A complete comparison of the two scaling methods. State Channels and Sidechains are the two terms in Ethereum community that are often used interchangeably, thus causing mass confusion. But today we will get it clear. Go make a cup of coffee first, it’s going to be a long one. The purpose of this article is to clearly define: What are State channels ? What are Sidechains ? Then we will compare the two: What problems are they trying to solve ? Which is a better scaling solution among the two ? Without wasting much time, let’s get started. What are State Channels ? State channels are a very broad and simple way to think about blockchain interactions which occur on the blockchain, but instead get conducted of the blockchain, without significantly increasing the risk of any participant. The most well known example of this strategy is the idea of in Bitcoin, which allow for instant fee-less payments to be sent directly between two parties. Here is a list of some of the State Channel Projects. could off payment channels _What are State Channels and why should I care The whole world is going through a blockchain revolution. But people…_hackernoon.com 10 State Channel Projects Every Blockchain Developer Should Know About . State channels are the general form of payment channels, applying the same idea to any kind of state-altering operation normally performed on a blockchain Moving these interactions off of the chain without requiring any additional trust can lead to improvements in cost and speed. State channels will be a critical part of scaling blockchain technologies to support higher levels of use. significant The basic components of a state channel are very simple: A 2 way state channel via or some sort of smart contract, so that a specific set of participants must completely agree with each other to update it. Part of the blockchain state is locked multisignature by constructing and signing transactions that be submitted to the blockchain, but instead are merely held onto for now. Each new update “trumps” previous updates. Participants update the state amongst themselves could Finally, , which closes the state channel and unlocks the state again (usually in a different configuration than it started with). participants submit the state back to the blockchain That’s it! If the “state” being updated between participants was a digital currency balance, then we would have a payment channel. Steps 1 and 3, which open and close the channel, involve blockchain operations. But — and this is where the power of state channels comes into play, because only steps 1 and 3 need to be published to the network, pay fees, or wait for . In fact, with careful planning and design, state channels can remain open almost indefinitely, and be used as part of larger to power an entire economy or ecosystem. in step 2 an unlimited number of updates can be rapidly made without the need to involve the blockchain at all confirmations hub and spoke systems Despite my simple description here, state/payment channels have generally been perceived as . There are several reasons for this, and one of them is that of the three steps. Let’s take a closer look at what these simple phrases imply, starting with: quite complicated there are some important subtleties hidden in my phrasing could be submitted to the blockchain In order for state channels to work, participants have to be assured that they publish the current state of the channel to the blockchain at any time. This results in some important limitations, such as the fact that to protect each individual party’s interests until the channel is closed. could someone has to stay online Imagine that when we initiated a payment channel I started with 100 bitcoins and you started with 10. If we first sign an update that transfers 10 of those bitcoins to me, and then sign an update that transfers 50 back to you, the later update is obviously more beneficial to you than the earlier one is. If you were to , and I were to pretend the second update never happened, I might be able to publish the first update to the blockchain and effectively ! What you need is somebody to stay online with a copy of that later transaction so that they can “trump” the earlier one and make sure your bitcoins are protected. — you could send a copy to many random servers who agree via smart contract to publish it only if needed (for a small fee of course). But however you do it, you need to be assured that the latest signed update to the state is available to trump all others. Which leads us to our next subtle phrase: later unexpectedly lose internet access steal 50 bitcoins from you It doesn’t have to be you Each new update “trumps” previous updates To make this part of the state channel work, so that old state updates submitted to the blockchain have a chance to be corrected by the newer state updates which replaced them. , during which any update can replace the old update (restarting the timer as well). When the timer completes, the channel is closed and the state adjusted to reflect the last update received. The length of the timer would be chosen for each state channel, balancing the inconvenience of a long channel closing time with the increased safety it would provide against internet connection or . Alternatively, you could structure the channel with a financial penalty so that anyone publishing an inaccurate update to the blockchain will lose more than they could gain by pretending later transactions didn’t happen. the locking and unlocking mechanisms have to be properly designed The simplest way is to have any unlocking attempt start a timer newer blockchain problems But the mechanism ends up not mattering very much, because (going back to the previous point) the game theory of this situation puts a twist on