Since the birth of Bitcoin in 2009, while the value of Bitcoin has been gradually discovered and confirmed, hundreds of altcoins have also been developed, each with its own advantages and characteristics. Although the supremacy of Bitcoin remains intact, there are not many applications based on Bitcoin because of the difficulty in development and the many restrictions. With the improvement of DEFI infrastructure and the expansion of applications, the interoperability requirements of assets on the chain are getting higher and higher, and the value of "cross-chain" technology is gradually highlighted. This article will analyze in depth what cross-chain is from various aspects? Mainly through what technology to achieve? Why do DEFI applications have more urgent requirements for cross-chain technology? How does cross-chain ensure asset security?

MDEX settled in BSC, cross-chain assets become "sweet pastry" again?

Last week, there was a big news for DEFI. The king of DEX on Huobi Chain Heco —— MDEX "settle down" on BSC. It took only 12 hours to achieve a TVL of 2 billion US dollars. In addition to settling on BSC, MDEX officials also stated that they will deploy on more public chains, and plan to gradually land on public chains including Ethereum layer2, OEC, Polkadot, Near and other public chains in the second quarter of this year, and realize multi-chain asset interoperability. With the popularity of the BSC public chain, more and more DEFI projects based on Ethereum and other chains are transferred to BSC to achieve double-chain or multi-chain interoperability.

As early as 2013, it was mentioned in the BitShares white paper that "it is possible to conduct transactions between BitShares chains, increase the scalability of the network, and trade BitBTC and real Bitcoin without intermediary agents or trust. It can be automatically executed by software." In September 2016, Vitalik Buterin also elaborated on the technical path and application value of cross-chain in his report "Chain Interoperability" for R3. "The recognized cross-chain technology is divided into notary mechanisms, There are three types of side chains/relays and hash locks. The application value is reflected in: cross-chain assets, atomic swaps, cross-chain oracles, and generalized cross-chain contracts.

However, due to the lack of blockchain applications and the infrastructure of the chain is still in its infancy, cross-chain assets are more like a concept when it is proposed. After 2020, as the market application scale such as DEFI increases exponentially, how to make Bitcoin Equipped with complex smart contracts and introduce its value to other public chains? How to link ecologically mismatched applications on large public chains such as Ethereum, HECO, BSC, and Polkadot? How to minimize the threshold for users to participate in DEFI and increase the possibility of DeFi going out of the circle? It has become a very urgent issue, and asset cross-chain technology has once again become a "sweet pastry".

What is asset cross-chain?

There are many public chains on the market, such as Ethereum, EOS, Cardano, NEO, QTUM, BYTOM, and Aeternity. Each public chain is essentially an independent ledger. It is difficult for a user to store value on a chain. Realize circulation on another chain.

The cross-chain can allow value to cross the barriers of chains and chains, solve the problem of completing bookkeeping between different distributed ledgers, break the "value island", and realize the circulation, storage, and transfer of assets on different chains. For example, Bitcoin can also be circulated on the Ethereum network, and assets on Ethereum can be circulated on the BSC chain. The cross-chain does not change the total value on each blockchain, it is just an exchange between different holders.

The method of realizing asset cross-chain

1) Side chain

A contract is required to realize the acquisition of main chain network data, including the method of side chain data and main chain data switching mechanism. If you need to generate 1 BTC on the side chain, you need to lock 1 BTC on the main chain. Conversely, if you need to cross 1 BTC , then the contract will first destroy the BTC on the side chain. The element chain launched by BTC Relay, Rootstock and BlockStream, and the Vapor of Bytom chain are relatively well-known side chains. If Bitcoin and Ethereum on the main chain are transferred to the side chain of Bytom, the assets on the main chain will be locked and destroyed.

2) Notary mechanism

The notary mechanism is a simple cross-chain mechanism that is widely used in digital currency exchanges. It is essentially an intermediary method. Assuming that blockchains A and B themselves cannot directly interoperate, they can introduce a mutually trusted third party as an intermediary, and this mutually trusted intermediary will verify and forward cross-chain messages.

The notary mechanism mainly includes three types: single-signature notary, multi-signature notary, and distributed signature notary.

The single-signature notary method is also called the centralized notary mechanism, which is usually acted by a single designated independent node or organization, which simultaneously undertakes the tasks of data collection, transaction confirmation, and verification. We usually conduct digital currency transactions through exchanges, which is often a centralized notary mechanism.

