Topic: Layer 2 Vs Sidechains - page 2. (Read 396 times)

IIRC Counterparty burned bitcoins for the initial distribution of their XCP token, maybe they've burned more coins since then but that's beside the point. When I refer to OMNI and Counterparty creating a currency of their own I don't mean their native tokens (if you can call them that) but I mean the tokens that are created using those native tokens. USDT in the case of OMNI.... and... sigh... Rare Pepes in the case of Counterparty, for example. The denomination, amount, value etc. of these tokens being largely independent of the value of the Bitcoin transactions underneath.



Like I said above: I think the clearest distinction is that sidechains run on separate blockchains while layer 2 solutions in general not necessarily require one.

Or another view: Layer 2 can be seen like the layers of the OSI model, eg. HTTP running on top of TCP/IP (I believe that this is even the root of the L2 nomenclature in the first place?) while sidechains connected to a main chain can be compared to LANs connected to the Internet. Fun thing is this analogy even accounts for LANs requiring protocol layers on top of the base layer to function, just as sidechains need more than just basic transactions.



I believe what you are describing is pretty much what is described in the channel factory proposal for a potential layer between LN and the base layer:
https://tik-old.ee.ethz.ch/file//a20a865ce40d40c8f942cf206a7cba96/Scalable_Funding_Of_Blockchain_Micropayment_Networks%20(1).pdf

Apart from that I believe you can still add another layer on top of LN in the form of colored coins via LN? Though the viability of that seems to be controversial.



No, atomic swaps take place across blockchains.

Simple, it is in the name. L2 has no chain. Also, LN is a layer "one and a half", because you cannot send coins directly in LN, without touching the first layer, if someone has no channel. The true second layer would allow locking for example 1 BTC, and splitting it between thousands of channels, without any on-chain transactions. Also, because of that bottleneck, you cannot build another layer on top of LN, because it would still require on-chain interaction.

It is not required. It could be ECDSA-compatible, and it will be sufficient.

Based on what I have read I think this is the main difference:
A sidechain is an independent, EVM-compatible blockchain that runs parallel and interacts with the mainnet through bridges. As they use a separate consensus mechanism and are not secured by layer 1, they are not technically considered layer 2.
And if we also introduce the State channels in the comparison? I deduce that they are pay channels. Are they not the same as an atomic swap?

Don't know about OMNI, but doesn't Counterparty require you to burn bitcoin? Isn't it more like a transitioning to another currency, rather than just creation of currency?

Correct. Rootstock isn't trust requiring. So, what's the broad distinction between L2 and sidechain?

Both OMNI and Counterparty run on Bitcoin as layer 2 protocols without a sidechain.



Liquid is just one example though. Rootstock on the other hand uses merged mining. That is the say, since sidechains use blockchains of their own they can run on all sorts of consensus algorithms, including PoW-based ones.

Maybe a broad distinction is that a sidechain creates currency, while second layer solely uses already existent currency?

Another distinction is that layer 2 solutions are not trust requiring. In the Lightning Network for example, there is the penalty mechanism which ensures your partners can't cheat you after you've opened up a channel. Sidechains on the other hand are conceptionally trust requiring. You need to trust 11 out of the 15 co-signers of the Liquid federation.

The only reason why one sidechain Bitcoin is not one Bitcoin is that you cannot form sidechain transactions as a regular Bitcoin transactions. Because if we would have transaction joining, then it would be possible to join all sidechain transactions into a single mainchain transaction.

When it comes to public keys, and regular signatures, it is definitely possible to join them. The bottleneck could be in case of script-based outputs, but since we have Taproot, it is possible to join revealed public keys, and then push on-chain only the latest script.

Also, a lot of script operations are perfectly defined in ECDSA, for example if you have OP_ADD, you can just add public keys. That means, some script-based outputs could be rewritten into Schnorr-signatures-based outputs.

Second layer as the name suggests is a "layer" and like any layers it is made on top of a main "bed" which in case of bitcoin is the main-net and its blockchain. That means second layer is a network that completely relies on the main network it is built on and if the main network has any problems (eg. it dies) the second layer will experience problems (eg. it dies too).
Example: Lightning Network

A side-chain on the other hand is as the name suggests a "chain", a separate chain that has a "link" to another chain but it doesn't completely relies on it. They are usually "pegged" to the main network. That means any problems in the main network may not completely affect the side-chain.
Side-chains can even have their own mining algorithm and a stand-alone blockchain.
Example: Rootstock, Blockstream's Liquid,...

This difference is the reason why 1 LN bitcoin is exactly 1 bitcoin but 1 sidechain bitcoin doesn't have to be 1 bitcoin, it could be 1000 wrapped-bitcoin or 0.5.

Sidechains run on separate blockchains while layer 2 solutions in general not necessarily require one. For example the channel states of Lightning Network are managed by each node separately, without the need for a common blockchain (except for settlement on the main layer, when opening and closing a channel).

Arguably sidechains are a kind of layer 2 solution, though I'm not quite sure if all of them fit the bill, technically speaking.

If I have it right, a sidechain can host layer 3 (things like applications that run on layer 2 tokens) while layer 2 tokens can't without one.

A sidechain often normally refers to tokens and ignores other things (like contracts on the lightning network) which are also layer 2.

What is the difference between a Layer 2 and a Sidechain? I have not found any article that distinguishes them well.