The biggest issue with cryptocurrencies is scalability, not volatility.

by Wenqi Lou July 06, 2022

Notwithstanding this bear market, Web3’s more pressing issue is its inability to handle large volumes, writes Greg Gopman. Can sidechains offer a solution?

The unsolved issue with the cryptocurrency industry is not actually price volatility (and I say this after a trillion-dollar market crash followed by the current “crypto winter”) but scalability. Time and time again, we have seen promising projects beset with scalability issues.

This is the case even for layer-1 blockchains built on a proof-of-stake model, regardless of whether it’s a delegated proof of stake, leased proof of stake, regular proof of stake, masternode proof of stake, or otherwise. We thought PoS was the answer before we had the transaction volumes we have today, now we know more is needed.

The Web3 scalability dilemma

A scalability issue is one where a project “succeeds” up to a certain point, and then cannot sustain further growth. This is due to either a lack of infrastructure (nodes) or a validation mechanism that is not strong enough (some initial designs are better suited to sustainable growth than others).

Ethereum transaction fees have been sky-high for a long time. Network upgrades and additional layers like Plasma have not been at all effective despite much hype. Bitcoin also experienced periods of severe network congestion and is just not suited to global adoption due to its inherent proof-of-work design.

The Web 3.0 gaming industry is one where scalability issues are most obvious to see, and the problems are chain-agnostic. Games on Ethereum such as CryptoKitties and Axie Infinity have suffered heavily, as well as DeFi Kingdoms on Harmony. Solana has continual network congestion issues from general use, aside from gaming. What’s the point of embarking on an ambitious project that fails the moment it succeeds with higher volume?

Sidechains to the rescue

Right now, sidechains may be the best solution to the scalability problem, by a wide margin. All of the leading blockchains in the industry are exploring these sidechains, though they all have their own distinct vernacular.

Polygon calls them SuperNets, Avalanche calls them SubNets, Ankr calls them Side Chains, and Binance calls them Binance Application Sidechains (BAS). Others might call them “application-specific blockchains” (ASBs). Regardless of what you want to call them, you can expect to hear a lot about these sidechains in the years to follow. Because they could well represent the future of Web3.

With all of the issues in Web3 gaming, there is a “one game one chain” ethos that has gained enormous traction. And with the rise of gaming as a legitimate way to earn an income, players will need a dedicated chain, most likely a sidechain of a proven network. dApps with heavy usage will need their own chain, especially to preserve the main chain (as seen when games such as CryptoKitties raised Ethereum transaction fees).

Exploring sidechains

The concept of the sidechain is still being worked out and different people have different opinions. But despite the theoretical conjecture, all (correctly deployed) sidechain implementations will result in enhanced scalability, increased efficiency and versatility of development.

To keep it simple, there are two broad types of sidechains. The first category is where there is a “child” of a “parent” blockchain. In this instance, the child chain will usually take assets and attributes from the parent chain. This is perfect for developers who want to use existing blockchains to test dApps. You can just make a child chain/sidechain and see how it works.

The second category is that of equally related sidechains. In this instance, each sidechain is equal and may have its own native token. Regardless of the type of sidechain, assets will be easily exchanged between them. This has many implications for decentralized trading, as it would reduce the need to use commodity trading pairs to swap assets.

It’s worth mentioning that sidechains still need their own nodes and validators. Infrastructure development is still paramount. You don’t just get increased scalability without scaling the underlying architecture (this point is often missed or not emphasized enough in online discussions).

A related point is that sidechains also need strong security. One chain can be less secure than another. But sidechains-as-a-service solutions are coming to remedy these gaps.

Benefits of sidechains

The benefits of these sidechains should be obvious. First, let’s say you have a project that offers specific Web3 products. Your customer base expands, but you’re still left with the same basic blockchain. You can create a sidechain, tweak it to match the needs of a distinct subset of customers, and voila. Limitless, customized expansion for a specific category of clients.

Sidechains are perfect for testing and development. An exact test replica of an existing chain to test out new features. Trying to get consensus from many stakeholders is a nightmare in the blockchain world, with hard forks and network upgrades taking a lot of resources (physical and mental, with many heated debates). Deploying a sidechain allows for direct experimentation of what would be best, instead of mere rhetoric and conjecture through online debates.

Obviously, sidechains are ideal for scalability, thus the writing of this article. Certain transaction types can be moved to a sidechain designed specifically for that purpose. This can decongest the first network, in turn making it faster and cheaper. Ultimately, sidechains make transactions more efficient, which is the most important element for the proliferation of Web3.

There are many more benefits of sidechains. Among other things, they allow you to run your own validator network, create a token for your gaming network, reward users in different ways, control gas/transaction prices and control application speed.

How soon will sidechains be deployed?

Sidechains are already being deployed. MetaApes, based on the immensely popular Age of Apes (over 1 million installs), was recently launched as a Binance Application Sidechain (BAS). Existing Web2 games can be easily converted to Web3 through software development kits, with dedicated sidechains to support the network. They are not a future technology, but a current one.

Of course, the use cases go far beyond gaming, but this is where we are seeing a lot of action right now given existing user bases and fans who love gaming but are continually thwarted by scalability concerns in the form of high fees and slow speeds.

Sidechains, or whatever they are labeled, will likely proliferate and become the new industry norm — sooner than you might think.

By Greg Gopman | Original link

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