Along with scalability, interoperability has always been a crucial problem to solve in the blockchain world. Most blockchains operate in silos, which means that talent and resources are diverted into developing on competing networks, rather than a unified system. Moreover, most individual blockchain projects are unable to communicate with each other.
As blockchain technology continues to evolve, the capacity of various blockchains to link to one another is becoming increasingly important in the digitized global economy. Introducing interoperability between different chains could lead to more efficient exchange of data and ultimately more capable services and applications.
After more than a decade since Bitcoin launched, a variety of cryptocurrency projects allow blockchains to work together easily. The following article will take a look at the top multi-chain cryptocurrencies in Web3.
What Makes a Cryptocurrency Interoperable?
Multi-chain cryptocurrencies refer to blockchain projects that allow data to be shared seamlessly across different individual chains — in other words, these types of cryptocurrency projects are highly interoperable. Blockchain interoperability refers to the ability of different blockchain networks to exchange and leverage data between one another and to move unique types of digital assets between the network’s respective blockchains.
Multi-Chain vs. Cross-Chain Models in Crypto
The final goal for cross-chain and multi-chain technology is the same —to allow for information exchange between different blockchains. Cross chain refers to the facilitation of information exchange between different blockchains. Alternatively, multi chain refers to a platform where blockchains can communicate and transfer data with each other.
Best Interoperable Coins
Over the last few years, many projects have claimed to be capable of connecting multiple specialized chains into one universal network, empowering individual users and disrupting Internet monopolies. Let’s explore Benzinga’s best multi-chain coins:
Polkadot is a blockchain project that connects several specialized blockchains into one unified network. In other words, Polkadot is designed to join the dots with other networks. By connecting different blockchains, Polkadot promotes unprecedented interoperability.
Polkadot is designed to operate two types of blockchains. The main network is referred to as a relay chain, and all transactions on there are permanent. Alternatively, a user-created network is called a parachain. This type of blockchain works in parallel to Polkadot and can be customized for a diverse range of uses. Moreover, while parachains can be customized for any number of users, parachains also benefit from the same security of the main chain.
An accredited developer or company can create their custom parachain through Substrate, a framework for creating cryptocurrencies and decentralized systems. Once the chain is connected to the Polkadot platform, it becomes interoperable with all other parachains on the network. In this way, Polkadot acts as a multi-chain network, enabling it to process transfers in parallel across different individual chains (parallel processing).
Polkadot has raised roughly $200 million from investors across two sales of its DOT cryptocurrency, making it one of the most well-funded cryptocurrency projects in history. DOT is the token that powers the Polkadot network and is used for a variety of functions such as governance and facilitating network consensus.
Looking forward, Polkadot is currently working on building bridges with blockchains like Cosmos, Ethereum and Bitcoin, which would allow tokens to be swapped without a central exchange.
Cosmos is a cryptocurrency project that concentrates on creating a network of different blockchains that are interoperable. Its main chain Cosmos Hub acts as a central ledger for compatible blockchains called Zones. Each Zone is customizable, enabling developers to design their own cryptocurrency, custom block validations settings and other features.
Cosmos Hub keeps track of the state of each Zone through the Inter-Blockchain Communication Protocol (IBCP). Through this protocol, information can swiftly travel between any Zone connected to the Cosmos Hub.This ability for blockchains to interact with each other is why Cosmos is nicknamed the Internet of Blockchains.
ATOM is the native coin of the Cosmos ecosystem and has three primary use cases:
- Users must pay their transaction fees using ATOM, proportional to the computational power required.
- ATOM is used to take part in the Cosmos Hub’s governance system.
- The coin is staked behind validators for rewards in taking in the consensus algorithm.
Cosmos was one of the first multi-chain cryptocurrencies and has remained a popular option to this day. However, since Cosmos’ inception in 2017, more multi-chain networks have integrated with high-traffic blockchains like Ethereum. Nonetheless, Cosmos aims to expand on current trends including decentralized finance (DeFi) collateralization, interchain staking and non-fungible tokens (NFTs) –– all of which position Cosmos to become increasingly popular in the future.
