The Last Battle: Layer 2 Vs Sidechains

Is One Better Than the Other?

Introduction

In our last Battle Of The Protocols installment, I’ll be covering Layer 2 vs. Sidechains. I know that I’ve beaten you all over the head with the whole Layer 2 and Rollups discussion in these past few articles. However, I think this is an important topic to discuss, as we have yet to discuss sidechains. My goal is always to assist the EllioTrades community in becoming the most knowledgeable investors in the crypto space. My method of achieving this is by giving you all a simple yet detailed, explanation of the inner workings of crypto.

A few days ago, I shared my thoughts on the importance of foresight within the crypto industry.

DATON @DecentraThought

One of the most important characteristics to have in crypto is foresight. Some may argue that this is a gift that can't be developed or mastered. I'd beg to differ. Foresight is developed through experience, observation, and relentless curiosity. Stay dedicated. Be inquisitive.

The more you familiarize yourself with the technology powering this industry, the easier it will be to make educated postulations on the future and discern the winners from the losers. So in the spirit of crypto mastery, let’s jump into today’s lesson.

Sidechains

• A sidechain is an independent blockchain linked to another main layer blockchain. You can think of it as a bit of a hybrid chain.

• Sidechains have their own set of rules, rely on their own security, and use their own methods of reaching consensus (processing transactions).

• The two blockchains must communicate to transfer transactions and assets back and forth. This is done through a smart contract which creates a two-way peg. The assets are then bridged over to the other chain. Of course, most of this process occurs in the background without the user’s knowledge.

• Here is a diagram of what this process looks like:

• Sidechains reach consensus through their own methods of PoS, PoA, PoW, or dPoS.

• One of the most popular sidechains is Polygon (Matic).

Layer 2

• A Layer 2 solution is a protocol built on top of a Layer 1 solution to provide scalability and increase TPS.

• Layer 2s can scale Layer 1s by handling transactions off-chain. The great thing about Layer 2s is that even though transactions are processed off-chain, the protocol still leverages the security of the Layer 1 mainnet. 

• Layer 2 solutions are mostly made up of ZK-Rollups and Optimistic Rollups. For those unfamiliar with what rollups are, you can learn more about them in this article.

• A large group of people believes that Layer 2 solutions are the best way forward for blockchain scaling.

Crypto Maxi @cryptoMaxi420

Never forget that the more decentralised #Ethereum gets after sharding is live the higher TPS it will support on Layer 2. It's literally infinite scaling. Nothing else can offer that, or even come close. Layer 1s are obsolete and nothing if changing

SwagtimusPrime.eth 🦇🔊🐼 @SwagtimusP

Rollups scale an extremely decentralized base layer better than any L1 ever could. https://t.co/calteU0r0p

Comparison

• Sidechains and Layer 2s are similar in the fact that they are both scaling solutions that make ETH gas fees much cheaper and increase TPS.

• The main difference between Layer 2 and Sidechain solutions is that Layer 2 solutions rely on the security of the Layer 1 network. Sidechains, on the other hand, rely on their own security model.

• This can be seen as a negative for Sidechains because validators possess the power to control the production of transaction blocks. This can leave the protocol vulnerable to possible fraud or manipulation from the validators. 

• Ansem provides us with some excellent alpha on the difference between ZK solutions and Sidechains.

Ansem🃏💎 @blknoiz06

Lalacat @isaac_mung

15/ [Bunch of L2s launching, at the same time funded by people who missed out the L1 trades, how is Z thinking of it]: ZKR tokens should be better placed. They shouldn’t be farm and dump tokens, they should be actual useful tokens to maintain the security of the roll up.

• However, Layer 2 and Sidechain projects may not be the rivals that many think they are:

• One of the most popular Sidechains, Polygon, recently announced that they are allocating $1B to ZK-based solutions.

Polygon | $MATIC - We're hiring! @0xPolygon

2/8 We recently announced our strategic focus & $1B funds for ZK-based solutions. Following the announcements of @0xPolygonHermez, #PolygonNightfall & @0xPolygonMiden we are continuing our quest to become the ZK powerhouse with our work on Polygon Zero.

blog.polygon.technologyThe Polygon Thesis: Strategic Focus on ZK Technology as the Next Major Chapter for Polygon; $1B Treasury Allocation — Polygon | BlogWe believe Ethereum is one of the most promising and revolutionary tech projects in the world, and our best bet to create a global, permissionless economy and society with equal chances for everyone. We have been working on Ethereum scaling infrastructure since 2017. Six months ago, we announced Pol…

• We’ve seen this lead to several acquisitions. So, while Polygon currently relies on its sidechain implementation, in the future, Polygon will likely be one of the leading Rollup (aka L2) protocols.

The Block @TheBlock__

Polygon acquires ZK-rollups startup Mir Protocol for $400 million (via @Yogita_Khatri5)

theblockcrypto.comPolygon acquires ZK-rollups startup Mir Protocol for $400 millionPolygon has acquired Ethereum scaling startup Mir Protocol for $400 million. Mir utilizes zero-knowledge proof (ZK-proof) technology.

Conclusion

• There you have it, folks. This concludes our Battle Of The Protocols series… for now. I believe that the most important takeaway from this entire series is that when it comes to the building blocks of crypto, there isn’t an “either-or”. 

• I’m looking forward to seeing how Layer 2 and Sidechain solutions will develop in the next five years. At the rate that the crypto space moves, I’m sure that by then, this conversation will be as ancient as the creation of the internet.