Childchain vs Sidechain
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TLDR below. This is not financial advice.
Scalability is one of the main concerns of the Ethereum blockchain. Current productivity and speed limitations that the network encounters prevent it from being adopted on a global scale.
The most direct problem = expensive transaction fees on Ethereum network.
Scalability is generally the ability of a system to evolve to meet growing demand. In computing, you can increase the performance of the machine by upgrading its hardware to perform certain tasks faster. When we talk about scalability in blockchain, we are talking about increasing their ability to process more transactions.
Protocols like Bitcoin and Ethereum have many strengths, but scalability is not one of them. If both are run in a centralised database, it should be relatively easy for the administrator to increase speed and throughput. But Bitcoin and Ethereum are decentralised systems and have a limited design in transaction processing capabilities. This gave birth to layer 2 solutions aimed at solving transaction delays, covering most payments.
Today, we compare side chain vs child chain. And the economics behind it.
What is a sidechain?
The side chain is a separate blockchain. However, it is not an independent platform, because it is pegged by someway into the main chain. The main chain and side chain can be interactive together, that means assets can transfer easily from this chain to other chains.
There is some way to ensure that money can is transferred. In some cases, assets are transferred from the main chain by sending to a special address. They are not really transferred — instead, they are locked into an address and a matching amount is issued on the sidechain.
Human explanation: it’s a custodian model. You give the custodian $100. You can use the $100 freely within that custodian system. You can swap it back for $100 and use it “in the real world”.
The side chains can create their own tokens and different consensus mechanisms allow for experimentations.
How does sidechain work?
Suppose, you have 5 BTC and you want to exchange them for an equivalent amount on Bitcoin side chain — let call them sidecoins. Sidechain uses a two-way peg, meaning that you can transfer your assets from the main chain to side chain and vice versa.
Remember that side chain is a separate blockchain. So, it has its own blocks, node and validation mechanism.
To get your sidecoins, you will send 5 BTC to another address. It might be owned by someone who will credit your sidechain address with 5 sidecoins once they receive BTC. Besides, it may have some kind of trust-minimised setup, where sidecoins are automatically credited when one some detect a payment.
You have now converted your money into sidecoins, but you can always reverse the process to get your BTC back. You have entered side chain and can transact freely on this separate blockchain. You can send sidecoins or get them from other people, just as you would on the main chain.
Why are sidechains used?
The same question in the above case: Why don’t you use Bitcoin blockchain?
Answer: side chain has functions that Bitcoin does not have. It’s like blockchain level-up.
Blockchain is a transaction system that is designed carefully. Although BTC is the safest and most decentralised cryptocurrency, it is not the best in terms of throughput. While Bitcoin transactions are faster than normal methods, it is still relatively slow compared to other blockchain systems. The blocks are mined every 10 minutes and the fees can increase significantly when congested network.
Imagine paying for Starbucks in $BTC and waiting for 10min to get the money sent over. No thank you. Daily payments probably do not need this level of security.
How are sidechains faster? Different consensus mechanism.
In fact, the sidechain is not bound by validation mechanisms (POW, POS) to execute. You can use any consensus mechanism, trust in a single validator or change any parameter. You can add in updates which do not exist on the main chain, make the big blocks and perform fast payments.
Interestingly, the side chains have critical bugs that still not affect the main chain. This allows them to be used as platforms for experimentation and to roll out features that would otherwise require consensus from the majority of the network.
If users accept this trade-off, the side chain can be a big step towards efficient scalability. Main chain nodes do not need to store every transaction from the sidechain. You can participate in the side chain with a single Bitcoin transaction, perform a hundred of sidecoin transactions and then get out the side chain. On Bitcoin blockchain, you just perform 2 things — in and out.
What is a child chain
The child chain is a framework for layer 2 blockchains, based on fraud proofs which are enforced on the layer 1 blockchain.
In a consensus-based blockchain, first participants will accept blocks pre-created by the child chain’s creator, as a provision for acceptance to join the child chain. The participants can then perform the transactions. When a participant that a block has been created as a fraud, methods to prove the fraud and take the necessary action to exist in the parent chain and ultimately in the main chain. It is similar to reporting an offender, you need enough evidence to arrest him.
Therefore, the child chain directly supports the main chain.
How? In a less congested manner.
More details? Each child chain operates like the main chain, but with a different goal.
So? The main chain has less work to do. And thus, improves throughput rates.
Examples of child chains: Loom Network and OMG Network. Similar to the side chain, they have their own token to encourage economic growth.
How does child chain work?
Child chain has 2 core components.
1) A tree of child chain starts with the blockchain
When a participant has access to the child chain, the money is gathered into funds. Equivalent funds are maintained between the main chain and the child chain. This is enforced using proof of fraud with smart contracts on the main chain. Funds are maintained in the main chain by locking in the smart contract. In the child chain, the money is maintained using the UTXO model or an account-based blockchain ledger.
For example, if 5 ETH is locked in the main chain, then an equivalent total of 5 cETH (child ETH) can exist in the child chain.
This is where child chain and side chain differs.
2) Proof of fraud to enforce the main chain transitions
The proof of fraud acts like the judiciary enforcing the correctness on the child chain. Operator or validator is a block generator. They receive deposit, transfer and withdrawal transactions to collate them against blocks, then they must send the fraud proofs of the blocks to the main chain and notify the blocks to all participants in the child chain.
For example, you transfer 5 cETH back to Ethereum blockchain, your transaction is validated with a proof of fraud. Then you will receive 5 ETH on Ethereum blockchain.
Why are child chains used?
As with the side chain, the solutions from the child chain increase the scalability from the main chain. The congestion of the main chain slows down transactions that don’t need much security. This solution is used to make transactions quickly.
Child chains rely on the main chain for their security as long as the main chain has enough secure all child chains are secure. That is why the child chains are popular application on Ethereum Blockchain which has a long chain and safety.
Child chain = security from main chain Side chain = its own security system
These are part of cryptoeconomics — the entire economics of such systems, including the economics of computational science. Whereas previously, we are always focused on token economics — the economics of a token-based ecosystem. The difference here, 101, 102.
Child chain and side chain both are layer 2 solutions based on the main chain. These solutions are aimed at non-direct scaling on the blockchain, which significantly increases the overall network efficiency by creating a tree structure consisting of many shorter chains (child chains). Also, side chain solution performs a parallel sequence with the main chain.
One interesting thing in common, they can all be designed to encourage their economics by issuing tokens. Various tokens will be promoted such as staking, transaction fee or become validators.
Regardless of the solution, the options for using have to be traded-off and depend on different use cases.
Stay tuned for the next post for Plasamachain’s case study.
Problem: Scalability. Solution: side-chains, child-chain, sharding
Side-chains use their own economics and child-chains use main-chain’s economics. This is more of cryptoeconomics than token economics. It is to understand the various mechanisms behind Layer 2 economics.
Get smart: Side-chain and child-chain are solutions to scalability problems. They all have their own tokens. The difference lies in the consensus and security mechanisms used.
Get smarter: Does it affect you, person use Dapps built on either one? On a high level, no. Not really.