{"id":86442,"date":"2023-07-20T00:43:29","date_gmt":"2023-07-20T00:43:29","guid":{"rendered":"https:\/\/www.techopedia.com\/?post_type=definition&p=86442"},"modified":"2023-07-20T06:18:44","modified_gmt":"2023-07-20T06:18:44","slug":"cross-chain-in-blockchain","status":"publish","type":"definition","link":"https:\/\/www.techopedia.com\/definition\/cross-chain-in-blockchain","title":{"rendered":"Cross-Chain (In Blockchain)"},"content":{"rendered":"
Cross-chain is the ability to transfer data, tokens, and other assets between different blockchains<\/a>.\u00a0<\/span><\/p>\n Traditionally, blockchain networks exist in isolated environments and cannot communicate with other blockchain networks. Cross-chain technology looks to fill this gap and enable data sharing and interoperability between independent blockchains.<\/span><\/p>\n Cross-chain interoperability is considered an essential feature for the cryptocurrency<\/a> and decentralized finance<\/a> (DeFi) sector that aims to achieve mass scale. This is because individual blockchains encounter scalability limitations when maintaining a high level of decentralization and security. <\/span><\/p>\n Therefore, crypto experts believe that the future of cryptocurrencies will not be dominated by a single blockchain network. Rather, numerous cryptocurrency blockchains<\/a> will co-exist and scale together as a multi-chain ecosystem.<\/span><\/p>\n Cross-chain technology is expected to help the crypto sector with:<\/span><\/p>\n Cross-chain technology lets users transfer funds and tokens from one blockchain to another. The cross-chain movement of capital will allow smaller blockchains to tap into the funds and user base of larger blockchains. This will minimize the fragmentation of capital, unlock higher capital efficiency and improve liquidity conditions across all interoperable blockchains.<\/span><\/p>\n Cross-chain interoperability also opens new opportunities for users, like gaining exposure to exotic assets, new yield farming<\/a> techniques, and promising crypto projects<\/a>.<\/span><\/p>\n Cross-chain interoperability enables smart contracts<\/a> to be deployed over multiple blockchains. DeFi applications are able to expand the user base, innovate new features, and create a better user experience by offering their services across various blockchains.\u00a0<\/span><\/p>\n Innovation in cross-chain technology lets users move funds without having to go through centralized custodians. Most cross-chain technology is designed to be trustless, which facilitates blockchain interoperability in a decentralized<\/a> manner.<\/span><\/p>\n Below we review examples of the most promising technologies and approaches employed to achieve cross-chain communication in blockchain systems.\u00a0<\/span><\/p>\n A blockchain bridge<\/a> is a smart contract-powered application that enables users to effectively transfer cryptocurrencies from one blockchain to another.<\/span><\/p>\n Most known cryptocurrencies<\/a> are not innately compatible with cross-chain environments, as they can only exist in their native blockchains. Blockchain bridge solves this problem by locking (or burning<\/a>) bridged tokens<\/a> on the initial network and creating a synthetic derivative that represents the token on the receiving network.<\/span><\/p>\n Here is an example. Let\u2019s say you own 1 ETH on the Ethereum<\/a> blockchain. You come across a profile picture NFT<\/a> that exists on the Polygon<\/a> blockchain. You will not be able to purchase the NFT using your ETH tokens because the tokens exist on the Ethereum blockchain.<\/span><\/p>\n You will have to bridge your ETH over to the Polygon blockchain. In doing so, you will send that ETH to a bridge smart contract where it is locked or burned, and then it mints or unlocks an equivalent amount of derivative ETH that exists on the Polygon blockchain. They often use specifically designed cross-chain messaging protocols<\/a> to transmit the necessary information to complete the bridging process between the blockchains.<\/span><\/p>\n Bridges can be uni-directional (allowing transfers in one direction) or bi-directional (allowing transfers in both directions).<\/span><\/p>\n Sidechains are individual blockchains that are connected to a parent blockchain via a two-way bridge. Sidechains have their own consensus mechanism (that also relies on the main chain) and often a different native token used to pay gas fees.<\/span><\/p>\n Side chains are usually the most interoperable with the blockchain they are built on top, but they don’t always work well with other networks. <\/span>The best example of sidechain interoperability is between Ethereum and Polygon PoS chains.<\/span><\/p>\n IBC is an open-source protocol that allows independent blockchains to communicate with each other in a trustless manner. This cross-chain technology is a key feature of the Cosmos ecosystem. Cosmos is a blockchain ecosystem where developers can build custom blockchains. All the blockchains built on Cosmos can connect with each other using the IBC protocol.\u00a0<\/span><\/p>\n The IBC protocol is central to Cosmos\u2019 vision of becoming \u201cthe Internet of Blockchains.\u201d Blockchains on Cosmos do not have to depend on third-party bridges to send cryptocurrencies from one Cosmos chain to another. Instead, the IBC protocol provides a native and secure way to exchange data, messages, and tokens.<\/span><\/p>\n XCM is a messaging format used to communicate messages between blockchains and smart contracts that exist on the Polkadot<\/a> blockchain. XCM not only allows cross-chain token transfers but also enables computer code to be sent from one chain and executed in another.<\/span><\/p>\n An atomic swap is a way to trade cryptocurrencies from different blockchains in a peer-to-peer<\/a> manner. Atomic swaps utilize a special type of smart contract called Hashed Timelock Contract to execute the token exchange. <\/span><\/p>\n However, atomic swaps are still quite new, and their potential hasn’t been explored in full yet.<\/span><\/p>\n Cross-chain interoperability has been touted as one of the \u201chardest problems that the blockchain industry faces. At the moment, bridges are the most popular way to send cryptos from one blockchain to another. However, bridges are considered the \u201cweakest link\u201d in the blockchain infrastructure due to their vulnerability to hacks and theft. <\/span><\/p>\nImportance of Cross-Chain Communication Explained<\/h3>\n
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Defining Cross-Chain Technologies and Approaches in Blockchain<\/span><\/h2>\n
Blockchain bridges<\/h3>\n
Sidechains<\/h3>\n
Inter-Blockchain Communication (IBC) Protocol <\/span><\/h3>\n
Cross-Consensus Messaging Format (XCM)<\/span><\/h3>\n
Atomic swaps<\/span><\/h3>\n
Challenges Remain For Cross-Chain Interoperability<\/span><\/h2>\n