Bitcoin requires a duration of 10 minutes for the confirmation of transactions. Ethereum peak traffic times can result in gas fees exceeding $50. Users have experienced these constraints for a long time and have become frustrated; thus, blockchain cannot compete with conventional payment systems such as Visa or PayPal. So that makes one wonder in what way cryptocurrencies can gain mass adoption if they are so slow and costly?
Sidechains have come up as one of the most promising solutions to the scalability issues of the blockchain. These independent blockchains run parallel to main networks, processing transactions faster and cheaper while remaining connected to the security and liquidity of their parent chains.
In 2025, sidechains power some of crypto’s most successful scaling solutions. Polygon, the largest sidechain, reached a market cap of over $15 billion during the 2021 bull run and today maintains more than $1.8 billion in value. Understanding how sidechains work helps you navigate blockchain ecosystems more effectively and choose the right platforms for your needs.
What Are Sidechains in Blockchain?
A sidechain is an independent and separate blockchain that is connected to the main blockchain (mainchain) through a two-way bridge. This connection allows the transfer of tokens or other digital assets back and forth between the mainchain and the sidechain.
Think of sidechains as dedicated express lanes running parallel to a congested highway. The main highway (mainchain) provides foundational security and stability, while express lanes (sidechains) allow faster, more efficient traffic flow without disrupting the main road. Vehicles can enter and exit these express lanes as needed through controlled on-ramps and off-ramps.
Each sidechain has its own token, protocol, consensus mechanism, and security. By doing so, sidechains may test new features that are not possible on a mainchain, different block times, consensus mechanisms, smart contract capabilities, or privacy features, and still be compatible with the parent blockchain due to this independence.
The theory undergirding sidechains was first put forward by Dr. Adam Back in his paper titled ‘Enabling Blockchain Innovations with Pegged Sidechains.’ Since then, the concept has evolved from a theoretical proposal to a practical implementation powering billions in transaction volume.
Sidechains differ from Layer-2 solutions in one critical way: sidechains do not get the same security as the L1 blockchain next to which they are constructed. On the other hand, L2 chains acquire the security of the L1 directly. Therefore, this difference is significant when one evaluates security guarantees and trust assumptions.
What is the Procedure for Sidechains?
The Two-Way Peg Mechanism
The main invention that made sidechains possible is the two-way peg, a system that enables secure transferring of assets from one chain (main or side) to the other one. Let me explain it in more detail:
- Locking Assets on Mainchain: When you want to move cryptocurrency to a sidechain, you send it to a special address on the mainchain where it becomes locked. These coins become escrowed, and you cannot spend them on the mainchain while they’re locked.
- The verification and waiting period after locking is a security measure that guarantees the lock transaction gets an adequate number of confirmations on the mainchain, thus preventing any double-spending or reorganization attacks.
- Release on Sidechain: An equal number of tokens is released or minted on the sidechain after verification. You now have corresponding tokens on the sidechain representing your locked mainchain assets.
- Using the Sidechain: You can now transact freely on the sidechain, enjoying faster confirmations and lower fees. The sidechain operates independently with its own rules and features.
- Return to Mainchain: When you want to return to the mainchain, the process reverses. Sidechain tokens are burned or locked, triggering the release of the original mainchain assets from escrow back to your address.
Off-Chain Coordination
- Federated Model: A group of trusted validators (federation) controls the locking and unlocking process. When you lock assets, federation members verify the transaction and authorize release on the sidechain. This centralization provides efficiency but introduces trust assumptions.
- Decentralized Verification: Any participant can submit proof of mainchain transactions to sidechain smart contracts. The sidechain verifies these proofs cryptographically, ensuring assets were properly locked before releasing sidechain equivalents. This approach is more decentralized but technically complex.
- Smart Contract Bridges: Automated smart contracts on both chains manage the locking and unlocking process, reducing human intervention and trust requirements while increasing transparency.
