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Understanding The Basics of Sidechains


The sidechain concept was introduced by blockstream in their paper. It was originally developed for Bitcoin but the concepts can be applied to any chain.

A sidechain is an alternate chain with a particular focused use case where the funds on the side chain are provided by the source chain. For example if the Bitcoin blockchain is used then bitcoin are used to fund the side chain.

The basic idea behind a sidechain (using the Bitcoin blockchain as an example) is:

  • Peg or freeze some bitcoin on the Bitcoin chain.
  • Once the funds have been frozen on the Bitcoin chain, introduce alternate crypto on the side chain equivalent to the amount of bitcoin frozen.
  • Once the side chain use case has been achieved pay the appropriate number of funds back to the Bitcoin chain an unfreeze any remaining coins.