In recent years, the world has witnessed a significant shift towards decentralization, driven by the promise of enhanced security, transparency, and autonomy. At the forefront of this movement are blockchain technology and decentralized applications (DApps), which have introduced new paradigms for various industries. Cross-chain DApps, a cutting-edge evolution of traditional DApps, are emerging as a powerful solution to overcome the limitations of single-chain platforms. This guide covers the importance of cross-chain and interoperability.
- What do we mean by cross-chain?
- Why is cross-chain important?
- Use cases of cross-chain DApps and real-world examples
- Cross-Chain DAPP challenges and considerations
- Launching cross-chain DApps
- Many blockchain tools facilitate cross-chain communication
- The future is cross-chain
- Frequently asked questions
- About the author
What do we mean by cross-chain?
A cross-chain DApp, as the name suggests, operates across multiple interconnected blockchain networks. Unlike traditional DApps that rely on a single blockchain, cross-chain DApps leverage the capabilities of multiple chains, addressing challenges such as scalability, interoperability, and specialization.
Traditionally, blockchain networks are encumbered by the blockchain trilemma, a concept coined by Ethereum co-founder Vitalik Buterin.
The trilemma suggests that developers must pick two of the following three core blockchain elements: decentralization, security, and scalability. As such, many different chains have spawned, each with individual pros and cons. A summary of the common chain types can be found in the table below.
|Chain type||Permissioned||Public/Layer-1||Layer-2||Side chain||App chain|
|Summary||Blockchain business network with closed membership and a dedicated use case||Public blockchain network with high decentralization but limited scalability and high transaction fees||Used to provide scalability to layer-1 chains, as it can cluster or bundle transactions||Operates transparently like a layer-1 but is smaller and dedicated to a single use case||Some commit bulk transactions|
|Members are public||No||Yes||Either||Yes||No|
|Blocks are public||Optional||Yes||Yes||Yes||No|
|Security||Inherent||Backed by public chain||Backed by public chain||Inherent||Backed by public chain|
|Connects to L1||No||NA||Yes||Yes||Yes|
|Gas fees||Zero||High||Some to commit bulk transactions||None||Some to commit bulk transactions|
Cross-chain DApps are notably different from multi-chain DApps, which are similar to smart contracts running on multiple blockchains. As it stands currently, most DeFi apps, such as Uniswap, Curve, etc., are still running in this setup, whereby they are deployed on each individual blockchain. There is no data, messages, or transactions happening between the chains.
Why is cross-chain important?
Solving the blockchain trilemma
One of the most pressing challenges facing single-chain DApps is scalability. As these applications gain popularity, the congestion of blockchain networks becomes increasingly problematic. Cross-chain DApps address this concern by distributing transactions and computations across multiple chains, thus alleviating the strain on any single network.
For instance, combining layer-2 with layer-1 solves many problems of decentralization, security, and scalability. High-volume transactions may be done on the layer-2 chain, minimizing or eliminating gas fees, while low-volume, high-value transactions may be done on layer-1 to ensure security.
A common example of this type of cross-chain setup is with web3 games, whereby many in-game NFTs and transactions are handled on layer-2 while high-value NFTs or NFTs to be sold on a marketplace are handled on layer-1.
Interoperability of blockchain networks is another important use case for cross-chain DApps and has been a long-standing goal within the industry. Imagine if the internet worked in a way where web browsers could only connect to certain subsets of sites. For example, Chrome only connects to “.org” websites, Safari only connects to “.com” websites, Firefox only connects to “.edu” websites, etc. This would make for a very fragmented experience.
Blockchain interoperability enables different blockchain networks to communicate and share data, assets, and services, regardless of their individual protocols and structures. This seamless interaction opens up new possibilities for cross-chain transactions, decentralized applications, and the efficient exchange of value, much like how a unified browser enables effortless browsing across the diverse expanse of the internet.
Use cases of cross-chain DApps and real-world examples
Decentralized finance (DeFi)
The cross-chain approach holds immense potential for the DeFi sector. Cross-chain DApps can offer users access to a diverse range of financial services across different blockchains while maintaining the liquidity and security that blockchain technology offers. This will unlock new levels of innovation within the DeFi space and broaden the accessibility of financial tools for a global audience.
