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Crypto

Blockchain Cross-chain Transactions Explained!

The crypto market contains over 19,000 cryptocurrencies distributed across different blockchain networks like Ethereum, Binance Chain, Solana, etc. To own or trade them against another, the investor might need to rely on decentralized crypto exchange platforms or P2P transactions. But is it possible to make a Blockchain Cross-chain? Indeed.

Today the crypto market is much ahead of what it was two years ago when crypto initially emerged into the mainstream market. We now have cross-chain Crypto transactions that take place daily on the scale of millions, but how does it happen? Let’s learn!

Blockchain Cross-chain

What is a Blockchain Cross-chain Transaction?

A cross-chain Crypto transaction works when multiple entities exchanges assets across or between the blockchains. Such transactions could also be seen as cross-chain swaps, where the asset transfers occur as a series of exchanges.

But then, who takes responsibility for completing the transactions uniformly? Here is where the blockchain protocols or DApps take the lead!

In a Blockchain Cross-chain transaction like using the ETH tokens for transactions on the Solana network, the responsible DApp acquires conformity from the involved parties. Any party who may deviate from the protocol terms shall not make the conforming party liable for any loss.

Advantages of Blockchain Cross-chain Transactions

The cross-chain Crypto transactions can be incredibly beneficial to any parties who may seek to initiate them, but there are several additional benefits to it. So, let’s first overview the advantages, followed by learning more possible ways of having blockchain interoperability.

→ Connecting Blockchains

Two blockchains by themselves may feature high functionality, but having communication channels between them can improve their operational efficiency.  Basic functions like asset transfer and token swaps cannot be affected by causes like blockchain incompatibility, so performing Blockchain Cross-chain invariably helps both blockchains grow simultaneously.

Blockchain Cross-chain

→ Improving Scalability

When two blockchains interact, it helps the users acquire their desired assets, preventing blockchain transaction congestion. Ultimately, it helps keep the gas fee stable, besides assisting users in leveraging the speed of another blockchain to perform crypto transactions. Combinedly, this allows the blockchain to have better scalability and performance efficiency.

→ Seamless Token Transfer

Speaking of efficiency, cross-chain Crypto transactions are more efficient than regular ones. A user initiates a transaction on the source chain in a regular transaction, making the validator learn these instructions. They are then forwarded to the relayers conveying instructions to the destination chain, where it is verified.

Blockchain Cross-chain

In contrast with cross-chain transactions, they are verified right after completion. Therefore, they arrive at the destination chain only once the verification is completed.

→ De-Monopolization of Cryptos

Most of the crypto market (+70%) is owned collectively by two cryptos or blockchain networks, Ethereum and Bitcoin. Such a monopoly prevents newer cryptos from acquiring similar success even when offering more functionality. Here, enabling cross-chain transactions can help all the crypto ecosystems to exist parallelly and have fair chances of growth.

Blockchain Cross-chain

Furthermore, blockchain cross transactions can help reduce market crypto volatility. It can perhaps make more nations and corporations adopt cryptocurrencies.

Types of Cross Blockchain Transactions

The operability of blockchain networks can differ minutely or significantly depending on the blockchain architecture and their individual scalability capacity. Hence, it’s essential to have crypto skills when you’re in the crypto programming stage.

Hence, to enable blockchain interoperability, both networks could follow a particular system, which helps them prevent depending on third-party integrations. Here are the most popular ways by which blockchains perform crypto transactions between networks or ecosystems.

→ Atomic Swap

These exchange facilitators enable the trading of tokens between two or more parties on multiple blockchain platforms. Such a Blockchain Cross-chain transaction does not require a third party to support it since the token/asset exchange happens on a peer-2-peer basis.

Within this process, either the crypto transaction is finalized and completed instantly, or it never commences.

For instance, two parties could agree on having a 1-hour restriction on Atomic Swap. Here, the original owner will receive their tokens again when the conditions aren’t met until the end of the hour.

→ Relays

The relays function to help a blockchain keep a watch on its transactions and events occurring on other blockchains. They operate on a chain-to-chain basis without needing the involvement of distributed nodes to manage a smart contract for assisting a cross blockchain transaction.

Blockchain Cross-chain

Relays can verify the entire transaction history on demand for specific central headers. However, they can be costly to manage and may require operation security management resources.

Who Supports Blockchain Cross-chain Transactions?

The cross-chain Crypto transactions are currently supported between multiple blockchains, NFT marketplaces, and DEX crypto exchanges. They make it possible by having Cross-chain bridges that aid communication between blockchain networks.

Blockchain Cross-chain

→ Portal [Wormhole]

It is a cross blockchain bridge that lets users make unlimited asset transfers between Solana and DeFi blockchains like Ethereum, Terra, Avalanche, Oasis, Polygon, and Binance Smart Chain.

Blockchain Cross-chain

→ Wrap Protocol

It is rebranded as the Plenty Bridge, allowing token transfer of ERC20 and ERC721 standards between four blockchains. It connects Tezos, Ethereum, BSC, and Polygon via validating nodes known as bakers. Hence, using its proof of stake consensus algorithm, the bridge enables cross-chain Crypto transactions seamlessly.

Blockchain Cross-chain

→ Binance Bridge

It is among the top widely used blockchain protocols that enable crypto-asset transfer with the Ethereum blockchain. It does so using the Binance Smart Chain wrapped crypto tokens, better known as BEP20 tokens.

Final Words

Modern cryptos need to support Blockchain Cross-chain transactions for the global adoption of the crypto economy. Still, numerous enhancements and scalability optimizations are required to make cryptos-assets and tokens widely interchangeable. Likewise, the arrival and mass ownership of ERC1155 tokens and the Ethereum Layer 2 release can help improve the crypto landscape.

FAQs

What is a cross-chain in blockchain?

It is a bridge between blockchain networks that allows the exchange of information, including the transfer of crypto tokens, NFTs, and other crypto assets.

What are cross blockchain transfers?

Such transfers concern cross-chain Crypto exchange compatibility without requiring a third-party intermediary. The exchange could be of tokens, NFTs, or other crypto assets, including crypto transaction information.

Can two Blockchains interact?

The interactions of the cross blockchain type require a bridge, which can be a DApp or a protocol built or added to the blockchain network. The bridge functions to support interoperable system communication between the networks, making it possible to exchange or transfer crypto assets and transaction data.

Why is cross-chain important?

There are many advantages of blockchains having cross-chain interoperability. It lets users exchange cryptos between blockchain networks without relying on third-party intermediaries, who may charge commissions. It can also help reduce blockchain congestion, besides reducing volatility.

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