Matthew Niemerg, Ph.D. is the co-founder and president of the Aleph Zero Foundation, a Swiss non-profit that offers a new level of infrastructure with a plug-and-play scalable privacy solution that leverages zero-knowledge evidence ( zk-SNARKs) and Secure Multiparty Computation (sMPC).
Many of the problems faced by blockchain ecosystems today are the same problems faced by the internet when it was in its infancy. The internet also suffered from slow transfer speeds, scalability issues, and an often frustrating experience. In recent years, as blockchain technology has outgrown the close community of early adopters and has begun to attract the interest of businesses, governments, as well as the “average man”, these problems have exacerbated. The most pressing problem standing in the way of mass adoption of the blockchain is scalability. So what are the ways we can facilitate scalability? One of the solutions is building a blockchain ecosystem multichain.
What is a multichain?
A multichain is a series of bridges and parachains that connect existing blockchains to provide better services and bypass the limitations of older technologies such as Bitcoin (BTC) and Ethereum (ETH). Blockchains like Solana (SOL), Near (NEAR) and Cosmos (ATOM) are examples of these solutions. Their goal is not to de-legitimize the existence of old blockchains, but rather to allow users to more fully exploit the things Ethereum or Bitcoin excel at by redirecting traffic to these new ecosystems that enhance legacy technology. This has become increasingly important in recent years due to Ethereum becoming the “go-to” ecosystem for decentralized finance (DeFi) projects. The popularity of these projects has grown to the point that Ethereum has not been able to meet all the challenges due to its slow throughput, high gas tariffs and complicated infrastructure.
Multichains are intended to create communication links between different blockchains, allowing developers and companies to thrive in one ecosystem while taking advantage of solutions offered by another ecosystem. The move to a multichain world is a move to a blockchain world that is genuinely more decentralized as it allows blockchains to forgo operating in isolation. Working in isolation, the blockchain is currently in its Web 2.0 stage, where communication and similar information exchanges between different ecosystems are prohibited.
Multichain – bridges for communication
In addition to being ways to build on legacy blockchains, multichains are also communication channels between isolated blockchain networks. One of the strengths of blockchain technology is the way developers can create custom protocols that solve the problems developers see fit to solve. Each has their own custom governance models, consensus protocols, smart contract implementation, etc. Multichains are built to accommodate the differences between various chains which often operate in radically different ways.
For example, Zcash (ZEC) operates as a fork of the Bitcoin chain, and while it shares some commonalities, it is a completely different creature. Zcash encrypts addresses and transactions with its customized solutions and also offers improved security features. Despite these differences, the two chains can communicate using the multichain interface.
How is a multichain built?
To build connections between blockchain ecosystems, special constructions called bridges between different chains have to be built. By using bridges, chains can keep their consensus protocols and mechanisms, while still being able to interoperate securely. There are two main types of bridges, namely centralized ones and decentralized ones. A centralized bridge employs a third-party broker who oversees the transactions made between two blockchains. In contrast, decentralized bridges operate through the use of consensus protocols that act independently of any centralized authority. This helps avoid corrupt practices and promotes transparency.
Bridges are not limited to the transfer of tokens from one blockchain to another but have several other uses. They can simplify the transmission of data from one chain to another, such as smart contracts, off-chain information, applications and their various functions to operate on numerous chains simultaneously depending on the task they have to perform.
One of the current limitations of the many solutions available is that they use Ethereum as a settlement layer. This means that multidirectional cross-chain transfers are not on the market at the moment, and each party relies on fragmented bridge solutions running through Ethereum. For example, if you were trying to transfer tokens from Polygon (MATIC) to the Binance Smart Chain, you would first have to transfer the tokens from Polygon to Ethereum and then transfer the tokens from Ethereum to the Binance Smart Chain. Hopefully, this complicated process will become leaner as we observe the rise of multi-directional bridges.
Polkadot and parachains
Polkadot (DOT) is a fascinating case in the world of the blockchain. Conceptualized as a “blockchain of blockchains”, the idea arose from the desire to create an ecosystem where numerous interconnected chains can be designed to perform specific tasks. The developer believed that no chain could complete all the tasks the market may require, suggesting instead to gather numerous solutions under one framework.
The network they created allows developers to create their own chains, each with their own native tokens, rules and use cases, using the standard blocks of Polkadot’s “Relay Chain”. These individual entities that make up the Polkadot universe are called “parachains”, which can interact with each other and with other blockchain ecosystems, such as Bitcoin or Ethereum. Using Polkadot’s Substrate framework, these bridges can be built in many ways using runtime modules and smart contracts. The flexibility that Polkadot offers is impressive, as the individual bridges built by the various developers on its network can be for profit or created as public utilities.
Things get even more interesting when we take into consideration that the various third-party blockchain bridges built on Polkadot can take advantage of the passage of cross-chain messages. This means that if we have a bridge that communicates with Bitcoin and another bridge that communicates with Ethereum, we can build a custom interface that will allow users to interact with all three chains at the same time.
Multichains and the financial world
One of the areas where a multi-chain world will find an enthusiastic audience is the financial sector, particularly fintech. Blockchain technology offers many compelling benefits to this industry, most notably in the form of cutting-edge privacy solutions and immutable ledgers that the technology employs. One of the perennial challenges facing the world of finance is the movement of money, especially across borders.
Transferring money through traditional methods is expensive and time-consuming. Legacy blockchain solutions like Bitcoin or Ethereum have not been able to fill these applications due to the low throughput. Bitcoin can only verify 300,000 transactions per day. This number is significantly less than the requirements our current financial system needs. Additionally, legacy blockchain ledgers have prohibitive transaction costs, making it impractical for the financial sector to use. For example, Bitcoin’s average transaction fee in February 2021 was $ 23 (it was around $ 3 last November – Cryptonews.com).
The way forward
Multichains are the next logical step on the path to mainstream blockchain adoption. The myth of “one chain to rule them all” can finally be put to rest as we redirect our time and effort into collaborations that will mutually benefit us all. The process we are observing mirrors the development of countless other concepts that have brought us to where we are today, and reinforces the belief that only through cooperation can we truly bring about a revolutionary innovation that reshapes our way of life.
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To know more:
– The multi-chain future will bring many competitors to BTC and ETH
– Ethereum needs to do more for multichain
– Blockchain: ETH, Solana, Polygon form a fresh market
– Ethereum Developers On Why They Don’t See Cardano & Binance Chain As Rivals