things. . Actually going through the timer/penalty process may introduce extra fees, delays, or other inconveniences; given that someone into the mechanism can’t give you any advantage anyways, on a final channel state. This final close-out operation needs to be fundamentally different from the normal “intermediate” updates (since it will bypass the “trumping” mechanism above), so . As long as this mechanism is theoretically sound, it will probably never have to be used forcing parties to a state channel will probably just close the channel out by mutually agreeing participants will only sign a final close-out transaction once for each portion of the state locked within a particular channel The details of these “subtleties” aren’t especially important. What it all ultimately breaks down to is that smart contract, which the judge can enforce and adjudicate if necessary, and then amongst themselves so that the judge’s adjudication isn’t needed. As long as the “judge” mechanism can be assumed to be reliable, these promises can be counted as instant transfers, with the judge only appealed to in exceptional circumstances, such as when one party disappears. participants open the channel by setting up a “judge” sign promises to each other close the channel by agreeing Of course, these details are only of the reason people think that state/payment channels are complicated. A much bigger one is that . Building a “judge” mechanism in Bitcoin with even is surprisingly intricate. But once you have a clear concept of state channels in general, you can see that . Basic smart contract features like a timer mechanism and allowing two different paths to be taken depending on the signed message submitted are just plain harder to do in Bitcoin. Some of these features are being gradually added or built. By seeing that , we realise that this is a much broader technique, and that which deals with frequent updates between a defined set of participants. You can anticipate seeing this approach in many (if not most) distributed applications going forward. part Bitcoin payment channels complicated are reasonably useful properties this only comes from trying to implement the idea in a constrained context payment channels are only a special subcase of the broader “state channel” idea state channels can apply to any smart contract Now we have a bit clear idea that what is a “state channel”. So, let’s move to side chain. What are SideChains ? A sidechain is a separate blockchain that is attached to its parent blockchain(mainchain) using a two-way peg. In other words, you can move assets to the sidechain and then back to the parent chain. sidechain The two-way peg enables interchangeability of assets at a predetermined rate between the parent blockchain and the sidechain. The original blockchain is usually referred to as the ‘main chain’ and all additional blockchains are referred to as ‘sidechains’. The blockchain platform Ardor refers to its sidechains as ‘childchains’. A user on the parent chain first has to send their coins to an output address, where the coins become locked so the user is unable to spend them elsewhere. Once the transaction has been completed, a confirmation is communicated across the chains followed by a waiting period for extra security. After the waiting period, the equivalent number of coins is released on the sidechain, allowing the user to access and spend them there. The reverse happens when moving back from a sidechain to the main chain. Federations A federation is a group that serves as an intermediate point between a main chain and one of its sidechains. This group determines when the coins a user has used are locked up and released. The creators of the sidechain can choose the members of the federation. A problem with the federation structure is that it adds another layer between the main chain and the sidechain. Sidechains are responsible for their own security. If there isn’t enough mining power to secure a sidechain, it could be hacked. Since each sidechain is independent, if it is hacked or compromised, the damage will be contained within that chain and won’t affect the main chain. Conversely, should the main chain become compromised, the sidechain can still operate, but the peg will lose most of its value. Sidechains need their own miners. These miners can be incentivized through ‘merged mining’, whereby two separate cryptocurrencies, based on the same algorithm, are mined simultaneously. Here is a list of some of the Sidechain Projects. _The whole world is going through the blockchain revolution. But wait…is this really what we dreamed of? Present…_hackernoon.com 11 sidechain projects every blockchain developer should know about Now, we have a good understanding of sidechains too. So, let’s put them to the ring. What problems are they trying to solve ? Both Sidechain and State Channel are tricks to improve the poor scalability of blockchains in general. They both follow a bit same model. Locking up state/assets. Doing transactions off the blockhain/mainchain. Unlocking the state/assets from the state channel/sidechain. But despite this analogy, there are many differences between the two which arises from the point that . Let’s see what are its consequences. in State Channels we do not use a separate blockchain whereas in Sidechains we use a separate blockchain Which is a better scaling solution among the two ? To decide this, let’s see their pros and cons. State Channel pros This is because everything is happening “inside” a channel between participants, rather than broadcast publicly and recorded on-chain. Only the opening and closing transactions must be public. Whereas in sidechains every transaction is published on the sidechain which is received by every participant on the sidechain irrespective