Cross-chain vs Multi-chain

Cross-chain vs Multi-chain comparison

A cross-chain dApp can run on multiple different smart contracts deployed on different blockchains, while a multi-chain dApp can be deployed as multiple separate versions on different networks.

As the demand for blockchain space continues to increase, Web3 application layer now exists on hundreds of different blockchains, layer 2 networks, and application chains. This reality has spawned two new terms – cross-chain and multi-chain. In this article, we will define their meanings and outline the differences and unique advantages between them.

Multi-Chain Ecosystem Brief History

Ethereum was the first smart contract blockchain to fully support programmable decentralized applications, quickly driving its adoption through its growing network effects. The initial smart contract applications were primarily on Ethereum, and dApps like Compound, MakerDAO, Uniswap, EtherDelta, etc. completely changed the way financial services were used through blockchain infrastructure.

However, the demand for Ethereum smart contracts continued to grow, increasing the demand for network block space and leading to high network transaction fees. While the Ethereum mainnet is still one of the most secure smart contract networks, many users have started looking for cheaper alternatives, and some developers see an opportunity to develop alternative smart contract platforms and gain Ethereum 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) is made up of an isolated set of smart contracts that are not connected to other applications on other blockchains.

With the development of multi-chain ecosystems, the availability of new on-chain environments has increased the total throughput of smart contract economies, leading to more users joining who can transact at lower costs. In addition, each network provides its own methods for scalability, decentralization, mechanism design, consensus, execution, data availability, privacy, etc. In a multi-chain ecosystem, all of these different methods can be implemented and tested in parallel, driving the development of Web3.

However, the emergence of multi-chain environments also brings some drawbacks. The deployment of isolated applications leads to reduced capital efficiency, as liquidity is dispersed among isolated applications and cannot flow between them. In addition, the benefits of permissionless composability are limited, as smart contracts become increasingly fragmented among hundreds of different networks.

Interoperability across chains is crucial for 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.

Creating 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 large-scale blockchain networks are still isolated. Cross-Chain Interoperability Protocol (CCIP) is an open-source standard for achieving cross-chain communication, including arbitrary messaging and token transfers. As a natively blockchain-compatible protocol, the Chainlink network has been integrated into multiple blockchains and layer-two networks, putting it in a favorable position to support the multi-chain ecosystem shift towards cross-chain smart contracts. A fully functional cross-chain environment can unlock highly scalable and fully mature cross-chain applications, providing billions of users with the familiar user experience of the Web2 world while maintaining immutability and trust minimization as fundamental standards of this new internet protocol.

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