Consensus and Security
Every sidechain has a different consensus mechanism. Some are using proof-of-stake for energy efficiency, some have delegated consensus for speed, and a few are experimenting with novel approaches that cannot be used for mainchains.
This independence is a double-edged sword. Sidechains can do what is needed for a specific use without mainchain restrictions. But, because sidechains are separate blockchains, their security may even be weakened, as they are not protected by the mainchain.
The good news? The mainchain will remain intact if a sidechain is hacked, hence it is possible to use it for experimenting with new protocols and improvements to the mainchain. This isolation protects the parent chain from sidechain failures.
Types of Sidechains
1) Pegged Sidechains
A pegged sidechain keeps a direct link to the main chain via two-way pegs; thus, the transfer of assets is very easy. Liquid Network of Bitcoin and RSK (Rootstock) are examples of this model; thus, it is possible for Bitcoin holders to use smart contracts and make faster transactions, and at the same time maintain their exposure to the BTC value.
2) Non-Pegged Sidechains
A non-pegged sidechain is more like an independent blockchain, but decision-makers have ensured that compatibility between the two blockchains is maintained thus they can interact with each other. They might use wrapped tokens or other mechanisms to represent mainchain assets without direct pegging.
3) Ethereum Sidechains
Most sidechains, like Polygon, have been built alongside the Ethereum mainnet. These sidechains leverage Ethereum’s ecosystem, smart contract compatibility, and developer tools while offering superior performance.
Polygon is a cutting-edge Ethereum scaling solution that revolutionizes transaction efficiency by providing lightning-fast transaction speeds and remarkably low transaction fees.
4) Bitcoin Sidechains
There are some side chains such as Liquid Network and Rootstock which are Bitcoin side chains. These devices not only extend the functionality of Bitcoin by allowing simple value transfer, but they also make it possible to use smart contracts, tokenization, and DeFi applications for BTC holders without the need to convert to other cryptocurrencies.
Popular Sidechain Examples in 2025
Polygon
Polygon dominates the sidechain landscape. Polygon is a blockchain platform that is centered around the creation of a multi-blockchain network of sidechains that are interoperable with Ethereum. Originally launched as Matic Network in October 2017, Polygon has evolved into a comprehensive scaling solution.
The platform’s success stems from dramatic cost and speed improvements over the Ethereum mainnet. Transactions that cost $20-50 on Ethereum often cost less than $0.01 on Polygon, while confirming in seconds instead of minutes.
Liquid Network
Liquid Network is a Bitcoin sidechain focused on institutional and professional traders. It enables faster Bitcoin transactions (one-minute blocks instead of Bitcoin’s 10-minute average) and supports confidential transactions, hiding amounts from public view—crucial for institutional privacy.
Liquid also enables tokenization, allowing users to create and trade assets on Bitcoin’s sidechain without the limitations of Bitcoin’s limited scripting capabilities.
RSK (Rootstock)
RSK brings Ethereum-style smart contracts to Bitcoin. This sidechain is merge-mined with Bitcoin, meaning Bitcoin miners simultaneously secure RSK while mining BTC. This merge-mining provides robust security while enabling complex smart contract functionality for Bitcoin holders.
Gnosis Chain
Gnosis was created in 2015 as a provider of infrastructure for the Ethereum-focused blockchain. In 2020, it converted into a DAO (decentralized autonomous organization), and in 2021, it combined with the xDAI stablecoin project to form Gnosis Chain, a sidechain of Ethereum with numerous use cases, but a particular emphasis on the DeFi sector.
SKALE
SKALE provides elastic sidechains where developers pay a monthly subscription fee to use the elastic sidechains. Although SKALE sidechains are currently gasless, SKALE at first used its core SKL token for gas fees and governance; however, now the token is mainly used for governance purposes.
Benefits of Sidechains
1) Improved Scalability
The foremost benefit is a substantial increase in transaction throughput. Moving transactions off the overcrowded mainchains to parallel sidechains allows networks to handle a much larger number of transactions per second. While the Ethereum mainnet is able to handle around 15-30 transactions per second, Polygon is capable of processing thousands.
