Summary:
- Cross-chain networks enable communication between separate blockchains for efficient data exchange, while multichain networks connect multiple blockchains within a single ecosystem, focusing on security and scalability.
- Blockchains initially operated independently, but the growing complexity required interoperability for seamless data and asset transfer between networks.
- Cross-chain systems offer broad interoperability and faster transactions but can be costlier. Multichain networks provide strong security and scalability but may involve higher infrastructure costs and less flexibility.
- A version of this article first appeared on Cointelegraph. Read more Crypto Council Explainers.
Blockchains were initially designed to work independently. While this approach worked well in the early days, the expanding and complex crypto ecosystem highlighted the need for greater interaction between different chains. A lack of interoperability restricted users’ ability to move their data and assets between blockchains, resulting in inefficiency and stifling innovation.
This scenario led to the emergence of interoperability as a solution, allowing diverse networks to communicate, seamlessly exchange data, and potentially even execute smart contract functions across chains. This fosters a more interconnected and dynamic crypto landscape.
In traditional finance, an example of interoperability is one’s ability to send money from one bank to another. While each bank is an entity in itself, they aren’t isolated and can communicate with one another. Therefore, if John holds an account in Bank A and wants to pay Alice, who has an account in Bank B, he can do so by moving his funds from Bank A to Bank B in Alice’s account.
When it comes to implementing interoperability between blockchains, two different approaches exist: cross-chain and multichain. This article explains how cross-chain and multichain networks work, the key differences between them in terms of scope, focus and use cases, and how their performances differ against various parameters.
How do cross-chain networks work?
Cross-chain blockchain networks represent an architecture that facilitates multiple independent blockchains interconnecting in an interoperable environment. It supports the frictionless exchange of assets and data across diverse networks. Cross-chain technology powers secure and efficient transactions between decentralized applications (DApps) and smart contracts hosted on different blockchains. It ensures secure transactions across a string of chains, discarding any role for a centralized intermediary.
In natively built cross-chain applications, a single instance of a DApp can operate on various smart contracts deployed across multiple blockchains rather than necessitating deploying separate instances across different networks. Developers leverage cross-chain interoperability to coordinate specialized smart contracts across networks, enabling complex use cases with synchronized functionality.
Source: Cointelegraph
How do multichain networks work?
The term “multichain blockchain” refers to a project with multiple interconnected blockchains. This architecture enables users of different chains to interact without requiring asset exchanges. Technically, this is achieved by segregating the system into two layers — consensus and application. A single consensus layer provides unified security for all chains within the network.
The application layer, which is built on top of the consensus layer, is programmable, enabling each chain in the network to have different features and use cases. This architecture allows individual blockchains to coexist and communicate within a shared ecosystem. Cosmos is an example of this architecture, which supports interoperability between blockchains while maintaining robust security.
Source: Cointelegraph
Key Differences
Cross-chain and multichain solutions differ in architecture, focus, and use cases. Cross-chain technology enables communication between independent blockchains, allowing the transfer of assets and data across different networks through mechanisms like lock and mint, burn and mint, and liquidity pools. This approach prioritizes interoperability, making it ideal for decentralized finance (DeFi) and applications that require seamless interaction between blockchains.
In contrast, multichain architectures manage multiple interconnected blockchains within a single ecosystem. These networks focus on adaptability and scalability, supporting complex applications such as supply chain management and gaming platforms. While cross-chain solutions emphasize openness and efficiency, multichain technology prioritizes security within a controlled environment. Both approaches are increasingly adopted across various sectors, each catering to different needs and applications.
Performance Overview
Cross-chain and multichain technologies offer unique advantages depending on their performance parameters. Cross-chain systems enhance security through distributed consensus, making them resilient even if a single node is compromised. Multichain networks, often permissioned, add security by restricting access to specific nodes, reducing the risk of unauthorized manipulation.
Scalability differs as well; cross-chain solutions improve scalability by enabling communication between different ledgers, while multichain systems may face limitations due to restricted node participation. Speed also varies, with cross-chain networks generally offering faster transactions, though this can be influenced by factors like network congestion.
In terms of cost, cross-chain transactions can be more expensive due to fees on each blockchain, whereas multichain systems require replicating infrastructure, leading to higher upfront costs. However, the benefits of interoperability and scalability often justify these expenses.
Cross-chain technology excels in interoperability, allowing seamless data and asset transfer across multiple blockchains, providing users with broad access to services. Multichain networks, while more controlled, offer less flexibility but enhanced security. As blockchain technology evolves, projects will choose or combine these architectures based on their specific needs, paving the way for more integrated and versatile blockchain ecosystems.
