Blockchain
While full interoperability is the destination many proponents of interoperability want to reach, there are several technological paths one can take to get there. These different solutions can vary in complexity, security, features, and a host of other parameters. Another point to consider is how – or if – interoperability was incorporated into the original design of a blockchain protocol, smart contract, or other blockchain-based tool.
While some newer blockchains and crypto projects are designed from the ground up to be interoperable, previous blockchain protocols often require retrofit interoperability solutions that can be an ad hoc additional addition. While not ideal, these solutions enable interoperability with many of the earliest blockchains, including Bitcoin itself. Let’s take a look at some of the cross-chain and multi-chain solutions offered.
Packaged crypto and multichain tokens
Launched in 2009, Bitcoin was the beginning of the blockchain paradigm. At the time of writing, it remains the largest crypto by market capitalization with a value of approximately $560 billion USD. The sheer amount of monetary value in bitcoin (BTC) created a strong desire for BTC to be interoperable with later blockchains such as Ethereum. However, the Bitcoin protocol was not designed to be interoperable, as it was a unique technology at the time – and the only blockchain in existence. Bitcoin (the blockchain) was designed to do one thing right: move bitcoin (the original coin of the Bitcoin blockchain) securely.
A decade later, BTC became interoperable with the Ethereum ecosystem through a process known as rewind. Essentially, bitcoin was converted into packaged bitcoin (BTC) by converting it into a ERC-20 Token, the popular token standard found on Ethereum. This allowed it to be used as collateral for lending, borrowing and yield agriculture on protocols found within Ethereum’s decentralized finance (DeFi) ecosystem. Although far from the only version of wrapped cryptocurrencywBTC is by far the most popular in terms of adoption and usage.
Another way interoperability is enhanced is through the use of crypto which can be available on multiple blockchain protocols. For example, Chain links LINK is available on Ethereum, BNB Smart Chain, Gnosis, Polygon, Optimism and numerous other blockchains. The popular stablecoin chain (USDT) is available on more than 50 blockchains. Even packaged cryptos like wBTC have taken the multichain route. In addition to the original Ethereum iteration, it can now also be used on blockchains such as Phantom, Avalanche, Polygon, Tomochain and Optimism. The process of converting wBTC to BTC is known as unwrapping and allows BTC to be used on the original Bitcoin blockchain.
Ethereum’s place in a multi-chain world
While multichain can refer to only two or more blockchains that can communicate with each other, in an ideal blockchain world many – or all – of the blockchains could communicate with each other. Currently, Ethereum has been a major catalyst in driving multichain interoperability and cross-chain interactions. In addition to facilitating multichain assets through its proprietary ERC-20 token standard, its oversized presence within the non-fungible token (NFT) market and the expanded DeFi ecosystem has driven demand for blockchains that can more easily interact with Ethereum.
The Ethereum Virtual Machine (EVM) is one of the key innovations that has made Ethereum a leader in smart contracts and DeFi use cases. To build on the success (and access the cryptoeconomic value and users found there), many subsequent blockchains were designed from the ground up to be compatible with Ethereum. If you see the sentence EVM compatible blockchain, this essentially means that smart contracts, decentralized applications (dApps), and crypto — including NFTs — can be transferred from Ethereum to these EVM-compatible alternatives (and vice versa).
Notable Multichain-focused Blockchain Projects
While building to be compatible with one blockchain is a good starting point, other crypto projects are designed to not only be compatible with existing blockchains such as Ethereum, they are designed with the intention of creating an ecosystem of blockchains that can integrate seamlessly with each other through a common framework anchored and secured by a master blockchain.
For example, Dot is composed of three chains (relay chain, parachain, bridge chain). The relay chain functions as the main chain and is the chain to which all parachains connect. The parachains are blockchains that connect to the relay chain to form this multichain framework. The bridge chain is the interoperability solution that allows all Polkadot-based chains to communicate with other blockchain ecosystems.
The Cosmos project functions in a somewhat similar way, with the hub (the main chain) essentially serving the same purpose as Polkadot’s relay chain. Using the Inter-Blockchain Communication (IBC) protocol, other projects can communicate with Cosmos and run their own dApps and blockchains, including notable examples such as Akash Network, Fetch.ai, and Injective. Both interoperability-focused blockchain ecosystems — and many others — are designed to interact with other native blockchains (such as Bitcoin and Ethereum) using multichain frameworks such as Cosmos’ IBC protocol and Polkadot’s relay chain.
Other Multichain and Cross-Chain solutions
Multichain tokens, multichain blockchain projects, and packaged crypto are just some of the interoperability solutions that aim to connect crypto ecosystems. In addition, there are several crypto bridges, side chains, Layer-2 solutions, and a variety of other approaches to open up possibilities within the ever-evolving blockchain space. In the next article, we’ll take a look at Holograph’s approach to multichain within the fast-growing NFT sector.
Cheat sheet:
- There are several approaches to blockchain interoperability and enabling multichain assets.
- Wrapping cryptocurrency (such as wrapped bitcoin) allows cryptocurrency to be transferred from the original blockchain to another blockchain. This wrapped crypto can be returned to the original blockchain via unwrapping.
- Multichain tokens are tokens that can be found on multiple blockchains.
- Ethereum compatibility is a key goal for many multichain tools and solutions.
- Interoperable blockchain ecosystems such as Polkadot and Cosmos aim to improve interoperability by creating a main blockchain that can connect to multiple underlying blockchains that use the same technical standards. Some of these projects may also have bridges that allow them to communicate with others