Side Chains – Definition & Explanation
"Side Chains are formed by locking value in the parent chain, and sending it to a pegged distributed ledger.", writes Delfin. In the case of Bitcoin, this works, for example, by first sending funds to a specially formed Bitcoin address. The funds are then out of the sender’s control and completely immobilized. Once the immobilization transaction is sufficiently confirmed by the network, a message is sent to the Side Chain, containing:
- proof that the funds were sent to that special address on the Bitcoin network
- confirmation they are therefore immobilized
- confirmation that the sender was the one who did it
The Side Chain then creates the appropriate number of tokens on its own network and gives the sender control of them, allowing the sender to transact with those funds on the pegged chain under whatever rules that chain chooses to implement.
Side Chains are the fourth of the four types of crypto assets.
Side Chains in plain English
Side chains help solve an important problem in the crypto world, speed. Instead of calculating everything in one big blockchain, a side chain can be used to take some things out of the calculation while still assuring everyone that in the end, the right amount will go back into the main blockchain.
Forbes' Sherman Lee writes about Side Chains:
"Another technology that could see more widespread use in the coming years is side chains. A side chain is defined for one specific use case. There can be multiple side chains where different tasks are distributed accordingly for improving the efficiency of processing. Maybe one application needs to optimize for high speeds and another needs to optimize for large computations. In any case, side chains can be used to handle commercial blockchain usage. CryptoKitties would have greatly benefitted from an optimized high-speed side chain. At one point, they jammed up the Ethereum blockchain with 25% of all transactions coming from their application."
Examples of Side Chains
Side Chain crypto assets are for example:
For other examples, see the following illustration: