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Sidechain Meaning

A sidechain is an independent blockchain that is "Linked" to a main blockchain (the "Mainnet") via a two-way bridge. It has its own "Consensus Mechanism," its own "Validators," and its own "Rules," but it allows users to "Transfer" assets back and forth between the two chains.

This allows for "Experimental Features" or "High-Speed Trading" to happen on the sidechain without clogging up or risking the security of the mainnet.The link is usually achieved via a "Lock-and-Mint" Bridge. To move 1 BTC to a sidechain (like Liquid or Rootstock), you send the BTC to a specific "Locked" address on the Bitcoin mainnet.

Once the sidechain sees the coins are locked, it "Mints" 1 "Wrapped BTC" on its own ledger for you to use. When you want to go back, you "Burn" the wrapped BTC on the sidechain, which triggers the "Release" of the real BTC on the mainnet.The "Trade-off" of a sidechain is security.

Because it has its own validators, a sidechain is only as secure as its own network, not the mainnet. If the sidechain's validators are hacked, your "Wrapped" coins could become worthless even though the "Real" coins are still locked on the mainnet.

This is the main difference between a sidechain and a "Rollup" (L2); a rollup "Inherits" the security of the mainnet, while a sidechain is a "Sovereign" partner that you must trust separately.

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Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

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