Is Multi Chain or Cross Chain Crypto Technology the Future?
Is Multi Chain or Cross Chain Crypto Technology Better?
As the market continues growing, with more and more investors, crypto advocates argue the future of crypto lies in cross chain crypto technology rather than multi-chain crypto technology.
The purpose of this article is making the clear distinction why the future of cryptocurrency lives in cross chain crypto technology.
While some blockchain experts believe multi-chain crypto technology is the way, the idea of users moving their assets across different blockchains, as humans visiting other countries on vacation, offers significant logistical limitations.
“Current cross chain bridging technology, still has too many security difficulties, not to include blockchains sovereignty, which is developed independently of one another and come with their own set of protocols and restrictions.”
— Vitalik Buterin, Founder of Ethereum
While notable, these are only some issues plaguing multi-chain technology.
With cross chain and multi-chain technology bringing both costs and benefits, the question remains, which one is the future of crypto?
First, let’s look at what differentiates these two blockchain technologies.
What is Cross Chain Crypto Technology?
In a nutshell, cross chain crypto technology refers to the interoperability between two different blockchains (Ethereum to Avalanche for example).
In simple terms, it allows blockchains to speak to one another.
This often comes in the form of assets transfer — the moving of cryptocurrencies to different blockchains.
For example, if you have BTC on the Bitcoin blockchain and want to purchase an NFT on Ethereum, you can achieve this by using a cross chain bridge, allowing you to send your Bitcoin to Ethereum to buy the NFT!
This works by a process called wrapping, enabling the BTC being sent from the Bitcoin blockchain, recognizing and utilizing Ethereum as wrapped BTC or WBTC.
Another use case for traders comes in the form of cross chain crypto atomic swaps, enabling the trading of native cryptocurrencies on 2 different blockchains without cross-chain wrapping of tokens.
Locked in 2 separate escrow contracts, the transaction occurs if the sender and receiver each put up an amount of funds in two different cryptocurrencies (BTC and ETH for example).
By sharing encrypted keys unlocking the funds from each contract the swap is able to take place.
As soon as the initiating trader claims their part of the swap, the other trader completes the swap by claiming their part — in other words, it’s not final until both parties finalize it.
An atomic swap either happens entirely or not at all.
If either of the parties do not perform the transaction required to claim part of the swap, the contract cancels, with the funds automatically returning to the respective owners.
What is Multi Chain?
Centering on applications/protocols, multi-chain technology does not focus on individual crypto assets or narrow interoperability like cross chain crypto technology.
The idea of multi-chain refers to an application/protocol from one blockchain, deploying an entirely new copy of itself onto another, new blockchain, with limited or complete absence of interoperability between both blockchain environments.
Opening up the application to a completely new ecosystem of users, this allows the expansion of a project’s product across the array of blockchain ecosystems.
As discussed below, this does not come without its drawbacks.
Cross Chain Crypto Technology vs. Multi Chain: The Limitations
As noted, the fundamental limitation to current cross chain crypto technology is the general limitation to narrow interoperability (asset transfer only), and not true “complete” interoperability.
A notable and emerging concern is the security risk cross chain protocols present to the assets being bridged.
Native blockchain crypto assets are the most immune to 51% attacks, (a complex attack comprising a group of miners gaining control of over 50% of a blockchain network’s hashing power).
Remaining in their native state, on their native blockchain — this immunity also translates to Layer-2 blockchains built on top of the native blockchain.
As a point of weakness, attracting hackers, this level of protection is much lower with assets crossing over cross chain bridges to a different blockchain (moving Ethereum tokens to Solana for example),
Founder of Ethereum, Vitalik Buterin voices his concerns in his recent Reddit post.
And what about multi-chain?
Going multi-chain can increase friction for product users.
The user may need to bridge tokens, reconfigure wallet connections, manage new gas tokens, while learning new user interfaces.
Another DeFi protocol drawback is assets only existing on one blockchain.
This dilutes protocol/ application liquidity across multiple blockchain ecosystems, leading to higher slippage, along with further diminishing protocol native tokens.
This adds further stress to new blockchain liquidity bootstrapping mechanisms.
In the end, the ultimate fundamental project limitation of going multi-chain is the lack or absence of interoperability.
While an improvement, current cross chain cryptocurrency bridging support applications on multiple blockchains through token wrapping, offer little to no value add.
There is no avoiding the need for technology enabling secure and comprehensive data transfer communication between blockchains with no intermediary.
An example of a solution to the multi-chain dilemma is Polkadot.
Polkadot is a blockchain ecosystem allowing global communication and interoperability between multiple sharded chains (dubbed parachains), and therefore, between different projects and applications building on their own chain within the Polkadot ecosystem.
Currently, the global interoperability Polkadot provides is only available to chains existing within the Polkadot parachain ecosystem, while not extending to external layer-1 and layer-2 blockchains.
One promising truly global solution is the development of what we currently refer to as cross chain smart contracts.
This solution brings the creation of decentralized applications, (dapps), on separate blockchains comprising separate smart contracts, using advanced cross chain bridges.
And this opens the doorways for the intercommunication between blockchains, unifying a project’s application, thus solving the multi-chain interoperability problem!
One project focusing on the development of intercommunication protocols is Chainlink, with development underway on what they title CCIP or Cross Chain Interoperability Protocol.
Which Crypto Technology Will Win Out Over the Other in the Long Run?
While we don’t know what the future holds exactly, there’s little doubt one system will ultimately win out over the other.
One might seem superior depending on user perspective, alongside the desires of different blockchain projects given the various pros and cons.
When you consider how quickly innovation moves forward in this space, it seems neither system has had sufficient time for large-scale adoption, which means, “we’ll see what happens.”
This depends on scalability and interoperability issues continue plaguing crypto networks in the coming years with a new solution potentially emerging.
If nothing else — it looks like we can look forward to some interesting developments from both sides throughout 2022.
As advisors and early stage investors in Symbiosis Finance, we feel it will continue emerging as a solution to this problem.
Symbiosis Finance is the one we’re looking at for innovation and leadership within the cross chain technology space, bringing us the bridge “smashing all barriers.”
We’d like to hear your comments on cross chain and multi-chain crypto.
What excites you most about this topic?
Would you leave us a comment below?
Your Friend in Prosperity,
Mark Stein, for the Evolve Team
About Evolve
Success in business is uncertain, which is why we play the game to win, outworking others, and leveraging the most currently effective tools and strategies.
The only guarantee is time, and doing everything ethically, morally, and legally possible in empowering our clients to compete for market share in this competitive landscape.
Your Friend in Prosperity,
Mark Stein
Disclosure/Disclaimer: This article is not an offer of financial, legal, or tax advice. Instead, these are our own opinions and conclusions. Always conduct your own research, leading you to your own independent opinions and conclusions. While crypto investments invite the risk of up to 100% loss, you should always consult your financial, legal, and tax advisor prior to engagement. Accordingly, always invest with acceptance of all investment risks.
