Cross Chain Transactions

How not to lose your bag sending tokens between different blockchains

What is a Cross Chain Communication?

The ability for a user to make a transaction happen on one network and for it to automatically modify the other network is what is considered a cross chain communication.

Companies like Polkadot and Cosmos are creating platforms where all chains can come together and communicate with one another. They do this with smart contracts on both the chains. These efforts are part of the web 3.0.

The decentralized protocol has to verify the asset on both chains before it can execute. A digital representation of that asset is created within the cross-chain platform and used to transfer value between the two chains.

To facilitate the transaction without the need of a trusted third party the truly decentralized apps use what is considered a hash timelock contract (HTLC) or some other decentralized consensus mechanism.

To do this there are various representations of tokens, or what is known as layer 2 coins that are created to allow swaps between chains. That’s why tokens like Bitcoin cash (wBTC) exist. Many decentralized exchanges like Uniswap use their own coins for this purpose.

Users that are on the decentralized finance platform hold these liquidity assets in what is called a liquidity pool. This allows the exchange to deploy those assets to make cross chain transactions.

Think of chain as its own language. For someone to convey something in another language they first need to make sure there is a word for that in the language they want to convey something in. They must then use a translator to actually get their message across.

In this example the words are like assets on a blockchain and the interpreter is the platform, like Polkadot, that use HTCL to allow the transaction to execute in a safe and understood manner.

What you should NEVER do!

I see it to often where people send the wrong currency to in an incompatible wallet. They end up losing it all or recover pennies on the dollar.

You cannot transact assets between two different blockchain networks. For instance BTC (lightning network) can not be converted directly to ETH (Ethereum network) without an oracle or without a swap exchange.

One of the Largest decentralized exchanges is Uniswap. Create an account on one of these platforms to be able to directly convert assets between chains.

Tip to remember : Make sure to always check the wallet addresses to make sure they are on the same network. Sometimes the same coin can have multiple network addresses. For instance Celsius (CEL) has both a BEP and ERC address. Do not send BEP CEL to an ERC CEL.

I hope you found this useful and as always thank you for reading!

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  • Josef Loffler



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