Matthew Niemerg, Ph.D., is the co-founder and president of Aleph Zero Foundation—a Swiss non-profit offering a new infrastructure layer with a scalable plug-and-play privacy solution leveraging zero-knowledge proofs (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 just starting. The internet also suffered from slow transfer speeds, scalability issues, and a frequently frustrating experience. In recent years as blockchain technology outgrew the tightly knit community of first users and began drawing the interest of businesses, governments, as well as “the average Joe and Jane,” these problems have become exacerbated. The most pressing issue standing in the way of mass blockchain adoption is scalability. So what are the ways in which we can facilitate scalability? One of the solutions is by building a multichain blockchain ecosystem.
What is a multichain?
A multichain is a series of bridges and parachains that connect existing blockchains to provide better services and work around the limitations of older technologies such as Bitcoin (BTC) and Ethereum (ETH). Blockchains such as Solana (SOL), Near (NEAR), and Cosmos (ATOM) are examples of such solutions. Their goal isn’t to delegitimize the existence of older blockchains but rather to allow users to more fully take advantage of the things that Ethereum or Bitcoin excel at while redirecting traffic to these newer ecosystems that improve upon 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 where Ethereum has not been able to meet all the challenges due to its slow throughput, high gas fees, and complicated infrastructure.
Multichains are meant to create avenues for communication between different blockchains, allowing developers and businesses to flourish in one ecosystem while taking advantage of the solutions another ecosystem offers. The move towards a multichain world is a move towards a blockchain world that is genuinely more decentralized as it allows blockchains to forego operating in isolation. By working in isolation, blockchain is currently at its Web 2.0 phase, where similar communication and information exchanges between different ecosystems were prohibited.
Multichains as bridges for communication
Besides being ways of building upon legacy blockchains, multichains are also communication channels between isolated blockchain networks. One of the strengths of blockchain technology is the way in which developers can create customized protocols that solve the problems the developers see fit for solving. They each have their custom governance models, consensus protocols, smart contract implementation, etc. Multichains are built to accommodate the differences between chains that operate in oftentimes radically different ways.
For example, Zcash (ZEC) operates as a fork in the Bitcoin chain, and despite sharing certain commonalities, it is a different beast altogether. Zcash encodes addresses and transactions with its custom solutions and also offers improved security features. Despite these differences, the two chains can communicate by taking advantage of the multichain interface.
How do we build a multichain?
To build connections between blockchain ecosystems, special constructions called bridges have to be built between the different chains. By using bridges, the chains can retain their protocols and consensus mechanisms while still being able to interoperate securely. There are two major types of bridges, namely centralized and decentralized ones. A centralized bridge employs a third-party mediator who oversees the transactions being done between two blockchains. Conversely, decentralized bridges operate through using consensus protocols that act independently of any centralized authority. This helps avoid corrupt practices and promotes transparency.
Bridges are not limited to transferring tokens from one blockchain to another and have several other uses. They can simplify transmitting data from one chain to another, such as smart contract calls, off-chain information, and applications and their various functions to operate on numerous chains simultaneously depending on what task they need to accomplish.
One of the current limitations of the many available solutions is that they use Ethereum as the settlement layer. This means that multi-directional cross-chain transfers are not present on the market at the moment, and every party is relying on fragmented bridging solutions that go through Ethereum. For example, if one would try to transfer tokens from Polygon (MATIC) to the Binance Smart Chain, one would first have to transfer tokens from Polygon to Ethereum and then transfer the tokens from Ethereum to the Binance Smart Chain. Hopefully, this complicated process will become more streamlined as we observe the rise of multi-directional bridges.
Polkadot and parachains
Polkadot (DOT) is a fascinating case in the blockchain world. Conceptualized as a “blockchain of blockchains,” the idea stemmed from the desire to create an ecosystem where numerous interconnected chains can be designed to perform specific tasks. The developer believed that no one chain could complete all the tasks the market may require, suggesting instead to collect numerous solutions under one framework.
The network they have created allows for developers to create their chains, each with their native tokens, rules, and use cases while employing standard building blocks from Polkadot’s very own “Relay Chain.” These individual entities that make up the Polkadot universe are called “parachains,” which can interact with each other and other blockchain ecosystems, such as Bitcoin or Ethereum. Using Polkadot’s Substrate framework, these bridges can be built in many ways by employing runtime modules and smart contracts. The flexibility Polkadot offers is impressive, as the individual bridges constructed 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 account that the various bridges between third-party blockchains built on Polkadot can take advantage of cross-chain message passing. This means that if we have one bridge communicating with Bitcoin and another bridge communicating with Ethereum, we can build a custom interface that will permit users to interact with all three chains simultaneously.
Multichains and the financial world
One of the areas in which a multichain world will find an enthusiastic audience is the financial sector, particularly fintech. Blockchain technology offers many attractive benefits for this sector, notably in the form of the state-of-the-art privacy solutions and immutable ledgers the technology employs. One of the perennial challenges facing the world of finance involves moving around money, especially moving it across borders.
Transferring money through traditional methods is costly and time-consuming. Legacy blockchain solutions such as Bitcoin or Ethereum have not been able to fill these applications due to low throughput. Bitcoin can only verify 300,000 transactions daily. This number falls significantly short of the requirements that our current financial system needs. Additionally, legacy blockchain ledgers have prohibitively high transaction fees, making it unfeasible for the financial sector to employ them. Case in point, the average Bitcoin transaction fee in February of 2021 was USD 23 (It was around USD 3 this past November – Cryptonews.com).
The way forward
Multichains are the next logical step in the path towards mainstream blockchain adoption. The myth of “one chain to rule them all” can be finally put to rest as we redirect our time and effort to collaborations that will mutually benefit all of us. 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 groundbreaking innovation that reshapes our very way of living.
– Multi-Chain Future Brings Multiple Competitors to Bitcoin & Ethereum – Analysts
– Ethereum Needs to Try Harder To Keep Its Dominance in a Multichain Future