Multi-Chain

What is Multi-Chain?

Multi-chain is a process where projects deploy smart contracts across multiple blockchains, connecting isolated chains together as one network.

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This differs from regular chains like Bitcoin or Ethereum, which are each individual chains.

With multi-chain, you can have many chains that are all connected and working together simultaneously.

The result is users can transact across many chains without needing to shuffle assets from one place to another.

What is the History of Multi-Chain?

Ethereum was the pioneer in introducing smart contract blockchains that support fully customizable decentralized applications. It gained popularity quickly because of its expanding network influence, and initially, smart contracts found their first home on ethereum.

New apps, like Compound, MakerDAO, Uniswap, and EtherDelta, emerged, offering a novel approach to financial services directly through blockchain technology.

However, the growing popularity of smart contracts on Ethereum has led to more people wanting to use its resources, causing transaction fees to go up.

Even though Ethereum remains one of the most secure platforms for smart contracts, many users are now looking for cheaper options. Some developers also see a chance to create different platforms for smart contracts and compete with Ethereum.

This changing situation has given rise to the multi-chain ecosystem.

How Does a Multi-Chain Work?

Multi-chain is the result of blockchain fragmentation. Because each blockchain is effectively an island with little to no connectivity with other blockchains or the outside world, a user can’t access an application on another blockchain. 

In a multi-chain application, developers configure a separate and isolated instance of their smart contracts for each different blockchain. 

This is because the immediate goal for any application after its launch is to garner more users, so multi-chain expansion is a natural next step.

Multi-chain applications are needed because decentralized applications (dApps) that exist solely on one blockchain may be missing out on millions of users on another blockchain.

A user who is already onboarded onto a different blockchain must take many steps to access a new application—for example, adding a new network or downloading a new wallet, bridging funds from one blockchain to another, and then acquiring the native gas token to transact.

Multi-chain expansions solve this problem by meeting users on the blockchain environments they’re already familiar with.

Why is Multi-Chain Important?

The growth of a multi-chain system is a positive development for Web3, where various blockchains each have their own strengths that suit specific types of applications. This competition encourages new ideas and improvements.

Having multiple blockchains is also important for users to have access to a wide variety of apps. In applications that users interact with, it’s up to the developers to make things work smoothly.

Users should have an easy time, and that’s precisely what multi-chain and cross-chain apps provide. They make things simpler for users by working on the blockchains they are already familiar with.

What are the Benefits of Multi-Chain?

Multi-chain offers various benefits, especially with scalability remaining a crucial concern as blockchain technology evolves and attracts a larger user base, straining some existing networks. Multi-chain networks offer a solution by allowing parallel processing, lessening congestion on a single chain, and enhancing overall scalability.

The versatility of multi-chain becomes evident in the realm of customization and flexibility. Organizations and developers can design specialized chains tailored to their unique requirements. They gain the ability to adjust transaction speed, privacy levels, governance models, and consensus algorithms as needed.

Privacy and security are other key advantages of multi-chain platforms. These networks offer features that enable participants to keep certain transactions private within a specific chain while enjoying the benefits of a public network for other interactions.

Multi-chain’s value extends to catering to specific use cases. Different industries and applications demand distinct functionalities. With multi-chain, tailored blockchains can be developed to optimize efficiency and meet the specific needs of sectors like supply chain management, finance, and healthcare.

Furthermore, the interoperability facilitated by multi-chain networks fosters collaboration and integration. Chains within the same ecosystem can seamlessly transfer assets and information, promoting cooperation between various applications and platforms.

What are the Challenges of Multi-Chain?

Creating multi-chain applications allows developers to reach a broader audience of users, but some challenges come with it.

Isolated Liquidity

Raising liquidity triggers a cycle that reinforces itself. A decentralized exchange (DEX) with the most liquidity can provide smoother transactions with less price impact, a more comprehensive range of options for liquidity, and better rewards for those who provide liquidity. This aspect sets apart different DeFi platforms.

However, the absence of links between separate parts of a multi-chain application causes a significant issue for decentralized finance (DeFi) apps. This happens because it splits up the available liquidity. In the current setup, multi-chain DeFi applications have distinct pools of liquidity for each blockchain, dividing the overall liquidity that users can access.

Technical Challenges

Developing, keeping up, and improving a multi-chain application demands a lot of work. This task is incredibly daunting as new blockchains keep appearing. With every new blockchain, developers need to adjust their code to match the unique technical rules of that blockchain. They also have to ensure the code is well-made and secure, then manage each version separately.

Due to this, many multi-chain applications usually stay within a certain group of blockchains. This approach lowers the technical difficulties linked to launching a new application. For instance, applications that start on Ethereum are more likely to expand to chains that use Ethereum’s Virtual Machine (EVM).

Multi-Chain vs Cross-Chain

Both multi-chain and cross-chain technologies share a common objective: enabling the exchange of information and data between various blockchain systems.

A multi-chain blockchain means a project is deployed across multiple networks so that they can communicate with one another.

Cross-chain technology refers to a tool that allows assets to flow between unrelated blockchains. It uses smart contracts to allow networks to interact with each other. Ledger.com uses the analogy of a ‘blockchain bridge.’

Nevertheless, they pursue this objective in different ways that showcase their aims.

To make use of multi-chain technology, projects need to be set up on at least two different blockchains at the same time.

These blockchains include Binance Smart Chain, Ethereum, or Polkadot. This approach enables various chains to talk to each other and enhances the concept of decentralization.

Multi-Chain Cross-Chain
Have separate and isolated smart contracts on each blockchain Have a unified set of smart contracts that communicate seamlessly across chains.
Before accessing data stored in a different chain, users will need to secure permission from specific gateways. Constructed based on the idea of interoperability, wherein all members within the network can engage in transactions with each other, irrespective of the specific blockchain they are associated with.
Maintaining networks can be costly since every network needs its own dedicated hardware resources. Transactions usually demand greater computational resources and energy than single-chain processes, reducing cost-effectiveness over extended periods.
Transactions can possibly be delayed because of their restricted access approach and the requirement for unanimous agreement among all nodes involved. Provide quicker transaction durations by enabling swift data transfer among several ledgers.

What is the Future of Multi-Chain?

Although it’s not certain that the future of blockchain will involve multiple chains, the progress in creating tools like bridges, wrapped asset protocols, and protocols for communication between different blockchains indicates a potential shift in that direction.

While a single blockchain might not become dominant, there’s a possibility that a blockchain capable of incorporating various assets and chains could gain prominence.

Nevertheless, it appears more probable that numerous blockchain networks will coexist, each having its unique ecosystem while maintaining the ability to interact with others. The concept of a future with multiple interconnected blockchains is already in motion.

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John Isige
Crypto Writer

John is a crypto expert and tech writer who covers the latest trends and developments in the digital asset and industry. He explores various topics such as data analysis, NFTs, DeFi, CeFi, the metaverse, technology trends like AI and Machine Learning with clarity and insight. He is passionate about informing and engaging his readers with his crypto news and and data backed views on tech trends and emerging technologies. With over half a decade of experience, John has contributed to leading media platforms including FXStreet, Business2Community, CoinGape, Vauld Insights, InsideBitcoins, Cryptonews and ErmoFi and others.