[Analysis] Sidechains are not Layer 2 - Georgios Konstantopoulos

Sidechains leverage Proof of Works blockhead design to secure funds, writes Georgios Konstantopoulos. When transferring funds between the Bitcoin ($BTC) mainchain and a sidechain like Blockstream's Liquid, group signatures are used for verification. As PoW schemes, these signatures are dependent on computational power rather than passwords. In this manner, the alternative chains trustworthiness can be verified just liked the mainchain: the longer the better. Structural challenges remain, specifically counter party risk through the use of central authorities, also known as federated entities. If counter party risk exists, so does coin loss.

Sidechains, Konstantopoulos asserts, should be thought of as BTC alloys. The risk of losing a sidechain asset should be weighted within its value. A sidechain BTC should be worth BTC/X versus one BTC equaling one BTC.

Layer 2 solutions have no counter party risk. Building upon Layer 1's security and game theory, Layer 2 solutions allow for value transfers without need for risk management.