Cross-chain vs. multichain: Key differences
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.
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.
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Key differences between cross-chain and multichain
Cross-chain and multichain solutions differ regarding scope, focus and use cases:
Scope
The foremost difference between cross-chain and multichain networks is their architecture.
Cross-chain solutions enable communication between independent blockchains. There are three mechanisms to implement cross-chain solutions.
Lock and mint
The process involves the locking of tokens inside smart contracts in the source chain. The locked tokens are then minted on the destination chain, which typically involves creating a wrapped representation of the original asset, not a true native token. When assets are moved in the opposite direction, the original coins on the source chain are unlocked by burning wrapped tokens on the destination chain.
Burn and mint
Users burn tokens on the source chain. In a true burn and mint scenario, the burning on the source chain should trigger minting equivalent value on the destination, potentially in a different native asset.
Liquidity pools
This mechanism requires the source and destination blockchains to have liquidity pools of the same tokens. For instance, if the source has a liquidity pool of Ether
ETH
$3,303
and Tether USDT$1.00
, the destination chain must have the same pair. A user on a DApp built on the Ethereum blockchain will lock their ETH on the source application and withdraw ETH from a liquidity pool in the destination chain. On the other hand, multichain architectures like Cosmos and Polkadot involve managing multiple interconnected blockchains within a single network.Polkadot operates as a flexible multichain network with a relay chain and several parachains, each hosting different apps and customized features. The Relay Chain, serving as the main coordinator in the network, maintains network security and interoperability. Parachains that are customized blockchains connected to the Relay Chain use its security while maintaining some level of independent consensus.
Focus
Another major difference between the two concepts is their focus. Cross-chain technology prioritizes interoperability, facilitating communication between different blockchains. Multichain technology, on the other hand, focuses on adaptability and scalability, propping up an ecosystem where several chains operate in tandem within a single network.
Use cases
Cross-chain technology enables the seamless transfer of digital assets between different blockchains, making decentralized finance (DeFi) a reality. In contrast, multichain technology is ideal for integrating multiple blockchains within a single ecosystem, benefiting applications like supply chain management and complex gaming platforms.
Cross-chain technology fosters openness and interoperability, making it ideal for DApps seeking cost-efficiency, scalability and low latency. Conversely, multichain technology emphasizes security within a controlled ecosystem, well-suited for protecting sensitive data. Due to their unique advantages, both technologies are seeing increased adoption across diverse applications.
Performance of cross-chain and multichain technologies against various parameters
The section below briefly discusses how cross-chain and multichain technologies perform against various parameters.
Security
The consensus mechanism at the core of both cross-chain and multichain systems ensures their security. By using a distributed system with data cryptographically stored on several ledgers, cross-chain technology ensures that an assault on a single node does not compromise the network as a whole. Multichains are typically permissioned, limiting network access to specified nodes and locking out external parties, thus limiting their ability to get unauthorized access to manipulate data.
Scalability
Cross-chain technology increases scalability by enabling communication between ledgers and improving transaction processing capabilities. Multichain systems, on the other hand, are limited regarding the number of nodes that can join the network, which may limit scalability.
Speed
When it comes to speed, cross-chain networks roll out faster transaction times due to the rapid flow of data across various ledgers. Multichain networks, due to their permissioned structure and the requirement for consensus among all participating nodes, may encounter latency.
However, it is important to note that while a cross-chain network can be faster, it’s not guaranteed. Factors like the specific chains involved, bridge design and network congestion play a role in determining the speed.
Cost-efficiency
Cross-chain transactions incur fees on each involved blockchain, increasing the total cost. Multichains require replicating infrastructure for each chain, leading to higher upfront and maintenance expenses. Despite these costs, the benefits of interoperability and scalability often make them valuable for the right applications.
