Crossing the Chasm: How Multichain Token Transfers are Bridging the Gap

The blockchain industry is often fragmented, with several blockchain networks providing a distinct specialty or use case. This fragmentation may create hurdles to the entrance of new users and restrictions on asset transfer and exchange across networks. Multichain tokens are emerging as a solution to this issue by allowing assets to be transferred between multiple blockchain networks securely and seamlessly.

Multichain tokens are digital assets that may be utilized on several blockchain networks. They are intended to move value and other assets across several blockchains without the need for intermediaries.

Cross-blockchain currencies are built on the notion of interoperability across multiple blockchain networks. However, each chain has its own set of requirements, protocols, and standards, which often make asset transfers across networks problematic. Multichain tokens are intended to remove these constraints by offering a standard method for transferring assets from one chain to another.

The idea behind a Multichain token started with Pantos, a project initiated by Bitpanda and researchers at TU Wien (Austria) and TU Hamburg (Germany). The project uses an advanced verification mechanism based on oracles to enable token transfers across different blockchain networks.

Multichain tokens function by establishing rules and standards that may be applied across several blockchain networks. This is accomplished using smart contracts, the self-executing contracts that run automatically when specific criteria are satisfied.

A user initiates a transaction on the original blockchain when transferring a cross-blockchain token from one network to another. This transaction activates a smart contract, which burns the token on the source network and mints a similar token on the destination network.

Once produced on the destination network, the token may be freely traded and swapped like any other token on that network.

Multichain tokens may be used for many reasons, including value transfer, digital asset exchange, and developing new decentralized apps (dApps). In addition, they improve interoperability and minimize fragmentation in the blockchain environment by enabling assets to move across networks natively.

How Multichain Tokens Work

The primary enabler of multichain tokens is the new standard - Pantos Digital Asset Standard (PANDAS) - developed by the Pantos team. Based on years of research, they have designed a system that enables tokens to work seamlessly with a variety of blockchains.

Since Pantos is more of an infrastructure layer than a bridge, the PANDAS standard allows developers to deploy their existing or new tokens on a variety of blockchains without maintenance work. It means their tokens exist on multiple chains and can be transferred from one chain to another freely.

It works with the help of "smart contracts," which are agreements that carry out themselves when certain conditions are met. In this case, the smart contracts and a network of nodes act as enablers for cross-chain transfer.

For example, John Doe has a token and wants to send it to a cheaper or faster blockchain to trade on a DEX. John does not need to rely on a bridge to send a wrapped token to a different chain but can use the Pantos technology to natively transfer his token to a new chain. This is made possible by implementing the new Pantos Digital Asset Standard.

How Does Oracle-based Verification Work?

The Pantos team has worked on multiple validation mechanisms for years. The final validation mechanism hasn't been released yet and will be an advanced version of the oracle-based approach. This mechanism allows for greater scalability and low gas fees without compromising on security. So, how does it work?

Oracles are basically query tools. Any Pantos client can query the oracle on one blockchain to determine whether a transaction has taken place on another blockchain. 

The oracle-based verification is based on a combination of the Boneh-Lynn-Shacham (BLS) threshold signature schemes that allow users to verify that a signer is authentic and Distributed Key Generation (DKG) protocols. It combines, in an economically-efficient way, multiple signatures into a single signature. Verification of the single signature acts as proof that a minimum required number of signatories agree on the signed message.

Pantos creates a distributed private key, where the oracle nodes each have their own unique private key share without any of them owning the distributed private key. The distributed private key is the same as a single public key. The network can combine the results of the oracle nodes using their private key shares to get an encoded message that can be decoded with the public key.

Every time the oracle nodes change, all elements, including the private key shares, the distributed private key, and the public key, change as well. In most cases, it requires a trusted authority to oversee the creation of the new batch of keys. However, Pantos eliminates the need for a trusted authority using Distributed Key Generation (DKG) protocols.

Conclusion

Multichain tokens are a fascinating new development in blockchain technology. These tokens may bridge the gap between various blockchain networks and unleash new levels of innovation and development in the blockchain ecosystem by increasing interoperability, lowering costs and friction, allowing new business models, and promoting decentralization and security.

Although there are still obstacles to overcome, the potential of Multichain tokens is enormous, and we can anticipate continuous development and acceptance in this field in the coming years.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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