2) Reduced Transaction Costs
Lower fees make crypto a viable option for everyday transactions. When mainchain gas fees spike to $50+ per transaction, most use cases become economically unviable. Sidechain fees of pennies or fractions of pennies enable microtransactions, gaming, social media applications, and other high-frequency use cases.
3) Faster Confirmations
Sidechains usually complete the transactions within a few seconds rather than minutes. Such a speed upgrade has a great impact on the user experience; thus, blockchain apps tend to be as fast as the usual web apps.
4) Experimentation Platform
Sidechains offer developers the opportunity to try out new features in a totally different environment without the risk of losing the security of the mainchain. Developers can experiment with new consensus mechanisms, governance structures, or economic models. The successful innovations can then be submitted for approval to the mainchain.
5) Interoperability
Sidechains are the means to interaction different blockchains and cryptocurrencies. Projects can build bridges connecting multiple mainchains through shared sidechains, facilitating cross-chain asset transfers and communication.
6) Customization
Every sidechain is able to fine-tune the features for different scenarios like gaming, DeFi, NFTs, and enterprise applications without the need to change the mainchain structure for general-purpose usage.
Challenges and Risks of Sidechains
1) Security Trade-offs
First and foremost, independently maintaining security is the biggest issue. Sidechains do not get the security of the mainchain for free; that is, they are only as safe as their own validator sets and consensus mechanisms. A small sidechain with fewer validators will be more vulnerable to an attack than its powerful mainchain.
If sidechain security fails, users can lose funds locked on that chain. The mainchain is still in good shape; however, that may not be of much help if your assets were on the sidechain that got compromised.
2) Centralization Concerns
Several sidechains operate on federated models where trusted validators have control over the two-way peg. This centralization goes against the decentralization ethos of the blockchain and thus, these models become single points of failure. In the case that the federation is compromised or colludes, they could take the mainchain assets that are locked.
Complexity and User Experience
Transferring assets from one chain to another is a process that is not very smooth. Users need to be acquainted with the concept of bridges, waiting periods, and different fee structures across chains. The complexity here is that more users will have to learn from the beginning, and those users who are already experienced might still make mistakes like sending assets to the wrong addresses or using the incorrect bridges.
Liquidity Fragmentation
The division of liquidity among a number of sidechains can make the whole process less efficient. While a token may have sufficient liquidity on Ethereum, it could have very shallow markets on various sidechains, thus resulting in less favorable pricing and slippage for traders.
Bridge Vulnerabilities
Inter-chain bridges that link mainchains with sidechains are the major targets for hackers lately. In the past few years, the theft through bridge exploits has amounted to billions of dollars. These weaknesses are the main reasons behind the systemic risks for sidechain ecosystems. Sidechains have independent security requiring trust in their validators.
- Flexibility: Sidechains offer more flexibility, implementing entirely different consensus mechanisms and features. Layer-2s are more constrained by the need to prove state transitions to the mainchain.
- Trust Assumptions: Layer-2 solutions minimize trust; your funds are secured by mainchain validators. Sidechains require trusting sidechain validators and bridge operators.
- Use Cases: Layer-2s are ideal when maximum security is paramount. Sidechains suit applications prioritizing customization and experimentation over absolute security.
Many projects blur these lines. Polygon, which was a sidechain by definition, is now working various Layer-2 solutions in parallel with its sidechain, thus showing that the compartmentalization is not so clear in reality.
What Will It Be Like in 2025 and Later?
Improved Security Models
Developers are working to enhance sidechain security through innovations like merge-mining (securing sidechains with mainchain miners), shared security zones where multiple chains pool security resources, and hybrid models combining sidechain flexibility with Layer-2 security guarantees.
Better Interoperability
Cross-chain communication protocols are improving, enabling seamless interaction between multiple sidechains and mainchains. Users may soon move assets freely across various chains without thinking about underlying bridges.
