The Rise of Cross-Chain Bridges
The emergence of Cross chain bridges in an increasingly Multichain space
From Bitcoin to 1,000 Blockchains
In the nascent days of the Web3 world, we often hear about people comparing different blockchains in terms of their security, scalability and extent of decentralisation. These discussions divide people into groups, each advocating for a specific blockchain such as Bitcoin, Ethereum, Solana, Avalanche, and others. The debate was around determining which blockchain is superior which would eventually dominate the space.
Fast forward to today with all the rapid developments over the past few years, there are now over 1,000 blockchains and more than 20,000 cryptocurrencies. These include Layer 2 and Layer 3 blockchains, which were non-existent during the earlier stages.
Multichain is the current state
The one-blockchain-takes-all narrative did not materialised. Instead, we now have proliferation of multiple blockchains which continues to expand. The growth is driven by developers and users creating blockchains tailored for specific use cases, each offering its unique advantages.
The Goods and Bads of Multichain
There are a number of benefits under the Multichain narrative, however it also comes with its tradeoffs.
Pros
1. Increased scalability
One of the most prominent benefit of Multichain is that it allows for parallel processing and distribution of transactions across multiple chains, improving overall scalability which accommodates a larger number of users and applications.
2. Better performance
Because each chain is designed differently, it can focus on specific tasks, resulting in a more optimised performance as a whole.
3. More choices for developers and users
Different blockchains can offer unique features and functionalities, therefore developers can choose among the vast options that meet their needs in developing Dapps and Appchains instead of being limited or forced to adapt to the infrastructure of a certain chain.
Similarly, users are also granted with greater access to which blockchain to choose that aligns with their preferences, requirements, and values, ensuring a more inclusive and user-centric ecosystem.
4. Risk mitigation
By diversifying across multiple chains, the risk of a single point of failure or vulnerability is reduced.
5. Innovation
A Multichain environment encourages innovation as developers can explore different chains and experiment with new ideas without being limited to a single blockchain.
6. Diverse Web3 space
Multichain fosters a vibrant ecosystem with diverse projects, communities, and collaborations, attracting more developers, users, and businesses to participate in the blockchain space.
Cons
1. Complexity and Interoperability challenges
First of all, we progressed from Bitcoin and Ethereum to a space with over 1,000 blockchains, managing and navigating multiple blockchains can be complex and challenging, even for crypto natives.
Secondly, each blockchain has its own consensus mechanism, data structure and protocols, which makes communication between blockchains very difficult.
Therefore, it requires additional resources and coordination to overcome the technical difficulty of data exchange between chains.
2. Fragmentation
With multiple chains, there is inevitable fragmentation of Dapps and liquidity within the blockchain ecosystem where they are isolated and resulting in a lack of network effects.
Connecting blockchains with Cross-chain bridges
In blockchain space, having multiple isolated chains without communication is like being stranded on separated islands. To address this, interoperability protocols like Polkadot and Cosmos have emerged to provide an interface for different chains to communicate with each other.
In addition, we have Cross-chain bridges.
Cross-chain bridges connect separate blockchains by allowing assets to be transferred between them, increasing the compatibility and better capital efficiency.
For instance, with Cross-chain bridges, assets dormant on one chain can be transferred to other chains. The assets can then be utilised to create more value via lending, borrowing, yield farming, staking, and more.
Enhancing Defi activities
Cross-chain bridges unify the fragmented liquidity on different chains, where individual chain will also have a larger range of available assets and also make cross-chain transactions easier and more seamless.
Not only assets that are fragmented, but so as Dapps - Defi protocols in particular are also fragmented on different chains. This refine and constrain users in participating their desired Defi activities and hence limiting financial gains.
With the existence of Cross-chain bridges, users can swap tokens, deposit liquidity on one chain, participating lending and borrowing across multiple chains, realising the potential capital gains.
When chains are interconnected, it opens up more possibilities for developers to create novel Defi products that leverage the unique features and capabilities of other Defi protocols.
Final Thoughts
As the blockchain space continues to move towards a Multichain landscape with an increasing number of emerging chains, the role of Cross-chain bridges will become more salient. These bridges will play a crucial role in creating a more cohesive and efficient blockchain ecosystem by enabling interaction and resource-sharing among networks.