Will Sidechains be the best solution for Layer 2?

Sidechains, Chinese translated into the side chain, is compatible with Ethernet Square virtual machines independent block chain.

They use their own consensus model and block parameters to effectively process transactions, which can achieve interoperability with the ETH main network, and can also transplant smart contracts deployed on the ETH main network to the side chain, thereby realizing funds and data Cross-chain transmission.

Unlike the Layer 2 solution based on the principle of Rollups, Sidechains is responsible for its security and consensus implementation process.

There is no need to regularly report the latest status change results to the ETH mainnet, and there is no need to submit the transaction records on the side chain to the ETH mainnet.

Will Sidechains be the best solution for Layer 2?

The interaction between the sidechain and the ETH mainnet can be called “two-way pegging”. When funds are transferred from the ETH mainnet to the sidechain, they will be locked on the ETH mainnet and “minted” on the sidechain.

When the funds are returned, the tokens on the side chain will be “destroyed”, so that the tokens that were originally locked on the ETH mainnet will be unlocked.

Strictly speaking, Sidechains is not a sub-chain of Ethereum, but a blockchain network that runs independently and runs in parallel with the ETH main network.

Its advantage is that it allows more innovation and optimization, and users have the opportunity to obtain faster transaction speed and lower transaction costs; its disadvantage is that security will be decoupled from the ETH main network, and the computing power of the Ethereum network cannot guarantee that the side chain is not Received a “51% attack”.

The most typical Sidechains are the BSC and Polygon networks. There is no doubt that Sidechains took the lead in Rollups to take over the overflow value of ETH.

Will Sidechains be the best solution for Layer 2?

Since February 2021, as the price of ETH has skyrocketed, the problems of ETH mainnet transaction congestion and excessive gas fees have become increasingly prominent.

Those Layer 2 projects based on the principle of Rollups are still under development and have not yet launched a mainnet compatible with the Ethereum network.

Ever since, the side chain project represented by BSC Polygon took the lead in undertaking users, funds and DeFi projects that overflowed with ETH.

BSC is a smart blockchain compatible with the Ethereum Virtual Machine (EVM) and one of the first ETH sidechains to go online.

Unlike the proof-of-work consensus mechanism adopted by ETH, BSC achieves faster block generation speed and greater transaction throughput through the proof-of-stake consensus mechanism.

Will Sidechains be the best solution for Layer 2?

Good compatibility, faster speed and lower entry costs have made a number of imitations of popular DeFi projects appear on BSC.

For example, PancakeSwap is to Uniswap, Venus is to AAVE, and Alpaca is to Alpha.

On this basis, and thanks to the support of Binance Exchange, BSC has gained huge user traffic and has become a smart blockchain whose total lock-up value is second only to ETH, and is far behind other ETH. Side chain competitors.

Polygon is an ecosystem that can be used to create a blockchain network compatible with Ethereum and expand solutions. The already launched Polygon mainnet is an ETH sidechain based on the proof-of-stake consensus mechanism.

Since the Polygon mainnet went live in May 2021, it has attracted a considerable number of users in the market with its advantages such as fast transactions, low cost, and compatibility with the Ethereum virtual machine. Its total lock-up value is second only to BSC among all ETH side chains. .

Will Sidechains be the best solution for Layer 2?

The total value of all assets locked in smart contracts on ETH, BSC and Polygon (USD)

However, Sidechains’ value capture capabilities have encountered a growth bottleneck. As the first smart blockchain to undertake the overflow value of ETH, BSC is the most developed and representative of all Ethereum side chain projects.

Judging from the trend comparison chart of the total lock-up value of the two, BSC broke out in February and fell behind in May and did not continue to follow the trend of ETH in September to set new highs, but entered a bottleneck period of growth.

Although Polygon’s total lock-up value did not fall sharply in May but achieved growth, even if it is included, the total lock-up value of all Ethereum side chains is still not a small distance from the historical high.

There are three main reasons for this phenomenon:

  • One is the limited carrying capacity of these side chain projects.
  • The second is to be diverted by other independent blockchain networks that are not sidechains of Ethereum.
  • The third is to be diverted by the Layer 2 network based on the principle of Rollups.

First of all, because the security of the side chain is its own responsibility, and its high efficiency is obtained at the expense of some decentralized properties.

Therefore, for security reasons, the funds that users are willing to deposit on the side chain are limited, and the value they can carry is also limited.

Moreover, although the transaction throughput of these side chain projects is several times higher than that of Ethereum, there have also been transaction congestion and even node idleness during peak periods.

Will Sidechains be the best solution for Layer 2?

Secondly, independent blockchain networks with non-Ethereum side chains such as Solana and Terra have also attracted a lot of funds and users, and their total lock-up value exceeded $10 billion in September and October.

Finally, as the Layer 2 network based on the principle of Rollups is officially launched, some users who value security and decentralization will choose to deposit funds on them.

In summary, Sidechains is gradually no longer the best solution for Layer 2.

Moreover, judging from the data on the chain, the overflow value of ETH that Sidechains can carry seems to be close to the upper limit. As the “True Layer 2” project based on the principle of Rollups is gradually launched, the trend of Sidechains being diverted may continue.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/will-sidechains-be-the-best-solution-for-layer-2/
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