One notable example is a DeFi aggregator such as 1inch that connects to multiple blockchains such as Ethereum, Avalanche, Polygon, and more. This DApp provides users access to a wide range of DeFi protocols like lending, borrowing, yield farming, and decentralized exchanges. Users can seamlessly move their assets across chains to take advantage of higher yields, lower fees, or specific features of each blockchain.
Asset tokenization has been a trending concept over the past few years with the tokenization of real-world assets. This could be anything, including real estate, commodities, stocks, bonds, art, etc. As such, many differing chains will emerge as the settling layers for particular use cases. For example, one bank might use Chain A for asset tokenization cases, a real estate platform might use Chain B, etc. These experiences may become fragmented due to differing chain infrastructure. However, cross-chain compatibility will enable greater liquidity, user access, and enhanced user experiences. This way, funds that settle on Chain A can easily be used on Chain B and so on.
CBDCs are digital representations of a country’s official currency issued by its central bank. At the same time, stablecoins are digital tokens typically pegged to a stable asset like a fiat currency or a commodity.
The cross-chain compatibility of these digital assets is vital for their practicality and widespread adoption. Interoperability between different blockchain networks allows for seamless and efficient transactions, enabling CBDCs and stablecoins to traverse various financial ecosystems. This cross-chain compatibility facilitates international trade, remittances, and financial inclusion, as these digital assets can interact with a broader range of financial platforms and applications.
Cross-chain DApps could revolutionize the gaming industry by enabling cross-platform item trading, enhanced gaming experiences, and true ownership of in-game assets. Players could enjoy seamless transitions between different games and platforms while retaining ownership of their virtual items, fostering a new level of player engagement and value retention.
There is also the potential for collaborative gaming ecosystems. For instance, envision a gaming scenario where you must obtain unique items through engagement with a different game. You might find yourself in a situation where to craft a sword within Game A, you must acquire a particular material that’s exclusively accessible within Game B. Alternatively, there could exist exclusive content that can be unlocked solely by possessing an NFT sourced from a different game. This opens up a realm of innovative game concepts that both developers and players can delve into.
An example of blockchain interoperability in gaming is the partnership between Mini Royale: Nations by Faraway Games and Ready Player Me. Operating on different blockchains and gaming backends, gamers can now create or import their existing Ready Player Me avatars into Mini Royale. This gives Ready Player Me users utility for their avatars, which may be decked out with outfits and drops from brands such as Adidas, New Balance, and Tommy Hilfiger. Instead of aesthetics only, these avatars can now be used in an actual game, leading to increased personalization and benefits for both games.
Supply chain management
In supply chain management, cross-chain DApps could improve transparency and traceability. By utilizing multiple blockchains, these applications could track products from their origin to their final destination, ensuring authenticity and reducing the risk of fraud. This level of transparency could reshape industries where accountability and provenance are paramount.
Consider a cross-chain DApp used by a food company to track the journey of a product from farm to table. The DApp can use blockchains to record information at each stage, including origin, transportation, and quality checks. This ensures an accurate, tamper-proof record of the product’s history, benefiting both businesses and consumers.
Cross-Chain DAPP challenges and considerations
There are many challenges that cross-chain DApps must consider. These include:
Cross-chain DApps are notably more complex to build and maintain compared to single-chain or even multi-chain DApps. Cross-chain DApps may share data, messages, etc., across multiple chains, meaning developers must contend with maintaining state across different chains. Activity on one chain affects the state of any other chain the DApp operates on.
Additionally, developers must also manage varying smart contracts across chains as well. Testing, debugging, and deployment processes become intricate endeavors as developers need to account for various network conditions, latency issues, and potential inconsistencies across interconnected blockchains.
Security is a paramount concern in cross-chain DApps due to the expanded attack surface. Interaction with multiple blockchains exposes DApps to diverse vulnerabilities. Discrepancies in security protocols among different chains can lead to exploits that compromise the entire cross-chain ecosystem. Because many of the biggest cross-chain DApps are bridges that hold a large amount of funds, these have been exploited in various ways. Notable examples of hacks of cross-chain bridges include the Ronin Bridge, Wormhole, and Nomad hacks, each with breaches of hundreds of millions of dollars.
