What is Cross-Chain?#
Due to the trade-offs in blockchain design and the principle of division of labor, multi-chain ecosystems will inevitably exist. In the current Web3 ecosystem, DApps exist on hundreds of blockchains. However, blockchains themselves do not have the ability to communicate with external systems or APIs. This limitation not only prevents communication between blockchains and existing network infrastructure, but also communication with other blockchains, which is almost fatal for Web3.
Therefore, cross-chain communication is crucial for Web3. In abstract terms, each public chain is logically an unlicensed, globally shared, isolated trusted computer (for example, Ethereum is the Ethereum Virtual Machine EVM, which is a trusted, tamper-proof, logically unified virtual machine). The cross-chain bridge is the communication protocol between these isolated computers. Therefore, if the public chain is the world computer of Web3, then the cross-chain communication protocol is the TCP/IP protocol of Web3 (the difference is that the cross-chain protocol has an additional trust layer), and its role is to combine these isolated trusted computers to form an Internet of trusted computers. In other words, the cross-chain protocol is the TCP/IP of Web3, with tremendous potential.
How does the Cross-Chain Protocol Work?#
The function of the cross-chain communication protocol is to ensure that the state information on one trusted computer (such as Ethereum) can be transmitted to another trusted computer (such as Solana) without being tampered with. Specifically, for the trusted communication protocol from Chain A to Chain B, three points need to be ensured during the transmission of the state information from Chain A:
Source chain end: The protocol obtains the final state of Chain A and ensures that the obtained state is indeed the final state of Chain A.
Transmission end: The protocol ensures that the state information is not tampered with during the transmission process.
Destination chain end: Only the state information transmitted by the protocol can be received by Chain B.
The cross-chain protocol is essentially implemented through a trust layer, and the design of the trust layer determines the trade-offs between the security, cost, and latency of information transmission in cross-chain projects, as well as the place where innovation occurs in the cross-chain field.
The most direct way to build the trust layer is to make both smart contracts on the two chains trust an intermediary entity (which may be composed of multiple decentralized nodes). This entity confirms the state information obtained from Chain A and transmits it to Chain B. Specifically, as shown in the above figure, suppose an event T occurs on Chain A and needs to be transmitted to Chain B, then the cross-chain protocol will operate as follows:
The trust layer observes the latest block on Chain A and finds that the information of event T needs to be transmitted, so it downloads the information of event T to the trust layer.
The trust layer transmits the information of event T to Chain B.
Chain B receives the information of event T transmitted by the trust layer and knows that event T occurred on Chain A.
Under this scheme, cross-chain users must trust that the trust layer will not act maliciously. As long as the protocol does not have code vulnerabilities, as long as the trust layer is honest, cross-chain information can be safely transmitted. If the trust layer acts maliciously, it can intercept information or even publish false information, causing users to suffer losses. This design of the trust layer and its variations can cover 90% of existing cross-chain solutions.
The Significance of Cross-Chain Communication Protocol#
The better the cross-chain communication protocol, the smaller the cost of achieving cross-chain interoperability, and the more it can make contracts on different chains behave as if they are deployed on the same chain. The possible costs of cross-chain communication include cost, latency, security, etc. There are still many shortcomings in existing cross-chain bridges, and the huge cost of cross-chain makes it impossible for some obvious multi-chain applications to appear, such as bringing a large amount of BTC into the DeFi ecosystem of smart contract chains (currently, WBTC only helps 1% of BTC to cross-chain to Ethereum because it is too unsafe), or aggregating the entire chain liquidity together.
Furthermore, the development of cross-chain communication protocols is likely to change the competitive landscape of public chains. The two important barriers for public chains now are: 1) the network effect formed by the composability between projects in the public chain ecosystem, and 2) liquidity. These are also the biggest barriers for Ethereum now. The development of cross-chain communication protocols is likely to weaken these barriers because: 1) projects on other chains can enjoy the composability of high-quality projects on Ethereum through cross-chain protocols, and 2) other chains can obtain/seize liquidity from Ethereum without friction. This will make future public chains need to rely more on the characteristics of their own products to win, and may force future public chains to become more specialized, do their own work well, and cooperate with other chains to meet the various needs of DApps.
In summary, the cross-chain communication protocol is the TCP/IP protocol of Web3, which can help trusted computers (blockchains) with different advantages to combine and form an Internet of trusted computers (blockchains), enabling blockchains to divide labor and cooperate to unleash tremendous value, just like the Internet brings together computers from all over the world to collaborate. The current cross-chain protocols are still immature, and the huge cost of cross-chain makes many obvious multi-chain applications that can improve efficiency unable to appear. With the maturity of technology, more and more multi-chain applications will appear, and as an important component of multi-chain applications, cross-chain protocols will capture more and more value, with a huge market space.