By far, the innovation with the most impact in the Web3 world this year is the sidechain. The highest-volume blockchain providers in the world — Binance, Polygon, Ankr and Avalanche — have all recently released sidechain functionality. They are investing hundreds of millions into these new implementations — and with good reason.
Sidechains are the most likely multichain solution to crypto’s scalability problem. Multiple projects have failed or stalled once they hit a certain level of traffic. Ethereum gas fees are notoriously expensive, while Solana is continually congested to the point where it needs to be turned off. Needless to say, Web3 cannot grow unless transactions are fast, low-cost and secure.
Layer-2 (L2) solutions did not solve the problem despite much expectation and implementation. Sidechains are different and could prove to be the best answer as crypto enters mainstream adoption.
Just what is a sidechain?
A sidechain goes by many different names from various providers. Ankr calls them App Chains; Avalanche calls them a SubNet; Polygon refers to them as a SuperNet. You might also hear the terms parachains, nested blockchains, or application-specific blockchains, which Binance refers to as application sidechains. Like all things in the software development world, there are different features and implementations. For instance, some sidechains might be equal and interdependent, others in a parent-child relationship where the child takes attributes from the parent.
However, sidechains offer increased scalability because developers can launch a new blockchain or sidechain to cater to a specific function. For instance, Avalanche has dedicated chains (X-Chain, C-Chain, P-Chain) for specific purposes. So, blockchains can be designed specifically to deal with certain types of transactions or high-frequency applications. If one transaction type is causing all the issues, it won’t block up 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 single area where the scalability concerns are highlighted, with gaming being resource-intensive and requiring high daily transaction volumes. The Crabada game on Avalanche recently increased the cost to $11 per transaction. And changing the initial layer-1 blockchain to cater to Web3 games is not feasible.
Sidechains have infinite applications and are likely the best option to move forward with Web3. But sidechains are all governed by their own set of rules, which aren’t infallible to bad architecture. Most decentralized applications (DApp) are not familiar enough with all the ins and outs 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 usually not as secure as the initial chain (a common misconception). The security features of a strong blockchain are not inherited on a given sidechain. The sidechain has its own consensus mechanism, its own validator fees and its own vulnerabilities based on each developer’s configuration.
Ronin, an Axie 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, the sidechain processed 560% more transactions than Ethereum, meaning it did excel in terms of Web3 scalability despite its security vulnerabilities. Axie chose to only have nine validators, four of which ran everything. This was a clear attack vector that the Sky Mavis team overlooked.
And this is the biggest pitfall associated with the sidechain: They rely on the DApp developers’ proficiency in running their own infrastructure. Companies such as Ankr have begun solving this by offering App-Chain-in-a-Box solutions. Other infrastructure companies will surely follow. The advantages of sidechains far outweigh the security vulnerabilities once the industry makes good standards.
They are the best option for what is known as the blockchain trilemma; when you try to increase performance on the main chain, you do so at the expense of either security or decentralization (the triangle being 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 people say that sidechains are a type of L2 solution. But this is not strictly true. An L2 is an additional “layer” on top of the layer 1. A sidechain is a near-identical implementation of a blockchain but with its own consensus protocols and node infrastructure. It is also tweaked for specific functions. By this definition, Ethereum’s Plasma Network is not really a sidechain, but an L2 (it inherits its security from the root chain and posts to it).
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 conduct transactions off the blockchain without needing permission from miners or validator nodes. These are easier to implement and have a place in terms of increasing transaction speed. But they are not as flexible, customizable or fast as compared to sidechains.
For example, a sidechain can allow developers to quickly and easily deploy their own chain for a specific purpose. Multiple test blockchains can be developed to see which ones work the best. Or different networks can be implemented depending on user feedback. This is not the case with L2s, which are essentially a bandaid to deal with a scalability problem.
A sidechain is a new dedicated chain for a specific purpose. An L2 is often a patch applied on a failing layer 1, which does not have the bandwidth to support existing traffic.
Scalability: The main topic in Web3
Many might believe that scalability, security and decentralization are just developer problems that don’t matter. But they go to the core of global finance and have significant consequences for everybody. Sidechains and L2s are not just meaningless technical terms, but the architecture upon which Web3 will be built and the perfect vehicles for limitless scalability. And Web3 could be the key to global economic freedom with deep implications for growth across industries and geographical locations.
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 ultra slow at 7 transactions per second (TPS) and 15 TPS, respectively. Visa, meanwhile, handles around 24,000 TPS. In order for global crypto adoption and for Web3 to come to fruition, sidechains are needed. They will ultimately help to make 24,000 TPS look like a snail on the pavement, which is why some of the world’s biggest providers are actively working and promoting them. They might be the best Web3 innovation since smart contracts.
Sidechains are the future
The future of Web3 scalability lies with sidechains. This is why Ankr is actively promoting this technology and further providing the node infrastructure that supports it.
Developers can get a dedicated sidechain for their specific application, potentially resolving the blockchain trilemma once and for all. Through ready-made frameworks, launching a dedicated blockchain for a specific application will be simple to achieve.
Blockchain easily defeats centralized legacy institutions in terms of security and decentralization. The last remaining pillar is scalability, which can be potentially resolved by sidechains.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s 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 Ankr and runs a blockchain consultancy called Mewn that helps launch projects and grow their valuation. Greg has worked in startups for 15 years — 10 years with Silicon Valley tech companies and five years building crypto projects. He’s best known for co-founding the Akash Network and AngelHack and helping Kadena grow from $80 million to over $4 billion in 100 days.