Omnichain vs Multichain vs CrossChain: What Are They?

Oh the world of blockchain technology, once such a calm and peaceful realm, where we lay under the trees of Bitcoin-topia, the only thoughts running through our minds was the blazing hopes of liberation from the clutches of calamitous monetary policy and dubious governments, using Satoshi’s golden gift to the world.

Times have changed, and now we are spoiled for choice, as there are a plethora of different ecosystems we may choose to call home, all with their draws and benefits. The initial lack of interoperability between ecosystems led to many questions being asked; do we need all these chains? how do we transfer between them? How can we increase interoperability? What's the point? what does the future of the blockchain world look like?

Every answer leads us to encounter the same 3 buzzwords, and it’s time to give the people what they want and clear it all up.

The definitive differences between Omnichain, Multichain and Cross-Chain

Let's nail down one key detail that brings all of this together: Interoperability

What is Interoperability

When we talk about interoperability, we generally refer to the way networks communicate data to each other. This is a pivotal factor in a decentralised ecosystem, as without interoperablility, there is no way for users to send data to and from different networks.

Previously, Ethereum network held upwards of 95% of all the TVL, and to get across to other networks was quite arduous, as well as time and resource-consuming — generally just a pain. The lack of interoperability was a serious issue and is something that needed to be solved.

Before delving deeper, we need to understand why there are so many different networks, and it all stems from the Blockchain Trilemma.

What is the Blockchain Trilemma?

As is in the real world, we can’t have it all. For Blockchains, the sacrificial scale is called the Blockchain Trilemma.

There are 3 main points to this Trilemma (naturally) and they are:

• Scalability — The ability of a blockchain network to manage high transaction volumes efficiently.

• Decentralisation — Decentralization is essentially the dispersion of decision-making power away from a central authority, to many individuals, in this case, it would be to nodes.

• Security — This refers to the integration of a complete risk management system, where trust in transactions is ensured through the foundations of a blockchain security framework (consensus, cryptography, and decentralization).

  
  

Layer 1 Blockchains suffer from this curse, as to achieve efficiency in 2 points, one must be sacrificed. This is where we saw the developments in Layer 2 networks (Optimism, Arbitrum, Polygon etc) begin, as they solved the issues that Ethereum (A Layer 1) had with scalability.

Layer 2 Networks sit atop of Layer 1 Networks (the main blockchain). By being built on top of a Layer 1 network, the Layer 2 networks benefit from the decentralisation and security the Layer 1 has and then use their technology to fix the issues with scalability, thus solving the Trilemma (albeit at the cost of a slightly more complicated user experience).

The way they do this can vary depending on the Layer 2 — whether they be Optimistic Rollups (Optimism, Arbitrum), zkRollups (zkSynce, Starknet) or sidechains (Polygon). At the end of the day, they all reduce transaction costs significantly and have much higher Transactions per Second than their parent chain. This can be a lot to take in, and it may seem that this is a slight deviation but it’s important, as many new chains are being created in an attempt to solve this Trilemma, but ultimately, they were all inherently different and previously unconnected.

This brings us to DeFi Summer (AKA Summer of 2020), and the rise of CrossChain Bridges.

What is a Cross-Chain Bridge?

Thankfully, the definition of a cross-chain bridge is quite intuitive — it bridges data between unrelated networks. The beauty of bridges is that they take manual labour out of the equation, and save a lot of time.

Let’s say we have 1ETH — an ERC20 token, and we want to transfer it to the Solana network.

Previously, you would have had to go through a centralised exchange (CEX), sell your ETH for Solana, withdraw it to the Solana network, and then you would be left with 1ETH~ worth of Solana, which you can do what you want with. This process can be time-consuming (authenticate this and that), resource intensive, and if you are trading, can cost you an opportunity. Cross Chain Bridges fix this.

How does a Cross-Chain Bridge work?

Cross-Chain Bridges, like the Multichain Bridge, have changed the game, and are part of the reason why DeFi Summer, was DeFi Summer.

They work as follows, users typically lock or burn digital assets on the original chain and unlocks or mints the digital assets on the new chain. The whole process is governed by smart contracts, and hence why bridged assets are referred to as “wrapped assets” — cosily bundled up in smart contracts.

For example, lets say there’s a liquidity pool on a Solana-based Decentralised Exchange (DEX), that requires Wrapped Ethereum and some stablecoin as the LP. What would happen is I would take my ERC20 Ethereum to a bridge, lock it to receive some wETH — Wrapped Ethereum — as sort of IOU which I can then move freely around the Solana network and deposit into the liquidity pool with an equal amount of stables.

Cross-Chain Bridge Mechanisms

There are 3 Cross-Chain bridge mechanisms that are used:

1. Burn and mint — Users burn assets on the original chain, and the equivalent assets are minted on the new chain.
2. Lock and mint — Users lock assets in a smart contract on one chain, and simultaneously, wrapped tokens will be minted on the target chain, with a 1:1 conversion. When reverting back, wrapped tokens on the destination chain are burned to unlock the original assets on the original chain.
3. Lock and unlock — Users lock assets on the first chain to unlock the same assets in a liquidity pool on the target chain

Issues with Cross-Chain Bridges

No one is perfect, and bridges are not a person nor an exception. Bridges have been prime targets for hackers, for a few reasons. I will try to keep it simple here but it can get a bit technical so bear with me!

