Ask CryptoVantage: Is the Future Multi-Chain?

Cross-Chain Routers and Bridges

We said that Multichain was not to be confused with a multi-chain future. However, Multichain, along with other cross-chain routers and bridges, are going to play an integral role in the multi-chain future. Platforms such as Multichain, Router Protocol, Celer, and more are thriving. They allow users to send their assets from one chain to another. For example, you can use the Celer Bridge to bring assets from Ethereum to other blockchains such as Cardano, Polygon, or Cronos.

The ability to move assets from one blockchain to another is a powerful one, as it allows users to freely move from one protocol to another. As better decentralized apps (Dapps) such as decentralized exchanges (DEXs), lending platforms, and play-to-earn (P2E) games pop up on different blockchain networks, you can try them out without having to buy new assets. This is because rather than buying some Cardano to start trying to use new Dapps that have been released on it, an Ethereum user can simply bridge their ETH and other supported assets to Cardano to begin interacting with them.

Wrapped Assets

Wrapped assets aren’t anything new, they began years ago. However, wrapped assets are a big factor when it comes to a multi-chain future. This is because they allow you to safely convert something like BTC to WBTC (Wrapped Bitcoin) and use the WBTC on Ethereum decentralized finance (DeFi) protocols like Uniswap. This is seen again with BTCB (Binance Bitcoin). In both of these cases, there is a custodian for the original asset (BTC), and you are given an equivalent amount of WBTC or BTCB in exchange, which can then be used to interact with various Dapps on both Ethereum and the Binance Smart Chain. The WBTC or BTCB can then be unwrapped in a similar process.

The only current issue with wrapped assets such as WBTC, is that they require KYC/AML in order for you to get them directly. Meaning if you have BTC that you want to turn into WBTC, you must go through the WBTC Network platform and verify your identity to be able to exchange BTC for WBTC. This is a limitation as there are many users who would prefer not to provide identity information in order to use their BTC on Ethereum. Essentially, it isn’t a trustless service. Projects such as AnetaBTC on Cardano are aiming to create a decentralized, permission-less way to bring BTC to Cardano.

Inter-Blockchain Communication (IBC)

Cosmos users are likely very familiar with this term, as it is one of the main objectives of the Cosmos team. Put simply, inter-blockchain communication is an interoperability protocol for communicating data between varying blockchains. Cosmos has created a protocol consisting of two distinct layers: the transport layer (TAO), which provides necessary infrastructure to establish secure connections and authenticate data between different chains, and the application layer, which decides how these data packets should be packaged and interpreted by the sending and receiving chains.

The IBC application layer is being used to build a wide range of cross-chain applications, including token transfers, interchain account, non-fungible token (NFT) transfers, and oracle data feeds. Apart from helping develop the IBC protocol, Cosmos’ Tendermint software development kit (SDK) has led to the creation of successful projects like Terra and Cronos.

The Future

While it’s not a guarantee that the future of blockchain will be multi-chain, the development of cross-chain routers, bridges, wrapped asset protocols, and inter-blockchain communication protocols, all seem to point in that direction.

While one blockchain project may not rule them all, if one is able to integrate many other assets and chains with itself it may have a chance. However, it seems more likely that there will be many blockchain networks, each with its own ecosystem and able to communicate with one another. The multi-chain future is already underway.