You can say sidechains would be the new blockchain backed by bitcoins in the very same manner fiat currencies were backed by Gold. You could have many sidechains attached to Bitcoin, every sidechain having a different purpose but with each of them benefiting from the flexibility, scarcity and bitcoin’s mainstream adoption.

The moment sidechains whitepaper were out, it took the bitcoin industry by storm. But the papers are quite technical and it takes plenty of time to understand the sidechain. Let’s try to make things easy for all of us.

Can we move bitcoin from blockchain to somewhere else? Yes, we can, but what is somewhere else? It is another blockchain that has settled to become a bitcoin sidechain. The sidechain will create an equal number of bitcoins that will be regulated by users of the sidechain while the genuine bitcoins are deactivated on the blockchain.

The sidechain (new blockchain), can have all types of features that main blockchain lacks in, or features that are not yet executed by the main blockchain. For instance, sidechain can support untraceable and completely anonymous transactions, or can execute smart contracts etc. These are some of the features that are found in Ethereum and plans are to incorporate them in sidechains.

If I break it into an even more simple way. Your bitcoins can be moved to a sidechain that executes some particular features that are needed - flexibility and privacy etc - you can do whatever you want to do with your bitcoins and then transfer the rest of the bitcoins to the main blockcain . You can perform all these tasks without going through the pain and risk of changing your bitcoins to some unknown and certainly not safe altcoins. Sounds great! Doesn’t it?

How does it work?

Greg Maxwell (a core developer on the bitcoin protocol) came up with the idea of “two-way pegging system.” This is a system where bitcoins are transferred back and forth between the sidechain and the blockchain . This simply means bitcoin can be moved back and forth at will and they will not be lost forever from the blockchain .

Sidechains can directly get involved with bitcoin. The procedure is known as “two-way pegging”. So many sidechains can be attached to bitcoin, each one with different purposes and characteristics. Sidechains can take advantage of the scarcity and resilience which is guaranteed by the Bitcoin blockchain. Useful sidechains have the power to ruin existing altcoins .

The way sidechain will affect the future and existing altcoins