Tom Brady & The Future of Cross-Chain
GM, my friends!
Recently, all I’ve been wanting to do is go on a crusade against the annoying and uninspired people who have shown their true colors during “difficult” market conditions. Welcome to the game, buddy. If you have the cojones to remain an active crypto investor, you’ll see many more of these cycles to come. If, however, you also have some brains, you’ll simply hodl and ride these fluctuations out like they’re nothing. Smooth sailing.
After an astonishing acceleration towards the backend of 2021, crypto markets seemed to slow down in early 2022. Then Putin decided to invade Ukraine, and things started looking bearish bearish. People panicked and sought a haven in less volatile assets, pushing crypto into a smol slump. Wars are scary, but let’s have a look at how this conflict might pan out and affect us crypto investors.
Scenario 1.
The situation escalates, a nuclear conflict ensues, and we all die. Although this won’t happen, let’s entertain the idea for a second. Who in their right mind becomes more risk-averse knowing they’ll die soon?
For crypto, this scenario is positive/irrelevant: People will either take on more risk or stop caring about money and investments, at which point any store of value loses its significance.
Scenario 2.
Putin succeeds (soon or later) and installs a Russian government in Ukraine. The situation will be tense (especially in Ukraine) but without any imminent danger of a war between Russia and the West, there’s not much for outsiders to worry about. Politicians will go on to do what politicians do best: chat for a while, measure the size of their schlongs, and conclude extensive negotiations with a super obvious agreement.
Markets have always done their thing, despite conflicts in the Middle East. Investors didn’t care then, why should they care now (again, if there is no imminent danger of any further action).
Scenario 3.
Putin succeeds and continues his rampage, attempting to move even further than Ukraine.
This would be problematic and cause extreme uncertainty. Not good for crypto, probably a lot worse for humanity.
Scenario 4.
Due to some miracle, Putin decides to withdraw from Ukraine, and we all ride into the sunset. Crypto to the moon.
As you may have noticed, I didn’t major in politics. If I’ve got it all wrong, please don’t hesitate to reach out and bust my balls. But (as I’ve mentioned before), if we can learn anything from this conflict, it’s that we need cryptocurrencies. Why would we want to give the same governments that invade countries and fu*k people over — Western countries not excluded — the power to inflate and deflate our money? You may believe it’s fair for Russian oligarchs to be sanctioned, but do you really believe governments should be able to reach into anyone’s pockets as they please? I doubt we’d all give a friendly nod of approval if Russia was able to sanction the West for its handling of the Middle East? I’m not here to take any sides, but hopefully my thought-process helps you realise just how biased we can be depending on how we relate to a situation at hand.
Since we’re mentally already in Russia, let’s see what our true Russian prince has been up to. Vitalik Buterin, co-founder of Ethereum a.k.a. Tom Brady on meth, has made it on the cover of Time Magazine. Below some of the reactions on Twitter:
Iconic. Keep your head up, my prince 👑
With today’s dose of salt and comedy out the way, let’s try and actually learn something. I brought up Vitalik because of an interesting take of his back in January. Meth Brady took to Reddit arguing that the future will be multi-chain, but it will not be cross-chain: there are fundamental limits to the security of bridges that hop across multiple “zones of sovereignty”. Alright then, let’s whip out the chains and try to understand what Buterin is trying to tell us.
Layer 1 versus layer 2
To understand multi-chain and cross-chain, we first must understand the difference between layers. Layer 1 refers to a blockchain and its infrastructure (such as Bitcoin, Ethereum, or BNB Chain), while layer 2 refers to protocols built on top of layer 1—improving the functionality of its layer 1 chain by ameliorating speed and/or cost efficiency. Two separate layer 1 chains such as Bitcoin and Ethereum cannot communicate with each other in their native form. Side note: If you are a new to the space, this is something you must be extremely careful about. If for example, you send BNB tokens to the Ethereum network, your tokens will be lost.
Cross-chain versus multi-chain
To prevent above situation, you have to use a bridge whenever you want to send BNB to the Ethereum network. The use of a bridge creates a cross-chain solution, allowing the transfer of information from one layer 1 to another. On the other hand, Multi-chain refers to a project/token that is deployed on at least two layer 1 chains. The following analogy might help:
Assume there are two layer 1s, let’s call them London and Paris. More specifically, layer 1 refers to London’s and Paris’s respective infrastructures. Layer 2 is whatever is built upon these infrastructures: grocery stores, office buildings, fitness studios, pharmacies, hairdressers, etc. These all have their own utility but are integrated into their city’s electricity and sewage systems.
Assume we live in a world where traveling and exchanging goods between London and Paris isn’t possible, and both cities each produce a unique good: London produces beer and Paris produces baguettes.
A cross-chain solution is then the bridge/train between London and Paris, allowing baguettes and beers to flow between the two cities (in technological terms this is quite oversimplified).
A multi-chain solution is the emergence of a brewery in Paris and a bakery in London. Without any direct exchange between London and Paris, both cities can still produce, consume, and trade beer AND baguettes within their own ecosystems.
In theory, complete decentralisation (this is quite an important goal) can only be achieved once all blockchains are interconnected/bridged. In reality, these interconnections must be efficient — if the chains are poorly connected with each other, crossing chains may not be convenient, resulting in incomplete decentralisation. As I’ve mentioned (when really it was Vitalik), perfectly implementing cross-chain solutions may not be possible. If you’re overly eager to hear what exactly Vitalik has to say, check out his argument here.
I hope you enjoyed this little introduction to the multi-chain versus cross-chain debate. There’s lots to unpack and discuss here, which I’ll do in next week’s edition. Watch out Vitalik, I’m coming for the throne.
Take care,
Team Lithium x Seb