Institutional Adoption
Sidechains are being used more and more by enterprise applications to conduct private transactions, have permissioned features, and use compliance tools, all the while being connected to public blockchain liquidity and settlement.
Regulatory Clarity
With the maturation of regulations, sidechains might become indispensable in meeting compliance requirements, thus facilitating KYC/AML implementation on sidechains and at the same time maintaining mainchain permissionlessness.
Conclusion
Sidechains represent innovative approaches to blockchain scalability, offering faster transactions and lower fees while maintaining connections to secure mainchains. They’ve proven their value through projects like Polygon processing billions in transaction volume and enabling thousands of applications otherwise impossible on congested mainchains.
However, sidechains aren’t perfect solutions. Security trade-offs, centralization risks, and complexity present real challenges. The future likely involves diverse scaling approaches—sidechains, Layer-2s, sharding, and other innovations, working together to create scalable, secure, and accessible blockchain ecosystems.
Understanding sidechains helps you navigate crypto more effectively. While choosing platforms, think about the security-speed-cost trade-offs that each method gives and pick the right solutions for your particular requirements.
In principle, each cross-chain operation and sidechain event is a source of possible tax consequences. The transfer of assets between mainchains and sidechains, the use of sidechain DEXs for trading, and the earning of yields through sidechain protocols are all activities that generate taxes.
KoinX automatically tracks your activities across various chains, including well-known sidechains like Polygon, computes precise profits and losses considering cross-chain transfers, and produces detailed tax reports, thus, it remains compliant even if your crypto is spread over multiple blockchains.
Frequently Asked Questions
What Is the Difference Between a Sidechain and Layer-2?
Sidechains are separate blockchains that have their own security, whereas Layer-2 solutions get the security of the mainchain via cryptographic proofs. In order to grant more freedom, sidechains operate separately with their own validators and consensus mechanisms; however, they require trust in the security of the sidechain.
Layer-2s such as Optimism or Arbitrum send proofs to Ethereum, thus confirming that transactions are secured by Ethereum’s validators. Layer-2s put security first; sidechains, on the other hand, focus on being flexible and customizable.
Are Sidechains Secure?
Sidechain security is a matter of how each sidechain is implemented. Since they do not carry the mainchain security, they are only as secure as their validator sets and consensus mechanisms. Big, well-established sidechains with a strong validator network and a good track record provide a good level of security.
Small, newly created sidechains with a small number of validators are riskier. It is always a good idea to look into the security of a particular sidechain if you plan to make a large deposit.
How Do I Transfer Assets to a Sidechain?
One can move assets by means of bridges that link mainchains to sidechains. The operation usually is to go to a bridge site (make sure it is real), link your wallet, pick the asset and quantity for the transfer, and then confirm the transaction.
After a certain time, the assets are locked on the mainchain and unlocked in the same amounts on the sidechain. The majority of main sidechains, for example, Polygon, have their own official bridges whereas a third-party bridge can connect several chains.
Can I Lose Money Using Sidechains?
Yes. Risks include sidechain security breaches, bridge hacks, smart contract vulnerabilities, and user errors. If a sidechain or bridge is exploited, you could lose fundsBesides that, errors such as sending assets to the wrong addresses or utilizing a malicious bridge may lead to a permanent loss of your assets.
Always thoroughly investigate sidechains, use official bridges, try with small amounts only, and never let your losses surpass the amount you can comfortably lose.
What Are Examples of Popular Sidechains?
Some of the popular sidechains are Polygon (Ethereum sidechain with a market cap of billions), Liquid Network (Bitcoin sidechain for institutions and traders), RSK/Rootstock (Bitcoin sidechain with smart contracts), Gnosis Chain (Ethereum sidechain focused on DeFi), and SKALE (elastic sidechains with gasless transactions).
Each one is different and has unique features. Polygon dominates by transaction volume and user adoption, while Bitcoin sidechains enable functionality unavailable on Bitcoin’s mainchain.
