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Side chains

In the context of Ethereum, sidechains are separate, Ethereum-compatible blockchains. Sidechains can be independent EVM-compatible blockchains, but more likely, they are application-specific blockchains catering to Ethereum users and use cases like Polygon or Ronin. 

EVM stands for the Ethereum Virtual Machine and is the global network of computers that keeps Ethereum running. The EVM actually handles processing of every transaction on Ethereum. It is a Turing complete virtual machine that is limited by the amount of gas provided by users.

Sidechains design themselves to be EVM-compatible so they can essentially copy and paste their code to easily interoperate with Ethereum and all of its infrastructure including wallets, block explorers, and more. Projects like Binance Smart Chain, Avalanche, Tron, Celo, Fantom, and more are all examples of competing L1 chains that have simply launched an EVM-compatible chains, tweaked a couple parameters to increase TPS, and launched their own coins. 

If users had funds on a sidechain and the network went down (like Solana recently), there is nothing a user can do and their funds are stuck until the chain is brought back online. However, rollups contain immutable “escape hatches” that always ensure a user can exit back to mainnet even if the rollup network is offline. Users can always manually submit transactions to the mainnet Ethereum rollup contract as you need, including exiting the rollup with your funds.

Some sidechains are purposely built to be complementary to Ethereum and offload some specific Ethereum use cases onto themselves. Because of this, sidechains increase the scalability of Ethereum by serving as external execution layers for L1 Ethereum. However, it's important to remember that sidechains do not provide the same amount of security as L1 Ethereum.

Polygon

Technically, Polygon is its own blockchain (with its own token: MATIC), but was built to become Ethereum’s internet of blockchains. Polygon provides the architecture that enables developers to create custom, application-specific chains that leverage Ethereum’s security similar to the Cosmos hub-and-spoke model. It provides an interoperable layer that can bridge many different projects and scaling solutions such as zk-rollups, optimistic-rollups, and sidechains (discussed below). 

Since Polygon is a separate chain, it must be secured by a separate Proof-of-Stake consensus mechanism where validators stake MATIC. However, MATIC is staked in smart contracts on the Ethereum main chain. Polygon connects to Ethereum through a bridge with the use of a lock and mint mechanism. Users deposit funds into the bridge which locks them in a smart contract on Ethereum and mints the equivalent amount on Polygon. Polygon also maintains a secure relationship with the Ethereum main chain through periodic checkpointing, posting state changes to Ethereum, leading the Polygon team to characterize it as a “commit chain.”  To withdraw funds, you will have to go back through the bridge. The bridge (and funds) are secured by a 5/8 multi-sig scheme making it incredibly more centralized than the Ethereum mainchain. Additionally, ~33% of MATIC staked is run by a node controlled by Binance. These centralization factors should be considered when weighing the cost of transacting on a layer 2.

However, as of Q4 2021, Polygon’s Proof-of-Stake (PoS) sidechain is an industry leader with ~$5 billion in total locked value (TVL) deployed over 100 DeFi and gaming applications.

In Q2 2021, Polygon released the Polygon SDK, developer tooling for launching new blockchains as rollups or their own chain, and Avail, a data availability innovation for Polygon chains.

In November 2021, Polygon announced Polygon Miden, a zk-rollup implementation. Polygon previously acquired Hermez (another ZK-Rollup) and are positioning themselves as the premiere scaling solution for blockchains. They also have a $1 billion fund for ZK-based solutions and research.

Finally, in December 2021, Polygon proved yet again that the project has big plans in the L2 and rollup space. Polygon made yet another crypto-acquisition, this time purchasing the Zk rollup project, Mir Protocol, for $400 million. Polygon claims Mir Protocol contains the “fastest” ZK-proof technology, generating proofs and verifying more transactions faster than other comparable technologies.

Plasma

A Plasma chain is a L2 scaling solution that utilizes fraud proofs like optimistic rollups, yet maintains data availability off-chain (unlike optimistic rollups). Plasma was one of the earliest areas of L2 research but failed to gain much traction, especially as the advantages of rollups became evident.

Plasma and dappchains are childchains tethered to the Ethereum root chain. Plasma received significant attention following the release of the corresponding paper by Justin Poon and Vitalik Buterin in August 2017. Nonetheless, the increasing complexities around practical challenges when it comes to implementing Plasma have become a significant concern. 

Plasma enables the creation of an unlimited number of transaction-processing child chains (Ethereum mainchain clones) using smart contract and Merkle Tree technology. It is an attempt to create a more flexible state channel that enables many-to-many asset transfers with complex logic, as opposed to just simple one-to-one transfers. Like State Channels, Plasma is completely separated from the Ethereum L1.

One downside of Plasma is the long withdrawal period for users who want to remove their funds from Layer 2. Another is the ‘data-availability problem’. Since Plasma and the child chains are entirely disconnected from the main chain, it creates game-theoretic issues when the Plasma chain and the base layer chain try to sync up about the state of truth. The main chain can never with 100% certainty know the state of any Plasma chain, and thus cannot export its security to any child-plasma chain.