Sidechains (also called two-way pegged sidechains) are block chains whose native unit of currency is the same as another block chain.

In the context of Bitcoin, sidechains use a mechanism where bitcoins are deposited into a contract on the Bitcoin block chain and an equal number of bitcoins are created on the sidechain for spending. Users on the sidechain can then send sidechain bitcoins to a special contract that destroys them and releases a corresponding amount of the bitcoins previously deposited to the contract on the Bitcoin block chain.

Federated sidechains have depositors send their mainnet bitcoins to a multisig contract controlled by a federation of signatories who also control the production of blocks on the sidechain.

Drivechains are a type of proposed decentralized sidechain where depositors send their mainnet bitcoins into a contract controlled by anonymous Bitcoin miners who also control the production of blocks on the sidechain.

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