What is a cross-chain?
8 April 2022 by Catherine Woods
Reading time 6 min
Cross-chain is a technology that allows the transfer of data or value between various blockchain networks. Someone might say that a cross-chain is something that enables disparate blockchains to interplay and "communicate". It means that separate chains can be connected. It is like constructing a bridge between two lands for exchanging things.
It so happened that the first blockchains were built like close systems that have resources for existence without dependence on others. In other words, an interaction was excluded. These blockchains attempted to meet a unique mix of needs and came in handy. Divergent and isolated blockchains do not allow users to all networking opportunities and advantages of the DeFi space. But now, in a state of development and scaling, completely autonomous systems are not actual.
Cross-chain or inter-blockchain technology can help solve the problem of ecosystem isolation. This is important from an economic and technical point of view: creating an interconnected distributed ecosystem for interoperability.
This concept of transfer can be used for a variety of purposes, but a popular course of use is cross-chain swap, crypto-currency is usually based on one chain, however, sometimes it can be present on several chains, but the problem is that assets cannot move freely from one chain to another. This is a big issue for any investor because it can significantly reduce the speed and possibility of obtaining a return on investment of digital assets. By the way, cross-chain technology is available to supply in traditional finance.
Cross-chain bridges provide compatibility between very dissimilar networks, as well as between "parent" and "child" networks. What can be transferred in this way? There is everything: digital assets, such as tokens, and information like instructions of smart contracts or stock market price. The delivery of assets is based on blocking funds in one network and unblocking an equivalent amount in another. This scheme turned out to be very effective and perspective. Incidentally, Cross-chain bridges that are based on third-party participation are called centralized. Such a type of cross-chain bridge technology will be useful for beginners thanks to process automation.
The DeFi Watch supports tokens of cross-chain projects. Thus, in-depth pool information, market data are available.
Moreover, investors can use wrapped coins that are employed like collateral in different protocols, for example, Wrapped Bitcoin. This is possible thanks to centralized bridges.
It is logical to suppose that there is also a decentralized version of such technology. This kind of cross-chain bridge is built on mathematical truth, code transparency, the absence of corruption, and the impossibility of evil actions.
In the context system of decentralized finance, instead of using DeFi cross-chain bridges, investors may discover a new solution to the problem, such as a cross-chain decentralized exchange with support for major digital assets, cross-chain protocol.
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It is also necessary to note an atomic swap. This is a cross-swap crypto-assets that allows the exchange of digital funds by a peer-to-peer transaction. Coordination happens at the expense of a Hashed TimeLock Contract.
In addition, there are some ways of communication as part of cross-chain technology aimed at particular chains and smart contracts. Firstly, the Relay is a specific smart contract that consists of headers. After the transaction is verified, it is transferred. Ethereum smart contracts and Bitcoin blockchain are connected now. Secondly, it is a merged consensus with native communication between chains, such as Cosmos and Ethereum, prescribed in the code from the top.
What is next? The development of this technology will let easy seamless transactions on other blockchains with fast speed and risk-free. In addition, it is worth noting that cross-chain crypto projects can have much more functionality than ordinary crypto projects. And we can expect an appearance of multi-token traffic in business and changes in the wallet system of investors. By the way, the first cross-chain crypto wallets are already appearing. Storage, exchange, and transfer become even easier with a cross-chain crypto wallet. These are the next evolutionary steps for crypto cross-chain technology.