of the fact that you are not interacting with all of the participants on the sidechain. State channels have strong privacy properties: , meaning that as soon as both parties sign a state update, it can be considered final. Both parties have a very high guarantee that, if necessary, they can “enforce” that state on-chain. But as discussed above that the state channel closing could take variable time considering the security level of the transaction. Whereas in sidechains you have a blockchain on the other side. So the finality depends on the mining power of the sidechain. State channels have instant finality State Channel cons As we have discussed above that if anyone the participants goes unavailable, then this could prove costly to him. The participants can use someone to represent him if he goes unavailable, but the possibility of the representative getting attacked or bribed makes it a problem for state channel. Whereas in sidechains you don’t have to be available all the time you are on the sidechain. State Channels need 100% availability of all the participants involved: This is because the Judge contract(the contract used to lock the state) must always know the participants/entities (i.e. addresses) that are part of a given channel. We can add and remove people, but it requires a change to the contract each time. Whereas in sidechains there is no such limitation on the movement of the participants. State channels are best used for applications with a defined set of participants: This is because there is an initial cost to a channel in deploying the Judge contract. But once it is deployed, the cost per state update inside that channel is extremely low. State Channels are particularly useful where participants are going to be exchanging many state updates over a long period of time: creating Sidechain pros Sidechains are created and maintained once made. We don’t close sidechains, rather we lock the assets on sidechain to move back to the mainchain. This can be helpful in the way that anyone who is doing a specific task off blockchain/mainchain (for eg. ) will come to the same sidechain. So, you don’t have to create separate chains for every new participant. Whereas in state channels you usually have to create a new channel to add a new participant. But projects such as Lightning , Raiden network have come up with brilliant solution for this. They create a mesh of participants so you don’t have to create a new channel for every new participant you interact with. You can interact with participants indirectly creating a channel between you and recipient through some other participant who is common to both: you and the recipient. Sidechains are permanent. You don’t have create your own sidechain for specific purpose if there is one present: transacting in dogecoin They add flexibility and allow developers to experiment with Beta releases of Altcoins or software updates before pushing them on to the main chain. Traditional banking functions like issuing and tracking ownership of shares can be tested on sidechains before moving them onto main chains. Sidechains allow cryptocurrencies to interact with one another: Sidechain cons To create a sidechain we need to have enough miners so that the network is safe from attackers. Also, we have to make it sure that they are up and running. Whereas there is no blockchain involved in state channels. So, no such requirement is needed. Sidechains need a lot of initial investment to start off: This adds another layer between the mainchain and the sidechain. This could prove as another weak point for the attackers to attack by bribing or attacking the federation. Whereas in state channel we just need a smart contract to do this for us. A Federation is needed for sidechains: The fight between the two was great. The dust has settled, but both are still standing. As the research is still going on and the practical use is not widespread we can’t decide who will be the winner. Maybe they will have to merge to form a hybrid solution to serve the purpose of scaling. Till then we have to wait, to see what time has to show us. Thanks to for the wonderful explanation of state channels. Jeff Coleman Thanks for reading;) About the Author is a Co-Founder of Vaibhav Saini TowardsBlockchain , an MIT Cambridge Innovation Center incubated startup. He works as Senior blockchain developer and has worked on several blockchain platforms including Ethereum, Quorum, EOS, Nano, Hashgraph, IOTA. He is currently a sophomore at . IIT Delhi Learned something? Press and hold the 👏 to say “thanks!” and help others find this article. Hold down the clap button if you liked the content! It helps me gain exposure . Want to learn more? Checkout my previous articles. _A complete list of all consensus algorithms._hackernoon.com ConsensusPedia: An Encyclopedia of 30 Consensus Algorithms _Experts are suggesting quantum computing may render blockchain obsolete. As the tech giants such as Google and IBM are…_hackernoon.com Quantum Computing: Is it the end of blockchain? _Ultimate guide for understanding & starting with ethereum._hackernoon.com 5 resources to get started with ethereum _The only blockchain which has blocktime of less than a second: 0.5 sec!_hackernoon.com EOS 101: Getting started with EOS, Part 1 _IPFS Private Storage Network Series_medium.com Setting up your first distributed private storage network on IPFS: Part 1 Clap 50 times and follow me on Twitter: @ vasa_develop

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Difference between SideChains and State Channels

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Difference between SideChains and State Channels

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Vaibhav Saini

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