The emergence of blockchain technology has created tremendous opportunities

The emergence of blockchain technology has created tremendous opportunities—but also tremendous challenges. Perhaps the greatest challenge is scalability.

The emergence of blockchain technology has created tremendous opportunities—but also tremendous challenges. Perhaps the greatest challenge is scalability. Well-known blockchains such as Ethereum and Bitcoin suffer from problems such as slow transaction times and high costs when the network is congested. As more users enter the ecosystem, scaling these networks becomes increasingly important.

In response to these concerns, there have been two fundamental solutions so far: sidechains and Layer 2 solutions. Both can increase the speed and efficiency of blockchain systems but with different workings, security features, and levels of performance at large scales of activity.

What Are Sidechains?

A sidechain is a separate blockchain running alongside a main blockchain (or mainnet). A two-way bridge links it to the mainchain, and assets can transfer between the two blockchains. As an illustration, you can move Bitcoin onto a sidechain, spend it there for quicker and cheaper transactions, and then move it back to the primary Bitcoin network as required.

Sidechains are configurable. They can be developed by developers with varied rules, consensus algorithms, and functionalities without affecting the primary blockchain. This allows sidechains to test new concepts, enable smart contracts, and process large numbers of transactions.

Instead, each sidechain is secured by its own validators or miners. This is to say that the security of a sidechain relies on its own infrastructure, which could be less strong than that of the mainchain.

Some of the most popular sidechains are Polygon PoS (previously known as Matic) for Ethereum and Liquid Network for Bitcoin.

What Are Layer 2 Solutions?

Layer 2 solutions are constructed atop a pre-existing blockchain. They are not chains in themselves but rather an addition to the parent blockchain. Layer 2s process most of the transactions and only settle the final outcomes on the mainchain, significantly easing network congestion.

There are multiple forms of Layer 2 solutions, such as

Rollups (ZK-Rollups and Optimistic): They aggregate numerous transactions into a single one and push them to the mainchain in a batch.

State Channels: They enable users to make transactions off-chain and only post the final outcome on-chain.

Plasma Chains: They are auxiliary chains that rely on the main chain for end security checkpoints.

One of the most important characteristics of Layer 2s is that they inherit the security of the primary chain. Because the ultimate outcomes are tied to the underlying blockchain, users are able to trust the platform without trusting new validators.

Sidechains vs. Layer 2

When we ask which, one scales better—sidechains or Layer 2—the answer depends on what we mean by “better.” Let’s look at some key areas to understand the differences.

1. Security

Layer 2 solutions generally offer better security because they rely on the mainchain’s consensus and security. For example, ZK-Rollups use cryptographic proofs that are verified by the mainchain, making it very hard to cheat.

Sidechains, however, possess standalone security. If validators on a sidechain are weak or unscrupulous, users may lose money. Layer 2 solutions are thus generally safer for users.

2. Speed and Throughput

Sidechains and Layer 2s both have the capability to dramatically increase transaction speed. Sidechains can handle numerous transactions per second because they are standalone. Layer 2s such as rollups also provide high throughput by grouping multiple transactions together.

But Layer 2 solutions tend to be more effective in terms of utilizing the mainchain, resulting in improved scalability in heavy-demand scenarios. For example, zkRollups can execute thousands of transactions in a single transaction with very little on-chain data.

3. Cost

Applying sidechains and Layer 2s together can result in reduced transaction fees when compared to going directly through the mainchain. Layer 2s, on the other hand, provide greater fee savings due to their effective usage of on-chain real estate. Individuals normally pay a minimal fee for the batch transaction over separate ones.

Sidechains can also charge validators fees, and their prices depend on the popularity and infrastructure of the chain.

4. Use Cases and Compatibility

Sidechains are more versatile. They can accommodate various token standards, smart contracts, and even completely different blockchain architectures. This makes them perfect for bespoke applications, enterprise blockchains, or testing.

Layer 2s are more integrated with the mainchain. This makes them more suitable for scaling current applications without having to change much. They are perfect for projects already developing on Ethereum or Bitcoin and need to scale fast.

5. Decentralization

Layer 2s are more in line with the decentralization goals of the base layer, mainly if they utilize fraud proofs or validity proofs. Sidechains might sometimes be more centralized when they depend on a small set of validators.

Which Scales Better?

If we understand "scales better" in terms of security, trust, and long-term adoption, then Layer 2 solutions are definitely ahead. They