Why is this important?
Cross-chain communication helps app developers provide interesting and powerful features where data points from one system interact with smart contracts, asset storage, and other systems managed by another blockchain. Here's how three of the most popular solutions work:
- Polkadot (DOT +3.64%) is a separate bundle of blockchains known as parachains. Information can pass from one chain to another in the cross-consensus message format (XCM). In turn, many of Polkadot's parachains can interact with systems and blockchains outside the Polkadot ecosystem. This is a sophisticated data transfer system with a built-in payment processing process designed to manage content flows and payment transfers in Web3 applications. The power of this platform comes from its ability to use the best features of many different blockchains through cross-chain communication.
- Chainlink (LINK +3.81%) is another popular cross-chain communication solution. It is a network of so-called oracles connecting Chainlink's blockchain ledger to a large number of real-world data sources. For a small fee (paid in Chainlink tokens), app developers can include these data points in Ethereum contracts. A sports betting app could deliver payouts based on baseball scores. A smart home app can read local weather data and adjust your thermostat before a heat wave rolls in. Chainlink can provide this data and much more.
- The Wormhole protocol is not a cryptocurrency or a blockchain network. It is a messaging protocol that connects to many of the leading smart contract networks. It can transfer data to and from any of these systems, but it doesn't automatically convert things from one blockchain to another. Instead, the app must store, convert, and use the blockchain data as required. This protocol is more of a programming tool than a global blockchain network.
Can you invest in cross-chain communication systems?
Some of the cross-chain communication solutions are standalone blockchain entities. You can buy or sell Chainlink and Polkadot tokens, for example. They should gain value over time due to increased usage of their communication services. Each system is also under active development, and investors should see higher token prices as each platform gains new features, more users, and higher real-world demand.
Of course, there is no such thing as a guaranteed winner. Polkadot and Chainlink were front-runners in 2023, but new solutions could come along and steal market share from the early kings of cross-chain communication. So, if you want to invest directly in the long-term value of cross-chain communications, you should keep a close eye on how this subsector of blockchain technology develops.
