What is a sidechain?

Sidechains are separate blockchains that operate in parallel to a main chain such as Bitcoin or Ethereum, and connect via a two-way bridge to enhance network speeds and lower transaction costs.

Sidechains have their own consensus mechanisms and validator systems, making them more scalable than main chains, but lack the same level of security. Sidechains also carry smart contract risk — bugs in bridge or protocol code can lead to loss of funds.

This guide explains what sidechains are and how they work, how they differ from Layer 2 solutions, real-world examples, and more.

Key Takeaways

• A sidechain is an independent blockchain connected to a main chain via a two-way bridge.

• Sidechains offer higher speeds and lower costs but do not have the same security as the main chain they connect to.

• They are different from Layer 2 rollups, which process transactions off-chain, settle them back on the main chain, and also inherit its full security.

What is a sidechain?

A sidechain is a separate blockchain that runs alongside a main chain and is designed to reduce common scalability bottlenecks such as low transaction speeds and high costs on congested networks like Bitcoin and Ethereum.

A sidechain operates with its own rules, validators, and consensus mechanism. It connects to a main chain through a two-way bridge that locks assets on one end and creates "wrapped" equivalent versions of those tokens on the other side.

Note: The terminology may vary. For example, Polygon PoS technically remains a sidechain despite Polygon's broader 'scaling ecosystem' branding, though it is in the process of transitioning to a zkEVM-based architecture.

How does a sidechain work?

Here's how the process of using a typical sidechain works:

1. The user locks assets (e.g. 1 BTC) on the main chain using a bridge smart contract.

2. The bridge confirms the lock, then mints an equivalent wrapped version of the token (e.g., L-BTC) on the sidechain.

3. The user can now make faster and cheaper transactions on the sidechain.

4. When the user is ready to return to the main chain, they burn (permanently destroy) their sidechain tokens, and the bridge releases their original assets.

This process of lock-and-mint, or burn-and-release, is known as a two-way peg. Some sidechains leverage a federated peg amongst trusted validators, while others use more decentralized mechanisms.

Sidechain vs Layer 2: the key difference

Sidechains and Layer-2 (L2) solutions are often confused with each other. Here are their key differences:

(Disclaimer: References to third-party sidechains and Layer 2 rollups, including Liquid Network, Rootstock, Polygon PoS, Arbitrum, Optimism, Polygon zkEVM, are provided solely as illustrative market examples for educational purposes. Bybit EU GmbH does not operate, control or endorse these protocols and makes no representation as to their availability, security or suitability. Any protections applicable to services provided by Bybit EU GmbH do not automatically apply to a user's independent use of third-party services or protocols.)

Examples of sidechains in 2026

Bitcoin sidechains include Liquid Network, a federated Bitcoin sidechain for faster, more confidential settlement and asset issuance.

There's also Rootstock (RSK), an Ethereum virtual machine (EVM) compatible sidechain that supports smart contracts and leverages merged mining for additional security.

For Ethereum, long-running examples include Polygon PoS (which started as a sidechain).

New sidechains continue to roll out, especially within emerging areas such as gaming, decentralized finance (DeFi), and other specialized applications.It's worth noting that terminology can vary and there may be some crossover between sidechains and L2 despite their distinct differences.

Are sidechains safe? Bridge risk and security trade-offs

Sidechains do not inherit the main chain's security, and so users need to rely on the sidechain's validators and bridge security.

Unfortunately, cross-chain bridges have been one of the primary and largest sources of hacks in crypto history. Several high-profile bridge exploits have resulted in hundreds of millions in losses.

Sidechains are fast and cheap, but lack in terms of security. It's worth researching the bridge mechanism and validator trust assumptions before moving large sums of crypto. If a sidechain bridge fails, there may be no clear party responsible for recovering lost funds.

Bottom Line

Sidechains have emerged as one of the most useful scaling tools for blockchains. By creating a parallel chain, developers can improve speeds and lower costs with new and experimental methods.

But they do require users to consider the security trade-offs, as they are less secure than Layer 2s, which inherit the full security of the main chain they're connected to.

Sidechains and DeFi protocols may operate outside current EU regulatory frameworks, meaning limited investor protection.

FAQ

What is a sidechain in blockchain?

A sidechain is a separate blockchain that runs in parallel to the main chain. It connects to the main chain via a two-way bridge, enabling faster, cheaper transactions and the ability to move assets between chains.

How does a sidechain work?

Users lock their assets on the main chain. The bridge then mints the wrapped equivalent of those tokens on the sidechain. The users' transactions are now faster and cheaper. When the user is ready to move back to the main chain, the sidechain tokens are burned or unpegged, releasing the original assets from the bridge.

What is the difference between a sidechain and a Layer 2?

A sidechain is an independent blockchain that does not inherit the main chain's security. Layer 2 solutions (such as rollups) inherit their security, but process transactions off-chain and post them back to the main chain.

What is an example of a sidechain?

Popular examples for Bitcoin include the Liquid Network and Rootstock. For Ethereum, there's Polygon PoS. Gnosis Chain was also a long-running Ethereum sidechain. Each offers faster transactions than its main-chain counterparts.

Are sidechains safe?

Sidechains have different security models from main chains. They rely on their own bridge security and validators. Past bridge exploits have caused major losses, and users need to understand the risks of their chosen sidechain before moving large amounts of assets.

Why would a chain use a sidechain?

Sidechains are used by blockchains to reduce fees and improve speeds without making any changes to their rules. They allow experimentation and new features to emerge while being connected to the main network's users and liquidity.

This content constitutes a marketing communication from Bybit EU GmbH. Investing in crypto-assets is associated with risks, including high volatility and the potential loss of capital. Inform yourself thoroughly about the risks before making an investment decision. The information provided herein is strictly for educational and informational purposes and should not be construed as financial or investment advice.