You've probably had the (pleasant or awful) experience of migrating tokens from one blockchain to another. In this post, we are going to cover the mechanics behind these transfers, and how the process has evolved over the years.

Putting aside colored coins on Bitcoin for a second, Ethereum was the first platform that allowed for the minting of native assets like ERC20 tokens and NFTs.

After Ethereum's success, more smart contract platforms started to emerge, and each one allowed developers to launch their own tokens and dapps (decentralized apps).

Although dapps are easily composable with other applications on the same blockchain, without cross-chain communication they end up isolated from other ecosystems.

Transferring tokens from one Ethereum wallet to another is also a fairly straightforward process, but what if we want to move our assets to an entirely different blockchain?

Not only do we need the ability to transfer native assets from one blockchain to another, we also need to enable cross-chain communication for smart contracts as well.

Cross-Chain Bridges

The easiest way to enable cross-chain communication is via bridges that lock up or burn assets on one blockchain before minting or unlocking them on another. This is typically referred to as "wrapping", and requires deploying smart contracts to both blockchains.

Perhaps you're wondering, how does one smart contract know know when assets have been successfully deposited to a smart contract on another blockchain?

In the case of a bridge, a relayer is required to check the status of deposits on the source chain, and to pass on the event to a contract on the destination chain.

One disadvantage of bridges is that the assets locked into a contract are a huge honeypot for hackers. Some of the biggest exploits in crypto history involve bridges, such as the Ronin hack back in 2022.

These pairwise bridges do not scale well either. As the number of blockchains increases, it becomes more difficult to keep up.

Wormhole

Wormhole aims to solve these problems with a generic message-passing protocol, enabling developers to build cross-chain dapps. Different from a basic bridge, Wormhole can be used to execute smart contracts cross-chain in addition to transferring assets.

To make this all work, Wormhole smart contracts are deployed to each of the supported blockchains (about 28 now). Users can send messages to the Wormhole network by submitting data to these smart contracts.

Wormhole uses a set of about 19 reputable “guardians” for authoritative proof that a transaction on one of the blockchains has finalized. It is their role to observe messages and sign the corresponding payloads when a super majority reach consensus.

Axelar

Axelar is a Cosmos-based blockchain that also enables cross-chain asset transfer and communication like Wormhole, but with advanced security.

Rather than relying on a limited number of trusted guardians, Axelar is a blockchain made up of (a permissionless set of) 75 validators, and therefore considered to be a more decentralized cross-chain interoperability service.

Axelar’s most important advantage is its Cosmwasm-based Virtual Machine, which gives it the ability to connect to new chains without permission, and gives it more flexibility when it comes to cross-chain dapp development.

Axelar currently interconnects more than 60 different blockchains.

Future Of Cross-Chain Communication

Transferring blockchain assets was originally done via basic cross-chain bridges. It has since evolved into more advanced solutions like Wormhole, which provide both asset transfer and cross-chain messaging.

Axelar has improved interoperability further with its virtual machine, and has made asset transfer even more secure with a permissionless validator set.

If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the HIVE blockchain. You can also follow me on InLeo for more frequent updates.

Until next time...

Resources

Binance Article On Chain Abstraction [1]
What’s the Best Interoperability Protocol? [2]
Coinmarketcap Cross-Chain Bridge Article [3]
Wormhole everything you need to know about xapps [4]
Reddit bridges and cross-chain messsaging [5]
Axelar Logo [6]