a specific task. For example, Avalanche has dedicated chains (X-Chain, C-Chain, P-Chain) for specific purposes. Therefore, blockchains can be specifically designed to deal with certain types of transactions or high-frequency applications. If one transaction type is causing all the issues, it will not block the entire blockchain, just a dedicated sidechain.

The fact is that layer-1 blockchains (Ethereum, Bitcoin, Avalanche, Binance) are not designed for games. This is the only area where scalability concerns have been highlighted, with gaming being resource-intensive and requiring high daily transaction volume. The Crabada game on Avalanche recently raised the cost per transaction to $11. And it is not possible to replace the initial layer-1 blockchain to meet the web3 game.

sidechain drawbacks

Sidechains have infinite applications and are probably the best option going forward with Web3. But sidechains are all governed by their own rules, which are not infallible for bad architecture. Most decentralized applications (dApps) are not familiar with all aspects of running their own Web3 infrastructure, node and validator networks. These are necessary to process transactions and ensure speed, security and reliability.

Because each sidechain has to run its own infrastructure, sidechains are generally not as secure as the initial chain (a common misconception). The security features of a strong blockchain are not inherited on a given sidechain. Sidechains have their own consensus mechanisms, their own validator fees, and their own vulnerabilities, depending on the configuration of each developer.

Ronin, an Axi Infinity sidechain, was hacked for $620 million in Ether (ETH) and USD Coin (USDC). While this is a clear and obvious failure in terms of network security, Sidechain processed 560% more transactions than Ethereum, meaning it was excellent in terms of Web3 scalability despite its security vulnerabilities. Axie only chose nine validators, four of whom ran everything. This was an obvious attack vector that was overlooked by the Sky Mavis team.

related: The Future of the Internet: Inside the Race to Web3’s Infrastructure

And this is one of the biggest disadvantages associated with sidechains: they rely on the efficiency of dApp developers to run their own infrastructure. Companies like Anker have started to solve this by offering an app-chain-in-a-box solution. Other infrastructure companies will certainly follow suit. Once the industry establishes good standards, the advantages of sidechains far outweigh the security weaknesses.

They are the best alternative to what is known as the blockchain trilemma; When you try to increase performance on the main chain, you do so at the expense of security or decentralization (the triangle of performance, decentralization and security).

How are sidechains different from layer-2 solutions?

These are new technologies, and many people do not fully agree on the terms. Some say that sidechains are a kind of L2 solution. But this is not strictly true. An L2 layer is an additional “layer” on top of 1. A sidechain is a nearly identical implementation of a blockchain, but with its own consensus protocol and node infrastructure. It has also been tweaked for specific tasks. By this definition, Ethereum’s Plasma Network is not actually a sidechain, but an L2 (it inherits its security from the root chain and post).

Popular L2 solutions include Bitcoin’s Lightning Network and Ethereum’s Raiden Network. These are best described as state channels, a subcategory of L2s. They allow two network participants to transact off the blockchain without the permission of miners or validator nodes. They are easy to implement and have a place in terms of increasing transaction speed. But they are not as flexible, customizable, or fast as sidechains.

For example, a sidechain can allow developers to quickly and easily deploy their chain for a specific purpose. Several test blockchains can be developed to see which one works best. Or different networks can be implemented based on user feedback. Not so with L2s, which are essentially a bandaid to deal with a scalability problem.

related: Do cross-chain bridges have a secure future?

A sidechain is a new dedicated chain for a specific purpose. L2 is often a patch applied to a failing layer 1, which does not have the bandwidth to support the existing traffic.

Scalability: Key Topics in Web3

Many might assume that scalability, security, and decentralization are just developer issues that don’t matter. But they go to the core of global finance and have important consequences for everyone. Sidechains and L2s are not just meaningless technical terms, but the architecture on which Web3 will be built and are the perfect vehicles for unlimited scalability. And Web3 could be the key to global economic freedom, which has a profound impact on growth across all industries and geographies.

Bitcoin and Ethereum were initially created with a focus on security and decentralization, not scalability. In this regard, they have been a huge success, but both are extremely slow at 7 transactions per second (TPS) and 15 TPS respectively. Meanwhile, Visa handles about 24,000 TPS. For global crypto adoption and for Web3 to be successful, a sidechain is needed. They’ll eventually help 24,000 TPS look like a snail on the pavement, which is why some of the biggest providers in the world are actively working on and promoting them. They may be the best Web3 innovation since smart contracts.

sidechains are the future

The future of Web3 scalability lies with the sidechain. This is why Anker is actively promoting this technology and further providing the node infrastructure that supports it.

Developers can get a dedicated sidechain for their specific applications, potentially solving the blockchain trilemma once and for all. With the ready-made framework, it will be easy to launch a dedicated blockchain for a specific application.

Blockchain easily beats centralized legacy institutions in terms of security and decentralization. The last remaining pillar is scalability, which can potentially be solved by sidechains.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.

The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Gregory Gopman is a tech entrepreneur working in the blockchain space where he serves as the Chief Marketing Officer of Anker and runs a blockchain consultancy called Maven that helps launch projects and scale up their valuations. Greg has worked at startups for 15 years – 10 years with Silicon Valley tech companies and five years building crypto projects. He is best known for co-founding Aakash Networks and AngelHack and helping Kadena grow from $80 million to over $4 billion in 100 days.