In the multi-signature notary method, cross-chain transactions can only be completed after multiple notaries sign on their respective ledgers to reach a consensus. Each node of the multi-signature notary has its own key, and only when a certain number or proportion of notary signatures is reached, the cross-chain transaction can be confirmed. For example, the cross-chain of Bytom adopts the federated node signature method.

The distributed signature notary method means that the notary is an alliance composed of a group of people/institutions, and the transfer of cross-chain funds is controlled by this alliance. This method is more secure than the single-signature mode, and the normal operation of the system will not be affected if a few notaries are attacked or do evil. For example, DeCus, a decentralized cross-chain protocol that will be launched soon, adopts a "repeated grouping" Keeper method to ensure the decentralization of the entire process of cross-chain verification. In this way, a Bitcoin-anchored currency, eBTC, can be created to participate in the DEFI ecological mining of the Ethereum network or other networks.

3) Relays

Both Polkadot and Cosmos rely on the relay protocol to complete communication interconnection. Connect with other public chains through Polkadot and Cosmos, and set different functions for different chains to achieve better scalability and efficiency.

4. Hash lock

The most representative one is the Lightning Network: a micropayment channel is created by locking a deposit within a certain period of time, but only supports small and micro-amount transactions.

Use of cross-chain assets

The main reason for the existence of asset cross-chain is that the current asset platforms are separated from each other. The total amount of the digital asset market is huge, but the existence of various subdivided ecology makes the available assets insufficient. Taking the simplest bitcoin as the public chain with the most consensus at present, it cannot participate in the DEFI ecosystem. The nature of the chain itself makes it difficult to do things related to smart contracts. How to financialize high-value, high-liquidity, and high-recognized assets is the biggest use of cross-chain assets.

Specifically, the use of cross-chain assets on DEFI can be subdivided into mortgage assets, providing liquidity pools for decentralized transactions, and derivative values. Take WBTC, which currently has the largest number of Bitcoin-anchored coins, as an example (currently there are about 150,000 WBTC, accounting for about three-quarters of the total number of Bitcoin-anchored coins), most of the WBTC is currently used in Compound , AAVE and MakerDao and other lending platforms as collateral assets.

WBTC is mainly a liquidity pool in the DEX field, and its development began to accelerate after the rise of liquidity mining. For example, liquidity is provided in the WBTC/WETH pool of uniswap.

Provide the underlying standard of derivatives such as insurance, options and other related decentralized financial applications, but the current development of this area is not as perfect as the development of lending and liquidity provision.

Current limitations of asset cross-chain

However, there are still many problems in the current cross-chain assets. For example, Xiao Ming has 1 BTC in his hand, and he also wants to obtain income through DEFI mining. He found that all DEFI platforms do not accept Bitcoin for direct financial management. Bitcoin must be exchanged first. Only when Bitcoin on Ethereum can participate in the mining of platforms such as Compound, can the value of Bitcoin be discovered.

He first chose WBTC, which is currently the largest bitcoin-anchored currency in circulation (the BTC anchored with WBTC is stored in the cold wallet on the chain by the custodian BitGo), and later found that WBTC relies on acceptors, and he fell into thinking. What if the acceptor runs away? Isn't your own bitcoin insecure? Although BitGo has managed assets of 16 billion US dollars, these assets are not BitGo's own. If BitGo misappropriates or loses the BTC reserves corresponding to WBTC, BitGo will go bankrupt at best, and WBTC holders will suffer heavy losses.

So Xiao Ming focused on the decentralized Bitcoin-anchored currency, and there is no central authority to manage the locked Bitcoin, such as RenBTC and eBTC.

How does this kind of decentralized Bitcoin-anchored currency ensure the safety of user funds? RenBTC is that users can deposit native BTC into the designated RenBridge gateway as collateral, and RenVM issues the corresponding renBTC in the Ethereum network through smart contracts, and the entire issuance process is relatively decentralized.

How RenBTC works

eBTC is to host BTC assets in a multi-signature address by 10,000 custodians, and group these 10,000 custodians repeatedly. The system randomly selects signers, and signers can also leave the network at will to ensure decentralization and control signatures cost.

Source: eBTC's Network Design

Prospects for cross-chain assets

With the development of decentralized finance, the "wall" between chains will definitely be broken more easily, and the limitations of cross-chain assets will become smaller and smaller. On the premise of ensuring decentralization, Bitcoin, Holders of traditional digital currencies such as Litecoin and NFT-related new currencies can participate in DEFI applications at the lowest cost. There are 100 demands, and there must be 1,000 supplies. How can future cross-chain assets achieve Datong? It is also worth looking forward to.