If you've been in crypto for a while, you've probably heard of cross-chain and multi-chain. But, with so many people using the term interchangeably, it can take time to know the real difference.
In this article, we'll explain the differences and similarities between multi-chain and cross-chain, including some examples.
- Understand what is multi-chain and cross-chain.
- Why interoperability matters in connecting different blockchains.
- Learn to differentiate the differences and similarities between cross-chain and multi-chain.
- How Creditcoin is creating a future of a seamless and secure combination of multi-chain and cross-chain.
What Is Multi-Chain?
Multi-chain is the ability to use multiple blockchain networks, usually by combining unique capabilities and strengths of other chains.
Rather than relying on a single blockchain for all needs, multi-chain architectures leverage different blockchains for different purposes.
For example, one chain could focus on security while another specializes in scalability.
Cross-chain bridges and interoperability protocols enable moving assets and data between chains—providing flexibility to build decentralized applications that harness each component's fastest, most affordable, or most secure chain.
It sounds excellent, but multi-chain solutions themselves can have flaws. Read this article about our coverage of the Multi-chain project.
Additionally, multi-chain mitigates risk and prevents systemic failures. If one chain has issues, the application continues functioning on the other chains.
This resistance to disruption makes multi-chain appealing for mission-critical dApps.
Furthermore, multi-chain expands interoperability in the blockchain ecosystem by merging isolated networks into a cooperative fabric.
What is Cross-Chain?
Cross-chain is the ability to transfer data or assets between blockchain networks, enabling interoperability.
Cross-chain bridges transfer tokens and assets between chains, providing access to DeFi apps on different networks. This interconnectivity helps scale networks by moving data/assets to prevent congestion.
Cross-chain interoperability enables assets and data to flow freely between decentralized networks—bringing greater utility, flexibility, and scalability to blockchain ecosystems.
Why does Interoperability in Cross-chain or Multi-chain Matter?
To illustrate just how important this concept of interoperability is, let's consider traditional banking. Sending money from one banking institution to another is an absolutely essential day-to-day operation, right?
Well, that's only possible because of the interoperability between different banking systems—the global SWIFT network.
Important Note: Interoperability is what makes multi-chain and cross-chains work.
With more than hundreds of blockchains speaking their own unique smart contract language, they cannot exchange information with each other by default.
For example, if you have Ethereum's USDT, you cannot just send the same USDT to another's address and expect the Polygon's USDT balance to increase even though its receiving address is the same.
Interoperability through cross and multi-chain solutions solves this by allowing free data exchange between these different blockchain networks.
In this case, Ethereum's USDT to Polygon's USDT by increasing the receiver's Polygon's USDT by reducing the sender's Ethereum USDT balance—made possible by cross-chain or multi-chain interoperability.
Cross-chain vs Multi-chain: Differences and Similarities
- Cross-chain refers to interoperability between independent chains, while multi-chain encompasses an ecosystem of connected chains.
- Multi-chain implies multiple chains working together, while cross-chain is just bilateral communication.
- Multi-chain projects like Polkadot have native interoperability, while cross-chain requires bridges.
- Multi-chain allows composability between chains, while cross-chain may transfer assets between siloed chains.
- Both involve the concept of interconnected blockchains rather than isolated networks.
- They aim to improve interoperability and allow digital value to move freely.
- Asset transfer is a key capability of both cross-chain and multi-chain ecosystems.
- They have almost similar user experience when it comes to swapping between chains.
- They both enable users to leverage the unique capabilities of different chains.
- Scaling and responsiveness can be improved by distributing transactions across chains.
Some Use Cases of Interoperability in Crypto
As we've already touched on, the situation in crypto is more complex, which profoundly impacts blockchain-dependent experiences.
#1: DeFi Protocols
One of the areas where this difference manifests itself most obviously is DeFi, a decentralized approach to finance that removes the need for traditional centralized institutions. Pretty much this whole space is based exclusively on Ethereum.
That means the DeFi ecosystem can't automatically interact with coins and tokens from other blockchains, making it more challenging to invest in DeFi.
To get involved, you must convert your assets into an Ethereum-based token (ERC-20). More on that later.
Imagine you've purchased yourself a digital asset on a platform. A particularly fetching little hat for your avatar, perhaps.
With interoperability, you can only take your hat across multiple networks and metaverse ecosystems. Interoperability allows you to transfer your ETH-based hat to another player's Polygon-based avatar.
What is Cross-chain Bridges?
Cross-chain bridges are the specific cross-chain technology that allows users to move digital assets between blockchains and, therefore, acts as a type of cross-chain infrastructure that makes interoperability possible.
How do cross-chain bridges work?
Most bridges rely on a mechanism called lock and release, which involves locking the native tokens on the source chain using a computer program called a smart contract and either unlocking or minting wrapped tokens on the destination chain, also through smart contract technology.Is Cross-chain Bridge 100% Safe?
Even though cross-chain bridges are very important in the crypto space, there are also tons of hacks that occur due to cross-chain bridges.
For example, the gaming-focused Ronin network announced a loss of over $625 million in USDC and ether (ETH) from a bridge hack.
Cross-chain Solution Example in DeFi
To transfer the value of your Bitcoin over into an Ethereum wallet, you can use something known as Wrapped Bitcoin (WBTC), a cross-chain bridge that creates a new WBTC token on the Ethereum network based on the amount of Bitcoin deposited.
The number of WBTC usually equals or is very close to the number of Bitcoins you place in the WBTC cross-chain bridge smart contract.
The end product is a Bitcoin-backed ERC-20 token (the Ethereum standard) you can use on the Ethereum network to purchase all the NFTs you want.
Now that we understand why cross-chain and multi-chain, here's our take on the future of interoperability.
The Future of Multi-Chain with Creditcoin
Creditcoin, a revolutionary blockchain project, has the potential to impact the future of multi-chain ecosystems greatly. With its unique features and capabilities, Creditcoin aims to advance the functionality and efficiency of multi-chain technology.
The future is undoubtedly heading towards a multi-chain ecosystem.
This presents a massive opportunity if the right protocol can deliver on the promise of seamless interoperability and composability across chains.
Just as Web2 saw many interconnected platforms thrive based on their distinct strengths, Web3 will likely consist of specialized blockchains working in harmony - each powered by its unique capabilities yet communicating and collaborating freely.
By innovating solutions that allow protocols to interoperate frictionlessly, Creditcoin aims to fulfill the great promise of an open, connected multi-chain ecosystem that unlocks unprecedented possibilities through mutual cooperation across decentralized networks.