As we have discussed, when bridging assets you lock/burn/deposit them on one end, to have them unlocked/minted/credited on the other. The notion that the asset conversion is guaranteed is actually incorrect, as the bridges don’t exist on a single blockchain — they in themselves are an external entity. As a result, no blockchain can verify the bridge! Verification is done by 3rd parties, the dynamic duo of Oracles and validators & custodians (usually in the form of a DAO or Smart Contracts).

This added layer of reliance on 3rd parties destabilizes the trustless system and creates weak points which hackers can, and have, exploit.

Ronal Thapa explains the vulnerabilities very well in his piece — highly recommend reading it.

Is it Worth it to Use Cross-Chain Bridges?

Cross Chain bridges give us a solution to the lack of interoperability, in a pretty seamless manner and save a lot of time when transferring assets between chains, and make it a lot easier to diversify your portfolio. Just make sure you are using a trusted bridge, have enough money for Gas and that the asset you are bridging is liquid enough on the target chain!

Cross-chain bridges are good for linking 1 chain to another and facilitating that one-to-one network relationship but ultimately don’t scale. This is where Multichain comes into play.

What is Multichain?

When we speak about Multichain, we are referring to either:

• Multichain dApps
• Multichain Networks (or Modular Blockchains)

What are Multichain Decentralised Applications (dApps)

A Multichain Decentralised Application (dApp), is a project that has been deployed across multiple blockchains, specifically ones that share the same smart contract technology. For example, Ethereum, Polygon and Arbitrum all use the Ethereum Virtual Machine (EVM) — we call these EVM Compatible chains, and so multichain dApps can be built across those.

Whilst Multichain applications are more widely accessible, allowing projects to scale with greater ease, there is still a widespread User Experience issue, for the most part, users are expected to switch networks on wallets when depending on where they are using the app, and for newcomers, it can pose as a severe roadblock. Moreover, having an dApp spread over multiple networks can lead to fragmented liquidity — which can severely harm the user experience further. The ideal state would be that you can connect wallets to multiple networks simultaneously, and access liquidity across all networks the dApp is built on. Seamless access.

What are Multichain and Modular blockchains

Often referred to as Modular Blockchains, Multichain networks are blockchains that have multiple, separate chains broken down into “layers” to perform different asks. This differs vastly from the general Layer 1 Blockchain — which for the most part uses a Monolithic structure.

Think about it a bit like outsourcing. If the Blockchain was a company, a “monolithic” company would do everything in-house, but a “modular” company would outsource tasks to specialists

Understanding Blockchain architecture can be tricky, but ZebPay have done a good job of explaining it.

Benefits of Multichain and Modular Networks

The benefits of Modular blockchain/Multichain networks are similar to those of Layer 2's

• Scalability — allowing specific chains to carry out specialised tasks brings greater efficiency and scalability to the overall network
• Security — Modular blockchains have shared security, which makes deploying new blockchains like rollups don’t require bootstrapping a new validator set, and means that new chains added to the network can benefit from the existing security.
• Lower Costs — Rollup SDKs, will not only help facilitate the low-cost creation of new blockchains, by providing a way to bootstrap without needing a consensus mechanism, large validator set, or token distribution. Super neat.

What exactly is Omnichain and Layer 0?

There is a lot of confusion as to what Omnichain/Layer 0 actually is. Most pieces I read threw around abstract thoughts and ideas of seamless interoperability and generic definitions for the implication of the prefix omni, without really hitting what we really mean.

Looking back at what Multichain is, we mentioned that the dApps and networks had to be compatible, ie use the same smart contract technology — such as the Ethereum Virtual Machine.

Omnichain is connecting all chains — regardless of their smart contract technology — by building a base layer (Layer 0) where all other networks and dApps can be situated on top of. A mega-multichain ecosystem that does not discriminate.

With all these different layers and chains it can get tricky to visualise, so here's a simple way to think about it — The City analogy:

• Layer 0 — The main infrastructure (sewers, electricity grid, highways)

• Layer 1 — The Counties/States

• Layer 2 —Cities/Towns

• dApps — Stores and attractions

  
  

Although this is quite simplified, it should give a slightly better idea as to how the system comes together.

dApps can be built on Layer 1’s and not on Layer 2’s, and vice versa. For example, a dApp can be built and accessed on Polygon, but not accessible via Ethereum, and same goes the otherway round.

The rise of Layer 0 and Omnichain brings us ever closer to a seamless web3 experience, with complete interoperability, minimal fragmentation and a much easier user experience. Projects like LayerZero, Polkadot and Cosmos all fall into this Layer 0/ Omnichain infrastructure category and are pioneering the future and mass adoption of blockchain infrastructure.

Crosschain, Multichain and Omnichain all play their parts in the wider web3 world, and as we discussed, are all very different. I hope this piece cleared up the confusion!