For blockchain technology to be practical for everyday use, we need a way to seamlessly move assets and connect apps between different blockchain platforms. Traditionally, blockchains were designed like isolated ecosystems: applications that run on Ethereum cannot run on Solana, and NFTs built on Polygon cannot be transferred to Cardano.
That's where cross-chain technology can help.
Cross-chain solutions act like bridges between blockchains, making it easy for you to transfer data and assets back and forth between them. This allows different applications, crypto exchanges, and tokens to be compatible with each other. In effect, cross-chain technology makes blockchain applications and platforms easier to use.
Cross-chain technology typically relies on a combination of cryptographic techniques, smart contracts, and consensus mechanisms to enable secure and efficient transfers between different blockchain networks. These solutions ensure that assets and data remain secure as they move from one chain to another.
Cross-chain technology is especially crucial to decentralized finance (DeFi). DeFi platforms let you lend, borrow, trade, and earn interest on cryptocurrencies without needing a middleman. However, many of these platforms are built on specific blockchains and not compatible with the rest. With cross-chain technology, these DeFi platforms can work across multiple blockchains and let you access a wider range of assets and services.
Cross-chain technology uses multiple smart contracts deployed across different blockchains to let you seamlessly transfer data between them. On the other hand, multi-chain technology uses smart contracts deployed across several interconnected blockchains, each with its own individual version of the smart contract. These blockchains work together as part of a bigger system. For instance, a multi-chain decentralized application (dApp) can use one blockchain for security, another for speed, and a third for other features.
Both cross-chain and multi-chain solutions help make the blockchain ecosystem more efficient and versatile.
A typical smart contract can only function within the blockchain it was created on. However, cross-chain smart contracts are designed so a smart contract on one blockchain can access, verify, and use data or assets from another blockchain. Cross-chain smart contracts are actually made up of several smart contracts deployed across different blockchain networks that work together to run a single application.
For instance, a cross-chain smart contract could allow a dApp built on a blockchain known for its high transaction speed to transfer tokens stored on another blockchain known for its powerful security features.
An atomic swap is a type of smart contract that allows two parties to exchange assets directly across different blockchains without needing to rely on a trusted third-party such as a bank. Even if you don’t know or trust the other party, you don’t need to worry since the smart contract has a special security feature called a hashlock that ensures that you don’t end up sending funds to the wrong place. For added security, atomic swaps also require you to complete a transaction within a specified timeframe. If either of you fail to send the funds over within that time, the smart contract cancels the transaction and returns the assets to the original owners.
Another common type of cross-chain technology is the cross-chain bridge. These bridges let you transfer crypto and NFTs between different blockchains. In contrast with atomic swaps, they usually work by locking the asset on the source blockchain and minting an equivalent asset on the destination blockchain. When the asset is moved back, the equivalent asset on the destination blockchain is destroyed, and the original asset is unlocked on the source blockchain.
Cross-chain NFTs let you share and use your digital collectibles across different blockchains. Normally, an NFT from one blockchain can't be used on another, but cross-chain NFTs remove this barrier. You could take an NFT minted on Solana and use it in an app that runs on Polygon. This makes NFTs more valuable and useful, and it opens up new opportunities for projects from different blockchains to collaborate.
Oracles are like messengers that fetch data from outside the blockchain. This includes market prices, news about current events, or any information that dApps need to work properly. Cross-chain oracles take this further by sharing information across blockchains. This lets dApps and smart contracts use data from both other blockchain networks and the real world.
To unlock the full potential of Web3, we need applications and platforms that work seamlessly together. We need to be able to freely move assets and data freely across different blockchains. Achieving this level of interoperability through cross-chain technology is key to building a more connected and versatile blockchain ecosystem.
