What if you have Bitcoin in your wallet, but you want to send it to someone or transfer it to an Ethereum wallet? Is that possible? And what problems may be involved?
It’s a simple question with a big answer. First, let’s consider the difference between the coin and the chain. Think of the Uber app. You can install it on your iPhone or on your Samsung Galaxy and it will work on both devices. But if you try to download Apple’s Procreate app onto your Samsung tablet, it won’t work. Why?
Different apps are built for different operating systems. The app is like the coin and the operating system (iOS or Android) is the blockchain it runs on. And just like operating systems, the chains are often very different. Bitcoin is a first-generation blockchain, whereas Avalanche is third-generation. That’s also the reason why Lossless supports now a total of six chains — Ethereum, Binance Smart Chain, Polygon, Avalanche, Harmony, and Fantom.
So what happens if your coin doesn’t work on the chain you want to send it to (from Bitcoin to Ethereum, for example)? It’s a problem that is only going to get bigger, with over 7500 cryptocurrencies existing in 2021. As more coins and chains are created, the landscape will become highly fragmented. This is not yet like the traditional banking system, where fiat funds can be moved easily from account to account.
This is what a Binance user sees when he/she wishes to make a transaction (withdrawal) after filling in the wallet address of the recipient and being asked to select a network:
It confuses many, especially people new to crypto— were you to pick a wrong network the recipient’s wallet belongs to, your funds will be lost and in many cases (unless if you’re using a centralized exchange and it has certain measures implemented), unretrievable. Always make sure you inserted details properly prior to making the transaction.
Interoperability and Cross-chain technology
Different blockchains need to communicate more easily. That’s the basic message. It’s already possible to transfer your coins from one chain to another, but with certain disadvantages or even risks. In any transaction, the people involved may default on the payment they have agreed to make. If time locks are built into the process, fast transactions may not be possible. Also, the relative complexity of such transfers may incur high costs. Worst-case scenario — you might lose your money.
It’s true that multi-token wallets are being developed for such transactions. However, this is still in the early stages and it will only happen if seamless interoperability is solved and a single wallet can be used for all transactions. One big step in that direction is cross-chain technology.
Cross-chain technology addresses interoperability between different blockchains, helping them communicate and share data via a common protocol. These protocols have two main types: cross-chain and cross blockchain.
Cross-chain protocols provide communication between matching blockchains, for example, Polygon and Avalanche. Cross blockchain protocols, meanwhile, are for non-matching chains, for example between Bitcoin and Ethereum. The speed and security of such transactions depend on very accurate programming.
The cross-chain swap
The cross-chain swap — also called an atomic swap — is a technology that allows coins to be exchanged between two different blockchain ecosystems, for example, ERC-20 (Ethereum) tokens with BSC (Binance Smart Chain) tokens. This swap happens directly from your wallet and confirms that the parties receive their tokens within a specific timeframe. If not, the transaction is canceled. The sender receives the same amount of tokens he is swapping, helping to eliminate manipulation and fraud.
It’s an elegant and simple solution, eliminating third-party entities or a centralized infrastructure such as an exchange platform from the exchange process. This makes it faster, more affordable, and more secure. Banking, energy industries, healthcare, and governments are already relying on this technology.
A number of companies are involved with boosting interoperability and cross-chain transactions. Ripple (XRP), for example, has looked carefully at the banking industry and international currency exchanges to help its users share and access data across blockchains for cross-chain transactions.
Another similar project is Polkadot (DOT), which focuses on transmitting smart contract data between blockchains. It uses parachains and other tech to free up the main chain, boost processing speed and improve scalability.
Cosmos (ATOM), meanwhile, calls itself ‘the internet of blockchains’ and uses software to help easily create decentralized apps (dApps) for the blockchain. All chains on the Cosmos blockchain are interconnected and also with the main chain.
Your next steps?
Cryptocurrencies, with all of their blockchain advantages, though safer for investment purposes but have to be investigated closely before making decisions in this rapidly evolving landscape.
What you always must do when making transactions — make sure the info you provided (wallet, network, amount, currency) are without mistakes. You can also visit such sites as Etherscan or CoinMarketCap to learn more about the tokens that interest you, their chains, their contract addresses, interoperability. It also pays back to stay up to date to be aware of how new technologies are making it easier to connect all of the blockchains. Responsibility in DeFi lies on the user — make sure to be informed.
About Lossless
Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from our known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.
Our protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Our solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.
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