3. User experience
A smooth user experience is vital for cross-chain DApp adoption. Users expect intuitive interactions regardless of the underlying blockchain. Throughput speed, reliability, and consistency are paramount to fostering user trust and engagement. If transactions are failing, taking a long time, or resulting in errors such as double-spending, then trust and users will erode.
Launching cross-chain DApps
Now that we understand the benefits, use cases, and challenges of cross-chain DApps, how do we enable them?
Hyperledger FireFly, developed by Kaleido, is a tool that is used by many enterprises today. The FireFly stack has been contributed to by the Hyperledger Foundation, a part of the Linux Foundation focused on open-source blockchain tools. The FireFly Supernode can connect to any blockchain ecosystem, public or private. When a chain is connected, the FireFly Supernode may invoke custom smart contracts, interact with tokens, and monitor transactions. Think of it as a brain or data orchestration layer. A single FireFly Supernode can connect to multiple chains and create a cross-chain network by facilitating transactions, data, and messaging.
The way that all this works is by utilizing an event-driven model. This way, data can be reliably transported between your DApp and chains with the proper sequencing, retries, and idempotency whether the data is on or off-chain.
As an example, Hyperledger FireFly can act as a trusted bridge between chains, whether it is between two private chains, two public chains, or a private and public chain. Users must teach FireFly about the chains they want to connect and set up a “namespace” with the corresponding RPC URL and Chain ID for each chain.
Then, specify what you want to transfer and use FireFly’s built-in bridging REST API to initiate the bridging process. FireFly listens for events on both chains and handles the transfer process, ensuring token mints and burns are correctly facilitated. A diagram of how this works is shown below.
Many blockchain tools facilitate cross-chain communication
In addition to Hyperledger Firefly, be sure to check out Cosmos and Polkadot, as they also stand out for their robust ecosystems and unique approaches to enabling cross-chain communication.
Cosmos employs a modular framework that enables blockchains to interact within its ecosystem through the Inter-Blockchain Communication (IBC) protocol. It’s designed as a network of independent parallel blockchains, each powered by classical BFT consensus algorithms like Tendermint. Cosmos positions itself as the “Internet of Blockchains,” where its Cosmos SDK allows developers to build interoperable blockchains that maintain sovereignty while enabling token transfers and data sharing.
Polkadot, on the other hand, provides a heterogeneous multi-chain interchange framework enabling cross-chain transfers of any type of data or asset, not just tokens. By connecting to a central relay chain, Polkadot’s parachains can operate independently but also communicate and share security with other parachains, fostering a scalable multi-chain architecture. Substrate, the development framework for Polkadot, simplifies the process of creating custom blockchains that are inherently interoperable. Polkadot’s unique shared security model allows for a dynamic ecosystem where various blockchains can upgrade and communicate with shared security and interoperability.
The future is cross-chain
The selection of blockchain development tools discussed in this guide is sure to push the development of cross-chain applications closer to mass adoption. Blockchain interoperability opens up new possibilities for cross-chain transactions, decentralized applications, and the efficient exchange of value, much like how a unified browser enables effortless browsing across the diverse expanse of the internet. As web3 evolves and intertwines, expect to see great connection and seamless interaction between blockchains and all the technology built upon them.
Frequently asked questions
What is a cross-chain DApp?
Why is cross-chain important for blockchain applications?
What are the challenges associated with cross-chain DApps?
About the author
Ray is a Product Manager at Kaleido and has experience within the tech industry in various product management and UX roles. He has a bachelor’s degree in mechanical engineering from the University of Michigan, a master’s degree in Design from Northwestern University, and an MBA from the University of Illinois Urbana Champaign.
Top crypto platforms in the US | December 2023
In line with the Trust Project guidelines, the educational content on this website is offered in good faith and for general information purposes only. BeInCrypto prioritizes providing high-quality information, taking the time to research and create informative content for readers. While partners may reward the company with commissions for placements in articles, these commissions do not influence the unbiased, honest, and helpful content creation process. Any action taken by the reader based on this information is strictly at their own risk.