Blockchain
While complete interoperability is the destination that many interoperability proponents want to reach, there are a variety of different technological paths that one can take to get there. These different solutions can vary in their complexity, security, features, and a host of other parameters. Another point of consideration is how — or if — interoperability was incorporated in the initial design of a blockchain protocol, smart contract, or other blockchain-based tool.
While some newer blockchains and crypto projects were designed to be interoperable from inception, earlier blockchain protocols often require retrofitted interoperability solutions that can be an ad hoc supplementary addition. While not ideal, these solutions are enabling interoperability with many of the earliest blockchains — including Bitcoin itself. Let’s take a look at some of the cross-chain and multichain solutions on offer.
Wrapped Crypto and Multichain Tokens
Bitcoin, launched in 2009, 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 subsequent blockchains like Ethereum. However, the Bitcoin protocol was not designed to be interoperable as it was a one-of-one technology at the time — and the only blockchain in existence. Bitcoin (the blockchain) was designed to do one thing well: securely move bitcoin (the native coin of the Bitcoin blockchain).
A decade later, BTC became interoperable with the Ethereum ecosystem via a process known as wrapping. In essence, bitcoin was converted into wrapped bitcoin (BTC) by converting it into an ERC-20 token, the popular token standard found on Ethereum. This allowed it to be used as collateral for lending, borrowing, and yield farming on protocols found within Ethereum’s decentralized finance (DeFi) ecosystem. While far from the only version of wrapped crypto, wBTC is by far the most popular in terms of adoption and usage.
Another way in which interoperability is being bolstered is through the use of crypto that can be available on multiple blockchain protocols. For example, Chainlink’s LINK is available on Ethereum, BNB Smart Chain, Gnosis, Polygon, Optimism, and a host of other blockchains. The popular stablecoin tether (USDT) is available on over 50 blockchains. Even wrapped 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 Fantom, 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 Multichain World
While multichain can refer to merely two or more blockchains that can interact, in an ideal blockchain world, many — or all — blockchains could interact with each other. At this current juncture, Ethereum has been a key catalyst in driving multichain interoperability and cross-chain interactions. In addition to facilitating multichain assets via its native ERC-20 token standard, its oversized presence within the non-fungible token (NFT) market and its expansive 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 allowed Ethereum to become a leader in smart contracts and DeFi use cases. In order to build off its success (and access the cryptoeconomic value and users found there), many subsequent blockchains were designed from the onset to be compatible with Ethereum. When you see the phrase 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 were designed to not just be compatible with existing blockchains such as Ethereum, they were designed with the intention of creating an ecosystem of blockchains that can seamlessly integrate with each other by using a common framework that is anchored and secured by a master blockchain.
For example, Polkadot is composed of three chains (relay chain, parachain, bridge chain). The relay chain functions as the mainchain and is the chain that all the parachains connect to. 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 interact with other blockchain ecosystems.
The Cosmos project functions in a somewhat similar manner, with the Hub (the mainchain) serving essentially the same purpose as Polkadot’s relay chain. Using its Inter-Blockchain Communication (IBC) protocol, other projects can interact with Cosmos and run their own dApps and blockchains, including notable examples such as Akash Network, Fetch.ai, and Injective. Both of these 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 wrapped crypto are just some of the interoperability solutions that are striving to connect crypto ecosystems with each other. In addition to this, there are various crypto bridges, sidechains, Layer-2 solutions, and a variety of other approaches to opening up possibilities within the ever-changing blockchain space. In the next article, we’re going to look at Holograph’s approach to multichain within the burgeoning NFT sector.
Cheat Sheet:
- There are different approaches to blockchain interoperability and enabling multichain assets.
- Wrapping cryptocurrency (such as wrapped bitcoin) enables crypto to be transferred from its originating blockchain to another blockchain. Via unwrapping, this wrapped crypto can be transferred back to the original blockchain.
- Multichain tokens are tokens that can be found on multiple blockchains.
- Compatibility with Ethereum is a chief goal for many multichain tools and solutions.
- Interoperable blockchain ecosystems such as Polkadot and Cosmos aim to enhance interoperability by creating a main blockchain that can connect to multiple subsidiary blockchains that use the same technical standards. Some of these projects may also have bridges that allow them to interact with other
