Sidechains & Layer 2 Alternatives
Sidechains are separate blockchains that are pegged to Bitcoin, allowing bitcoin to be moved between the main chain and sidechain. They provide alternative scaling solutions and specialized features.
Sidechains are independent blockchains with their own consensus rules that are pegged to Bitcoin:
Bitcoin Mainnet:
├── Lock bitcoin
└── Receive sidechain tokens
Sidechain:
├── Receive tokens
├── Use sidechain features
└── Unlock to return to Bitcoin
Major Sidechains
Liquid Network
Liquid is a federated sidechain:
Features:
- Faster blocks (1 minute)
- Confidential transactions
- Asset issuance
- Federated consensus (functionaries)
Use cases:
- Exchange settlements
- Faster transactions
- Confidential amounts
- Tokenized assets
Rootstock (RSK)
Rootstock is a smart contract sidechain:
Features:
- EVM-compatible
- Smart contracts
- Merge mining with Bitcoin
- Two-way peg
Use cases:
- Smart contracts on Bitcoin
- DeFi applications
- Tokenization
- Complex contracts
How Sidechains Work
Two-Way Peg
1. Lock bitcoin on mainnet
2. Wait for confirmation period
3. Receive tokens on sidechain
4. Use sidechain features
5. Lock tokens on sidechain
6. Wait for confirmation
7. Receive bitcoin on mainnet
Peg Mechanisms
Federated Peg:
- Trusted functionaries
- Faster, but requires trust
- Used by Liquid
SPV Peg:
- Cryptographic proofs
- More trustless
- More complex
Comparison with Lightning
| Feature | Sidechains | Lightning Network |
|---|---|---|
| Trust Model | Varies (federated/SPV) | Trustless |
| Speed | Sidechain block time | Instant |
| Features | Custom consensus | Payment channels |
| Complexity | High | Medium |
| Use Case | Specialized features | Payments |
Limitations
Trust Requirements
- Federated sidechains: Require trust in functionaries
- SPV sidechains: More trustless but complex
- Security: Sidechain security separate from Bitcoin
Trade-offs
- Trust vs. Features: More features often require more trust
- Complexity: More complex than Lightning
- Adoption: Limited compared to Lightning
Related Topics
- Lightning Network - Payment channel network
- Statechains - Alternative approach
- Governance - How Bitcoin evolves