Cross-Chain

Cross-chain technology allows a blockchain network to connect with other blockchain networks to exchange value and information. As we know, most blockchain operates independently and cannot interact with other blockchains. Therefore, cross-chain technology is needed to connect these blockchains. Some popular cross-chain projects are Arbitrum Bridge, Polygon Bridge, Synapse Bridge, Layer 0, and CCIP by Chainlink.

Three main mechanisms power cross-chain: lock and mint, burn and mint, and lock and unlock. As the name implies, lock and minting is a mechanism in which a user locks tokens on the source chain, then new tokens are minted on the destination chain. Meanwhile, burning and minting is a mechanism in which a user burns tokens on the source blockchain, and new tokens will be minted on the destination chain. Lastly, lock and unlock is a mechanism for users to lock their tokens in the source chain, then unlock the same native tokens from a liquidity pool on the destination chain.

Even though cross-chain has advantages and benefits for its users, it also has risks. As a software program built on top of other blockchains, a vulnerability in either the blockchain software or smart contract behind the cross-chain bridge poses a chance of hacks. In 2020-2022, cross-chain bridges were hacked multiple times with a loss of up to US$ 2.5 billion, based on a report from Token Terminal.

You can learn more about the layers in the blockchain in the following article.