Exploring the Value of Cross-Chain Payments
Cryptocurrencies are generally known for their primary purpose, which is, as a mode of payment. Since Satoshi launched Bitcoin in 2009, cryptocurrency based payment solutions have expanded and evolved to achieve several milestones that makes it increasingly easier for payments to be made both for traditional companies and cryptocurrency based companies.
The concept of cryptocurrency payments has always been simple; it involves sending coins/tokens to a specified chain-centric wallet while the sender receives the required value for the tokens/coins sent. There is no middle entity, and transfer of value through this means transcends location or time.
Progressively, the purpose of cryptocurrencies have quietly evolved beyond a mode of payment to involve applications such as Decentralized Finance, store of value, digitized real world assets and many more. This has also opened up solutions such as multi-chain wallets, multi-chain wallet addresses, interoperability resolutions and a host of layer 0,1,2,3 chains as alternative means of improving cryptocurrency based transaction throughput.
There are currently more than 200 blockchains in the space, and interoperability within chains has always been a hot topic amongst crypto enthusiasts and maxis. With advancement in cross-chain interactions in the space, the need to understand the significance of these interactions becomes essential.
Several forms of cross-chain interactions exist in the space. Atomic Swaps involve a peer to peer transfer/exchange of assets between two blockchains and are highly recommended because of their decentralization features. It was highly recommended in the 2020s as a form of cross-chain interaction but couldn't gain the expected adoption due to its complexity in actualization.
The more common cross-chain interaction is the use case of cross-chain bridges where assets are transferred between two blockchains. Bridges have become a common tool used to swap cryptocurrencies across chains and many decentralized applications now offer a form of bridging gateway to their users. Bridges are simpler to use than atomic swaps, although they are more subject to security concerns.
Cross-chain messaging is another form of cross-chain interactions that involves the transfer of information from one blockchain to another. Cross-chain messaging encompasses a host of cross chain interactions such as token information exchange, smart contract data exchange between two blockchains, and a lot more. This opens up a world of unlimited possibilities with decentralized applications. The success of a functional cross-chain messaging protocol depends on the solutions that it has provided to addressing the blockchain trilemma which is security, scalability, decentralization.
With successful cross-chain interactions, a myriad of opportunities opens up in the blockchain space. One of the most talked about significance of cross-chain interactions is ‘unlocking liquidity’. Liquidity on various blockchains can be easily assessed through cross-chain bridges, making it easy for users to tap into opportunities in assets that would otherwise have been impossible. Availability of liquidity across chains is also beneficial for decentralized applications as it opens the applications up for more users to onboard the platform. This can help to strengthen the platform and expose areas of weaknesses in its structure for further improvement. The liquidity unlocked by cross-chain interactions is also beneficial for decentralized exchanges, who no longer have to be limited to a specific chain’s liquidity to process trade orders. Cheaper trading fees, faster execution time are few of the advantages that users of such decentralized exchanges will experience.
The prospect of cross-chain decentralized applications is too enticing to ignore. Indeed, this is one of the most outstanding significance of cross-chain interoperability. Decentralized applications can leverage the advantages of multiple blockchains and create better scalable experiences for its users.
Blockchain developers that build decentralized applications can also explore cross-chain messaging protocols especially if they are building on a specific chain but need potential users’ data from other chains. This also opens them up to understand their target audience better, creating more efficient applications all around.
Another significance of cross-chain interactions can be found in cross-chain payment platforms. Cross-chain payments involve payments for value/goods/services across chains, a system that is the core of Chainbills vision. In cross-chain payments, a sender can pay for services using any chain of his choice, while a receiver can receive funds in his preferred choice. This is a step above what is common in the cryptosphere at the moment, but it is a general belief at Chainbills that this is a great step towards mass adoption.
The advantages of cross-chain payments can not be understated. The ease of payments with cryptocurrencies has always been a strong drawback in its adoption worldwide. Cross-chain payments help to lessen this, as anyone that has access to a funded wallet can easily make payments to their choice blockchain without needing to have a thorough understanding of the workings of the destination blockchain. Also, a receiver does not need to conform to the 'blockchain of the moment' trend that always take place in the crypto sphere every season. What's more, the sender of payments and the receiver do not need to keep up with advancements in cryptography for fast, low cost transactions to be made between them.
The flexibility that comes with cross-chain payments is appealing. Crypto users don't need to have vast knowledge or multiple wallet addresses in order to do business. It showcases the importance of having one chain address as your primary address and helps to uncomplicate issues regarding buying and selling with crypto. What's more, the sender does not have to know the receiver's chain to be able to transact with them.
Cross-chain payments are also advantageous to blockchain maximalists who are faithful to their blockchain of choice. This creates a ‘win-win’ situation for transactions on blockchains, an event that is rare in itself.
There is perhaps a tricky occurrence that has happened to almost anyone who frequently makes crypto transactions;- Sometimes, a user might not have enough funds in a particular chain to pay for goods or services to the specified destination chain. In today’s transaction model, it would not matter if the user has funds in other chains, a conversion of some kind has to be made to get funds into the chain that is compatible with the intended destination chain. In a world where time is of the utmost essence, such transactions may take time to be completed. Cross chain payments can solve this inconvenience and save users a lot of time.
In summary, cross-chain interactions will unlock a host of liquidity and create genuine integrations that were only a figment of imagination in 2018. A higher degree of interconnectedness will not only foster a massive adoption of sophisticated decentralized applications, but will also lead to easier onboarding of the rest of the world population whose skepticism has kept them from becoming cryptocurrency users.
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