Cross-chain dApps can run on multiple different smart contracts deployed on multiple different blockchains, while multi-chain dApps can be deployed in multiple separate versions on different networks.
Due to the increasing demand for block space, the Web3 application layer now exists on hundreds of different blockchains, L2 networks and application chains. This reality gave birth to two new terms — cross-chain and multi-chain. In this article, we define what they mean and outline their differences and unique advantages.
A brief history of the multi-chain ecosystem
Ethereum was the first smart contract blockchain to fully support programmable decentralized applications, rapidly driving its adoption through its growing network effect . The initial application of smart contracts is mainly on Ethereum, and dApps such as Compound, MakerDAO, Uniswap, EtherDelta, etc. have completely changed the way financial services are used through the blockchain infrastructure.
However, the growing demand for Ethereum smart contracts has increased the demand for network block space, which has led to high transaction fees on the network. While the Ethereum mainnet remains one of the most secure smart contract networks, many users have started looking for lower-cost alternatives, while some developers see an opportunity to develop alternative smart contract platforms and capture Ethereum’s market share. This dynamic has led to the rise of multi-chain ecosystems.
What is multi-chain?
In a multi-chain environment, each instance of a decentralized application (dApp) consists of an isolated set of smart contracts with no connections to other applications on other blockchains.
Through the development of a multi-chain ecosystem, the availability of new on-chain environments increases the total throughput of the smart contract economy, leading to the onboarding of more users who are able to transact at a lower cost. Additionally, each network offers its own approach to scalability , decentralization, mechanism design, consensus, execution, data availability, privacy, and more. In a multi-chain ecosystem, all these different approaches can be implemented and battle-tested in parallel, driving the development of Web3.
However, the emergence of a multi-chain environment also brings some disadvantages. Siled application deployments result in lower capital efficiency as liquidity is spread across siled applications and cannot flow between them. Additionally, the benefits of permissionless composability are limited as smart contracts become increasingly fragmented across hundreds of different networks.
In a multi-chain smart contract, each dApp instance is isolated and has no connection to other blockchains.
If a project wants to follow user needs and remain competitive in the ever-changing multi-chain environment, it must deploy its application on multiple blockchains, which will cause more confusion to end users. Additionally, each individual dApp deployment takes time to develop and maintain, taking up valuable development resources that could otherwise be used to improve the core functionality of the dApp.
Any application requiring a single source of state, such as an on-chain DNS with a central registry, is difficult to implement in a multi-chain environment. If multiple registries are deployed on multiple networks, the same name may be registered multiple times on different chains by different owners. Therefore, applications that require global state consistency are usually deployed on only one network.
Still, there may be other advantages in multi-chain deployments. Billions of dollars have been lost due to insecure cross-chain token bridges. If cross-chain smart contracts rely on poorly secured cross-chain bridges , funds could be at risk even if the underlying blockchain infrastructure is secure. In a multi-chain deployment of independent and mutually isolated smart contracts, the impact of a vulnerability can be limited to a single deployment.
What is cross-chain?
Cross-chain functionality enables developers to build native cross-chain applications, where a single unified dApp instance can run on multiple different smart contracts and multiple different blockchains, rather than having to deploy multiple separate Version.
A cross-chain smart contract is a unified application composed of multiple smart contracts deployed on multiple networks.
In a cross-chain environment, smart contracts on different chains can perform different tasks, but they are kept in sync and support a single use case in a unified application. This allows developers to leverage different networks to their unique strengths.
For example, a developer could create a decentralized application that uses all of the following networks:
- A decentralized, censorship-resistant blockchain for tracking asset ownership.
- A high-throughput blockchain for low-latency token transactions.
- A privacy-preserving blockchain as an identity layer.
- A decentralized storage network for metadata storage.
Cross-chain interoperability is critical to a more integrated Web3 ecosystem and creating more connections between the Web3 economy and existing Web2 infrastructure. By supporting cross-chain smart contracts , cross-chain interoperability solutions reduce fragmentation in the ecosystem, improving capital efficiency and liquidity conditions. If you want to know more about the advantages of cross-chain infrastructure, please read "What is cross-chain?" " .
Create a more connected Web3 ecosystem through cross-chain messaging
While cross-chain smart contracts represent a major change in the way decentralized applications are created, most blockchain networks at scale remain siled today. The Cross-Chain Interoperability Protocol (CCIP) is an open-source standard for cross-chain communication, including arbitrary messaging and token transfers. As a native blockchain-compatible protocol, the Chainlink network has been integrated across multiple blockchains and Layer 2 networks, putting it in a good position to support a multi-chain ecosystem moving towards cross-chain smart contracts.
A fully functional cross-chain environment can unlock highly scalable and fully-fledged cross-chain applications, giving billions of users a familiar user experience in the Web2 world, while maintaining immutability and trust-minimization as this new Internet norm basic standard.
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