Chainlink is a multi-chain ecosystem that is designed to connect blockchains with the real world. By nature, blockchains don’t have an effective way to access external data – it’s difficult to connect off-chain data with on-chain data when using smart contracts.
Chainlink connects blockchains to the real world through a decentralized oracle service that can provide external data to smart contracts on Ethereum. An oracle is a piece of software that translates external data to a language that smart contracts can comprehend (and vice versa). Chainlink can connect internal systems, APIs or other types of external data feeds. LINK is an ERC-20 token and is used to pay for the oracle service on the network.
Moreover, Chainlink allows developers to securely build cross-chain applications quickly through Chainlink’s Cross-Chain Interoperability Protocol (CCIP). In short, CCIP is an open standard for developers to build secure applications and services that can send messages, transfer tokens and initiate actions across multiple networks.
CCIP enables developers to use multiple smart contracts at the same time, as well as take advantage of unique properties of specific chains or the assets on those chains. The first committed user of CCIP was Celsius, the industry-leading cryptocurrency yield-earning platform with nearly a million users. Celsius plans to use Inter-Control Center Communications Protocol (ICCP) to enable new features that bring additional transparency and allow Celsius to further integrate into the DeFi world.
THORChain is a DeFi project that was originally launched on the Cosmos network; however, it transitioned to its separate mainnet in April 2021. THORChain is a cross-chain liquidity protocol designed to power multi-currency exchanges across different blockchains.
At present, crypto investors and traders often exchange their assets across a variety of blockchain platforms. However, most blockchains still remain isolated from each other and cannot directly share information, resources or tokens. THORchain provides these users with a decentralized system that supports token exchanges on different blockchain networks without an intermediary.
Unlike most protocols, THORChain uses a fee to eliminate slippage, reducing the chance of the users losing liquidity and neutralizing impermanent loss. Moreover, THORChain enables users to quickly exchange tokens across top blockchain platforms such as Bitcoin, Ethereum, Binance Smart Chain, among others.
The architecture of THORChain is similar to a bridging solution. It’s an autonomous, decentralized bridge connecting blockchains and helping them establish secure communication among them. Whenever a user initiates the cross-chain exchange, the protocol automatically exchanges that particular token into RUNE. It then exchanges RUNE for the token that the user is entitled to receive in return. In this process, market makers are incentivized to stake RUNE (the native token of THORChain) in liquidity pools to earn yields based on their deposits.
Overall, THORChain enables the development of interoperable smart contracts, multi-chain decentralized apps (dApps) and decentralized bridges, among others.
Overall Best Multi-Chain Crypto Project
Polkadot is the leading project in the still-niche field of multi-chain and blockchain interoperability, and for good reason. Unlike its biggest competitor Cosmos, Polkadot offers unified security across the network. Every Polkadot parachain is supported by the same pooled security as the Polkadot Relay Chain whereas blockchains connected to the Cosmos Hub do not have uniform security.
Compared to THORChain, Polkadot offers a more holistic and effective solution to on-chain interoperability. Unlike THORChain, Polkadot does not require cross-chain liquidity pools on either side of the blockchains which interoperate.
Chainlink on the other hand, is a harder comparison. Since Chainlink is an oracle network, comparing Polkadot to Chainlink is like comparing apples to oranges. Chainlink connects real data to the blockchain thereby providing better off-chain interoperability. However, Polkadot is more effective at connecting different blockchains hence providing better on-chain interoperability.
Polkadot has the largest market capitalization among its competitors, highlighting its superior amount of support from both institutions, retail investors and developers.
Despite the promise, Polkadot has its fair share of drawbacks too. Each multi-chain project facilitates interoperability with a slightly different approach. It is your responsibility as an investor to do your research before investing in cryptocurrency.
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