LEDU Token

Cost-efficient Side Chains For ERC20 Token Transaction

According to DeFiPrime and State of the DApp, in its stats, there are 221 Ethereum based Defi projects out of 244 and 2,849 Ethereum based DApps out of 3,635, respectively. A mere look at the above figures shows that Ethereum is the most demanding blockchain for DeFi and DApps. However, a Reuter report and Ethereum Price data show that 21 241,262 out of 1.1 million transactions failed in April, and there are high gas fees, respectively. Generally, scalability and throughput issues of the Ethereum network are discouraging more innovations on the web. Although the Ethereum network hopes to solve those mentioned above in its upcoming Ethereum 2.0 come 2022, there are already several solutions and techniques addressing them. Such solutions include sidechains and layer 2 networks.

What are Side Chains?

First, it is essential to state that layer 2 is different from sidechains. However, they are both secondary layer solutions. While layer 2 solutions comprise non-blockchain networks that solve the scalability and interoperability but rely on the security of the base blockchain for security, side chains are smaller blockchain linked with the base or parent blockchain to solve the same problems differently and more efficiently. Although this article is focused on the Ethereum side chain, it is needful to say that there are other non-ethereum side chains, including bitcoin, Cardano, etc.

According to EthHub, Ethereum Sidechains are independent, Ethereum-compatible blockchains that leverage their own consensus model, usually Byzantine Fault Tolerance (BFT) methods and block parameters to efficiently process transactions. Ethereum side chains are secondary blockchains operating independently and in a parallel capacity to the parent network mainnet; in this case, Ethereum mainnet. The two blockchains are connected by decentralized validators called federations and pegging. Pegging is a symmetric validation process that allows cryptocurrencies to be imported from a blockchain and returned to other blockchains. A Federation is an intermediate layer or a bridge between the base and side chains that manages the users’ cryptocurrency transactions. Unlike other scalability, interoperability, and throughput solutions, security is the responsibility of each sidechain; it is not directly inherited from Ethereum. Sidechains often incorporate alternate validator selection and consensus mechanisms to provide faster transaction times.

Why We Need Side Chains In Blockchain Ecosystem

Sidechain offers different benefits to developers. They include the security, consensus, interoperability, and related main-net improvements as shown below; 

  • Security; Side chains shun depending on the main chain security architecture. That way, once the main chain is affected, it does not affect the side chain; likewise, when the side chain is involved, it doesn’t affect the main chain. 
  • Consensus; Side chains operate their own consensus, BFT methods are different from the parent blockchain. Hence, they can work independently. Operating independent consensus helps lessen the transactional burden on the mainchain. It also improves the main chain’s integrity since more resources, like computing power, won’t be spent on reaching consensus on the sidechain.  
  • Cheaper transaction; Since sidechain caters to its security, it releases the consensus on the burden of providing security. This way, transactions will not only be faster, but it will also be cheaper. Also, it creates alternative ways of deploying DApps for developers when they are not satisfied with the cost and throughput of the main chain. 
  • Interoperability; Sidechains allow varieties and cross-chain use cases. New and potential softwares can be tested on the side chain if there is a limitation on the main chain. That way, it offers use cases including micro-transactions, stable transactions, and application-specific transactions (NFT-based art, DAO voting, community currencies, etc.).

Top 6 ERC20 Compatible Side Chains

According to Tracxn’s blog, there are about 44 side chains. However, they are majorly Bitcoin, and Ethereum built. Liquid and RSk are the top cost-efficient bitcoin side chain, while the following are the top 5 cost efficient ethereum side chains; 

  1. Plasma

Plasma, proposed in 2019 by Vitalik Buterin and Joseph Poon, is a framework deployed to tackle Ethereum’s scaling issues. Plasma chains can be classified as side chains. However, unlike other side chains, it trades off some utility for extra security. Simply put, as referred to in a previous paper, they are scalable autonomous smart contracts.

Like other side chains, plasma runs separately, sometimes called child chains parallel to the main Ethereum chain. It uses fraud proofs (like Optimistic rollups) to arbitrate disputes. The child chains are smaller copies of the Ethereum Mainnet created by Merkle trees to offload bandwidth from the parent chains (including Mainnet). 

2. POA Network

It is an open Ethereum sidechain designed as a public network for smart contracts to solve Ethereum related low throughput, security, and high fee issues. It features varieties of tools to integrate and interoperate with other networks. Examples of such tools are BlockScout and TokenBridge. 

3. Skale 

It is an elastic Ethereum side chain network that allows developers to build powerful DApps with just a few lines of code. It is built ground up to reach consensus within the network while providing security, decentralization, and interoperability to its users and integrated projects. It features a leaderless, Asynchronous Binary Byzantine and threshold signature for consensus and interoperability, respectively. 

4. Binance Smart Chain (BSC)

Although Binance Smart Chain, also called BSC, is not an Ethereum side chain, it is one of the top ERC20 compatible side chains. It runs parallel to the Binance Chain and operates a highly performant matching engine and Proof of Staked Authority consensus. The dual chain architecture side chain is built from the ground up with GO, Java, Javascript, C++, C#, Python, and Swift, to empower users to build interoperable DApps and Defi applications from one blockchain to Binance chain. 

5. Loom

Loom is a platform as a service sidechain for Ethereum based applications. It was focused on blockchain-based social media and gaming dApps before shifting its focus to enterprise blockchain applications for government agencies and healthcare providers. The loom network allows Ethereum based applications to run on main-net, private, and semi-public chains. 

It achieves its aims through a three-tier offering as follows: 

  • Loom Network’s Software Development Kit (SDK) 
  • Delegated-Proof-of-Stake (DPoS) Consensus Methodology.

6. Polygon

Polygon, also known as the “Ethereum’s Internet of Blockchains,” aims to build interconnected networks to help solve Ethereum’s scaling problems. 

Similar to other top cost-efficient side chains, Polygon is built ground up to improve its main-chains throughput, increasing translation per second and enabling interoperability. To achieve those mentioned above, it employed the following; 

  1. Dedicated blockchains, scalable consensus algorithms, custom Wasm execution environments for scalability.
  2. Modular “security as a service” is provided either by Ethereum or by a pool of professional validators for security.
  3. Native support for arbitrary message passing (tokens, contract calls, etc.) bridges external systems for interoperability. 


Ethereum side chains play pivotal roles in providing low fees, interoperability, and scalable decentralized applications and Defi. Ahead of the Ethereum 2.0 launch, it could further increase innovation in DeFi and decentralized applications. It will lessen the burden on the parent blockchain, Ethereum 2.0, and enable developers to build sturdy and scalable applications upon launch.  

Education Ecosystem Staff
About author

The Education Ecosystem Staff consist of various writers who are experienced in their field. The staff strives to educate and inform others of what's happening in the technology industry.