Why Cross Chain Bridges Matter

21 March 12:51

[TL; DR]

Interoperability enables easy transfer of assets and data between blockchain networks. Polkadot, Cosmos (Atom) and WanChain are examples of cross chain bridges.
There are centralized and decentralized cross chain bridges.
Sidechains increase scalability and the efficiency of blockchain systems.
There are several wrapped tokens which include WBTC and RenBTC.

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The expansion of the blockchain has resulted in new blockchain systems with different consensus protocols and capabilities. By nature, the different blockchain networks operate in a parallel manner as they cannot directly connect with one another. As a result, there is fragmentation in the blockchain system which calls for interoperability and composability.

Due to the high demand of DeFi products, there is a need to connect different blockchain networks in order to facilitate seamless digital transactions, greater adoption of cryptocurrencies and other digital products such as NFTs. Primarily, the Cross-chain technology enables interoperability and intercommunication among the various blockchain systems such as bitcoin and ethereum. It also facilitates communication between the parent blockchain and its sidechains.

Further to this, the interoperability and the composability of the chains allow users to access benefits of the different blockchain networks without security threats.

Cross chain bridges

The function of a cross chain bridge, also called blockchain bridge, is to enable the transfer of digital assets, data and smartchain guidelines among blockchain networks. In this case, the cross chain bridge connects two blockchain systems with different governance models and protocols in a secure way.

There are different blockchain bridges which include Polkadot, Cosmos and WanChain. For instance, Polkadot uses parachains to move processing from the parent chain. On the other hand, Cosmos gives developers some software development kits (SDKs), which enable them to deploy decentralized applications on the blockchain. It is important to note that there are different types of blockchain bridges, which are either centralized or decentralized.

Centralized Cross chain bridges

A centralized cross chain bridge uses a third party or a central system in order to function. Users will trust the third party to facilitate secure transactions involving minting, locking and trading their assets between blockchains. For example, a centralized cross chain system enables bitcoin holders to convert their BTC to wrapped BTC which exists on the ethereum blockchain.

Decentralized blockchain bridges

With the decentralized cross chain bridge, users put their trust in the smart contract of the protocol rather than in a central authority. In this case, the system locks the cryptocurrency before minting the related tokens that exist on the other blockchain network. Another notable thing is that there are validators who verify these transactions.

Sidechains

When we are considering interoperability and the composability of blockchains we also need to focus on sidechains. Basically, the sidechain is a separate blockchain which operates alongside a parent chain system. The main reason for establishing side chains is to make the blockchain more scalable and efficient than before. As such, sidechains enable tokens from a blockchain network to be used in another chain before being returned to the original one.

Source: Medium

The importance of the cross chain technology

The power of decentralization can only be fully realized if people using different blockchains can relate to others on other chains through a common protocol. That is where interoperability and intercommunication between blockchain comes in. The end result is that there will be financial transactions among the different blockchains.

This also brings to an end the problem that a crypto-enabled business can only accept payments from individuals and organizations which use the same blockchain as it. More interestingly, the cross chain technology results in greater adoption of cryptocurrencies and other digital assets such as NFTs.

Ultimately, the blockchain bridge technology leads to fast transactions, low operating difficulties, minimal transaction fees and the deployment of decentralized applications (dApps) on different blockchain systems.

In addition, cross bridges result in more productivity of cryptocurrencies than before, as people can easily invest them in various DeFi products on different blockchain systems.

How to benefit from Interoperability

The interoperability between blockchain networks has resulted in wrapped tokens, creating new investment opportunities. Let us focus on how people can acquire and trade wrapped tokens on Gate.io. And in this case, we take an example of wrapped BTC (WBTC).

As a fact wrapped BTC, WBTC, is an ERC20 token pegged at 1.1 with bitcoin. Thus, WBTC exists on the Ethereum network. Before someone invests in WBTC, he/she should purchase this token. One of the best platforms to buy WBTC is at Gate.io, which is a trusted exchange.

The process of buying WBTC is very simple. You have to open an account at Gate.io and deposit any one of the mainstream cryptocurrencies such as BTC, ETH or USDT. With that done, you head to the spot trading section and buy the WBTC.

WBTC is not the only wrapped token we find at Gate.io. The other wrapped token we can buy and sell at Gate.io is REN-BTC. As the name implies, REN-BTC exists on the Ren Protocol. Just like WBTC, people can spot trade it against BTC and USDT.

Buying cryptocurrency using credit card and bank transfer

In case you want to purchase any of the mainstream cryptocurrencies such as REN, ETH and BTC which you can trade against any of the wrapped tokens, you can use credit cards or bank transfers. If you want to use your credit card, click on Credit Card, under the Buy Crypto. Under this section you will select the suitable payment processor, which includes VISA, MoonPay and MasterCard.

In the same way, you can purchase the cryptocurrencies using bank transfer. In order to do that, click Bank Transfer, under Buy Crypto Section. Gate.io supports several cryptocurrencies such as USD, EURO, GDP and AUD.

Conclusion

Cross chain interoperability enables different blockchain networks to cooperate with each other, overcoming the boundaries which the various infrastructures create. Examples of popular cross chain projects are Cosmos, Polkadot and WanChain. In a bid to increase interoperability, some chains such as Ren developed wrapped tokens like RenBTC which people trade at Gate.io and other exchanges.

Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
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