I thought that as we have a
Lightning Network Observer, it could be nice to have a
Sidechain Observer topic, too.
The discussion is currently scattered among a lot of threads, most of them not really having sidechains as main topic (like Ordinals threads). So this should be a space to bundle the information a bit. And while the evolution of this technology was long stagnant, in 2023/24 there were some interesting developments in this area.
Basically this thread is to share all kinds of news & information regarding sidechains. Discussion about all sidechain types are allowed - while I prefer of course decentralized ones, there is currently none fully operational, so federated models like Liquid or RSK can also be talked about. Centralized "bridges" (like wBTC) however are OT.
What are sidechains?Sidechains (often simply called "L2s" or "layer-2's", even if this term also includes Lightning) are blockchains with a token pegged 1:1 to the value of Bitcoin. This allows it to "scale up" the number of potential users and transactions. The ideal sidechain would be a totally decentralized "second layer" of the Bitcoin network, where users could "transfer" value to, and bring it back to the main chain, without having to trust new (centralized) parties. Currently such a network is still not operational, at least regarding Bitcoin; all operational sidechains have still centralized elements.
The big challenge is the two-way peg: It is easy to burn a
BTC unit on mainchain and create a coin unit on a sidechain for it ("peg-in"). This is however only a "one way peg" (
Spacechains do that exactly). But it is very difficult to design a system where this
BTC unit could "return" to mainchain ("peg-out"). It can of course be "burnt" on the sidechain, but on Bitcoin no new units can be created due to the 21 million token limit. So what is needed is a way to temporarily retire the coin from circulation, and allow to transfer it to an address which can prove that it has burnt a sidechain token which can prove its "ancestry" goes back to a blocked Bitcoin and that it was never double spent.
Types of sidechains & Current projectsL2.watch is a website displaying the status of most of the known projects. There is also
this overview about sidechains and related projects like Spacechains and Spiderchains.
BitcoinLayers is doing risk analysis for some of the existing projects.
Drivechain: A merged mined sidechain, where the miners control peg-ins and peg-outs. The project was started by Paul Sztorc and is in beta state, only testnets are available. Would need new opcodes for Bitcoin Script.
Project website -
Github repo -
BIP 300(Static) federated sidechains: A sidechain where a multisig "federation" controls the peg-ins and peg-outs. Such a federation is often composed of addresses controlled by several different publicly known entities, e.g. companies and "trustworthy" individuals. This makes this model relatively centralized.
Current projects:
-
Rootstock (RSK) (operational). According to the project its model already incorporates some dynamic federation elements.
-
Liquid Network (operational)
Dynamic Federations: Sidechains where the federation is not static, but instead is changed periodically. Normally the federation members are voted on the sidechain, and sidechain incentives ensure that they don't misbehave, for example via a security deposit which can be slashed if they double-spend funds.
Current projects:
-
Nomic (partly operational, in an audit process, depends on PoS consensus via a partly premined token)
-
Stacks (blockchain operational but the bridge is in beta, project announced that in 2024 it will become operational, depends on PoS consensus via a partly premined token)
-
BEVM (seems operational) Claims to work with Taproot.
Rollups: A sidechain where some participants (normally the sidechain validators) store information about the sidechain state (transactions, owners etc.) on the mainchain, but in a compressed form. The idea is that there is always enough information on mainchain that the sidechain state can be proven, in some cases even the transactions can be "reconstructed". There are two main types: Optimistic rollups, where cheating/double-spending has to be proven, and ZK rollups, where a zero-knowledge proof can prove that the state is correct.
On Ethereum they are already quite widespread. However they have still often centralism problems. Examples are
Optimism and
Arbitrum.
There are
proposals for Bitcoin rollups.
Extension blocks: This can also be described as a type of sidechain. Basically a sidechain block can be referenced by a miner in the mainchain block header. Thus, this kind of sidechain would need to be integrated into the protocol and thus, like Drivechain, it needs the approval of the developers of the reference implementation (Bitcoin Core). Only altcoins have implemented this model. The most famous example is probably Litecoins MimbleWimble extension block, operational since 2021.
Reviewed projects:You can find short reviews of the following projects which supposedly have already sidechain or rollup mainnets in this thread (last updated: June 26, 2024):
Potentially interesting projects: BEVM,
Nomic,
tBTC (Threshold Network)Doubtful projects: Biop,
CoreDAO,
Gelios,
ckBTC on ICP,
Libre,
Merlin Chain,
Map Protocol,
Not sidechains (do not have sidechain-like two-way pegs for
BTC):
BVM,
Elastos,
Nervos Network,
Kadena,
MVCPossible scams (do your own research*): ZKsats (rugpull accusations on X, see
here), Gelios (accusation
on YouTube)
Currently I'm following mainly the Nomic and Stacks projects, as all others seem either be evolving very slowly or are only papers/projects. Probably I will post news about them soon, because on both, in the next months a crucial event would take place.
* As the purpose of this thread is neither to promote projects nor to bust scams, but to look at the technical side of L2 projects, I'll not do major investigations here but simply link to the accusations. It's possible that some of the projects listed as "possible scams" are legit, in this case I'm thankful for links.
