Learn Cryptocurrency
28 Jan 2022

What Are Cross-Chain Crypto Projects, and Why are they Important in 2022?

Ananda Banerjee

Imagine yourself stuck in a remote village, famished, and looking for a ride home. There are people around, but you discover that you do not speak the native language and therefore cannot get through to them. While signs and gestures might help, what you really need is a translator.

Now replace yourself and the village with disparate blockchains and the translator as a ‘Cross-chain’ crypto protocol. And that is precisely what we shall be talking about in the following paragraphs.

Key Takeaways

  • Blockchains have an inherently siloed structure
  • Cross-chain projects aim at improving blockchain interoperability
  • Some cross-chain bridges are helpful when it comes to facilitating inter-chain token transfers for lending and other DeFi processes
  • Polkadot, Cosmos, and Cardano are some of the better cross-chain projects

Blockchain, at the onset, was supposed to be a “one-size-fits-all” technology. The original vision was about accommodating apps, transactions, and ecosystems within a single chain. That is exactly what Bitcoin wanted to achieve.

However, scalability issues, higher transaction costs, lack of conservational mining options, and other factors forced the visionaries to develop new blockchains or rather holistic crypto ecosystems. But that is not where the buck stopped – newer blockchain projects might already be in the works as you read this piece.

(We have nothing against new blockchain projects. In fact, we adore them, as that gives us a chance to enlist their native token – wink, wink.)

Disclaimer: To make things clear, we do not list every random token. Proper research is conducted, and several metrics are looked at before onboarding any crypto asset.

Coming to the matter at hand, different blockchains are built using standardized technologies and protocols. And this often means that no single blockchain has every attribute that a user might need. Cross-chain crypto technologies, protocols, and even projects, therefore, come in handy as they allow users to experience something called blockchain interoperability.

And blockchain interoperability is the crux of the cross-chain concept, something we shall now discuss at length.

What is Cross-Chain Technology in Crypto?

But first, we need to understand why blockchain as a technology is even required? Blockchain helps build trustless connections where code and smart contracts facilitate processes. The automation is backed up by insane speeds (not every blockchain), immutability (zero tampering), and competitive costs. But most importantly, everything on a blockchain is decentralized, which in turn cuts out intermediaries.

This aspect makes processes like gaming, financing, P2P, marketplace selling, and royalty tracking more visible, transparent, traceable, and auditable.

Sounds cool, right! But there is a catch to deploying blockchain at scale!

Not every blockchain comes with all the good things. For instance, Bitcoin runs a little thin when smart contracts are concerned. Similarly, Ethereum isn’t the best choice if you eye low transaction costs. The only way to solve the issue of limited blockchain capabilities is to make them interoperable.

Still unsure as to what blockchain interoperability means? Well, read on:

Imagine you want to lend some crypto assets on Aave, a powerful, decentralized lending platform. However, you only have Ethereum (ETH) in assets, and lending the same on the Ethereum blockchain will only return meager profits. Cross-chain technology lets you move assets to Aave, or any other blockchain, with a high lending interest to help you maximize profits.

The ability of multiple blockchains to interact with each other, either for transferring assets or relaying information, is termed ‘Blockchain Interoperability’. And this is what forms the backbone of cross-chain crypto projects.

Cross chain crypto facts

Why are Cross-Chain Projects Becoming So Popular?

Imagine you plan on traveling to Europe. Every arrangement is in place, and the only thing you need to worry about is the Indian Rupee to Euro conversion. You need not worry as international airports have exchange kiosks currently to do the job.

However, what kiosks do you turn to if you need to convert a digital currency such as BTC to ETH, ETH to MATIC, or MATIC to ADA?

This requirement is best addressed by cross-chain bridges like Wrapped BTC that help you wrap one coin or token to be used on any other blockchain for leveraging apps, DeFi protocols, NFTs, metaverse marketplaces, or any other resource.

You can connect two or more blockchains with cross-chain bridges to make the native currencies interchangeable and usable. Or in simple terms, cross-chain bridges are used for cross-chain token swaps.

(Fact Check: Cross-chain token swaps or Atomic swaps signify moving tokens or coins across chains, using cross-chain or cross-platform solutions or bridges.)

Blockchains have a siloed nature, making the data, value, and information localized. Cross-chain projects use smart contracts or even centralized liquidity pools to help you move information and tokens from one chain to the other. Over time, this approach will make crypto a team sport, with all the blockchains having the option of connecting or interacting with each other. 

Top Crypto Projects in 2022

With the right bridge in play, every blockchain can become a cross-chain facilitator. But that’s speculative. However, what’s certain is that 2022 will be a big year for cross-chain crypto projects that have actual use-cases driving them.

Here are three such projects that might make you revisit your crypto portfolio:

1. Polkadot

Usually addressed as the ‘Blockchain of Blockchains,’ Polkadot is an innovative crypto project that aims at connecting multiple blockchain ecosystems together. Comprising a relay chain (main Polkadot hub), parachains (independent blockchains), and bridges (Ethereum and Bitcoin connectors), Polkadot is the gold standard for cross-chain interactions.

Investors interested in the native DOT token must know that it can be deployed to pay network transaction fees, chain bonding, and staking, and for taking key chain-specific decisions.

2. Cardano

Cardano, a blockchain known for its fast transaction speeds and affordability, has forayed into the cross-platform space with multiple bridges. While the Cardano–Ethereum NFT cross-chain bridge is already up and running, this blockchain is constantly innovating and bridging with other public chain projects to push interoperability.

Cardano seems to be doing everything right as its native token or ADA has been making new highs of late. Also, according to market capitalization, Cardano is currently placed fourth in the world, excluding Tether (the only stablecoin in the top five). And Cardano is currently planning to deploy the Coti network as a cross-chain bridge for specific DeFi applications.

3. Cosmos

Termed as the “Internet of Blockchains”, the Cosmos Network is already a rage in 2022. Cosmos aims to make blockchains simpler by allowing different chains and ledgers to communicate with each other.

Cosmos utilizes the BFT consensus mechanism and can connect other BFT-compatible blockchains to its ecosystem. Even if a blockchain doesn’t support BFT, it can be made interoperable using the Adaptors. 

While we shall refrain from discussing the detailed schematics, it may help you consider Cosmos as a confluence of a few key terms. And that would include the Cosmos Hub (a hub of interconnected chains), Zones (independent blockchains), IBC Protocol (meant for inter-blockchain communication), and the Cosmos SDK (meant for building compatible custom blockchain using Cosmos’s software development kit).

ATOM, the native currency of the Cosmos Network, is used for on-chain governance, bonding, and paying transaction fees.

Wrap-Up

Cross-Chain crypto projects come with their share of security challenges. While some leading crypto evangelists like Vitalik Buterin aren’t all that bullish on cross-chain, impending security concerns, we believe that cross-chain projects can make the entire crypto realm more inclusive and like a comprehensive setup.

If you are still unsure about the cross-chain crypto technology, consider a reality where you can get access to Ethereum-grade security, Polygon-grade scalability, Cardano-grade speed, and Aave-grade lending perks, even when you are holding Bitcoin.

Sounds unreal, right! Well, that’s exactly what cross-chain projects are all about.

And if you are interested in learning more about similar concepts, do read and learn more with CoinSwitch by your side.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Ananda Banerjee

Content Writer

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