Along with the concept of blockchain, the essence of which we have already discussed, other terms are often used that may cause confusion for an unprepared person. One such term is «sidechain». Let’s look closer and find out why this technology is needed and what value it has for the blockchain industry.
A sidechain is a new mechanism that allows tokens and other digital assets from one blockchain system to be used safely on another and then, if necessary, return to the source code. Sidechain functionality has tremendous potential for empowering the crypto-industry.
HOW A SIDECHAIN WORKS
A sidechain is a separate blockchain synchronized with the parent through the use of a two-way binding system. Two-way binding allows you to make asset transactions between the parent blockchain and the sidechain. The original chain is usually called the «main» and all additional ones are called «side».
The user of the parent chain must first send their coins to the addressee and the assets are blocked for a period of time to prevent them from being spent twice. Then, upon completion of the transaction, a confirmation of the transaction arrives and, after some time (for additional security), the money goes to the sidechain user and he is given the right to use them at his discretion. This is also true for the reverse process.
A federation is an intermediate link between the main and side chains. It is intended to ensure the transparency of the transaction. Members of the federation are chosen by the creators of the sidechain. The extra security provided by a federation is a definite plus. The problem is that this structure is an intermediary between the two parties of the transaction and, after all, the initial goal of blockchain technology was to get rid of intermediaries.
The sidechains themselves are responsible for their own security, and if there is not enough production capacity the sidechain can be hacked easily. But due to the independence of each of the chains, hacking the sidechain will not affect the rest of the system. Sidechains need their own miners. These miners can be encouraged by «combined mining», with the result that two different cryptocurrencies based on the same algorithm are mined simultaneously.
Sidechains open the way for cryptocurrency integration. This gives developers flexibility and the opportunity to experiment with beta versions of altcoins. The potential field of application for sidechains is finance. Its introduction would make traditional banking and services more accessible and convenient. But the security of sidechains must be strengthened. Without this measure the technology will not be able to take off.