Cross Chain Trading or Cross Blockchain Trading

My entry October 9th, 2020 Steemcryptochallenge Week #2 Diving into Diving into DeFi: Cross chain trading

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Source

Cross chain or across blockchain trading.

The cryptocurrency project called Ethereum was created by an early fan and supporter of Bitcoin. Although it is possible to modify the Bitcoin blockchain to allow for smart contracts, the community controlling the code was unwilling to do that because they felt Bitcoin had a purely singular purpose. The creator of the Ethereum blockchain introduced the cryptocurrency world to smart contracts, and people owning tokens from other blockchains wanted to trade their tokens on Ethereum , so there was a need for what is called Cross Blockchain or Cross Chain trading.

Solution

The solution to cross blockchain or cross chain trading were a special type of token which was created on a certain blockchain but represented a token from another blockchain. These were special Tokens which are easily distinguishable from other native tokens. For example the native token for the Ethereum blockchain was the Ethereum token, and all Ethereum tokens are the same, or interchangeable. But in order to trade tokens from another blockchain on the Ethereum blockchain, you need a token native to the Ethereum blockchain, but it’s not an Ethereum token, instead it’s a Ethereum blockchain native Token, which represents a token from another blockchain, which can trade on the Ethereum blockchain. This special token was invented for this special purpose, and they were called ERC tokens. There were different varieties with different characteristics, but the one which seemed to fulfill this need best was the ERC20 Token.

ERC20 Tokens

These are the digital representations on the Ethereum blockchain of tokens which are native to another blockchain.

TRC20 Tokens

These are the digital representations on the Tron blockchain of tokens which are native to another blockchain.

Example:

Steem is currently available for cross chain or cross blockchain trading on Tron Blockchain and it represented in the Tron blockchain by a TRC20 token called WST.
The Steem WST token on the Tron application, is a TRC20 token, and this special token, native to the Tron blockchain, is not a TRX token, but it’s a Tron blockchain Token, it’s a special, and it is the digital representation of the value of a Steem token on the Tron blockchain. The WST-TRX Trading pair, on JustSwap is Steem on Tron blockchain, inside a DeFi application.

Example
Bitcoin is currently trading in a Liquidity Pool on Justswap. The Bitcoin-TRX pool contains over 8 million dollars USD after 3 days. The pool shows how with DeFi you can hodl your Bitcoin and earn some TRX. Check out www.justswap.io for more details.

Cross chain trading via these type of tokens is becoming more common in the cryptocurrency universe right now. This may become more common as time passes.

Atomic Swaps

Atomic Swaps are true cross chain traded with no ERC20 or TRC20 tokens and no intermediaries. They are smart contract mediated through a special code and allow you to directly was tokens from different chains. There are a few examples of functioning demonstration code projects from this source

One definition and example:

Cross-chain protocols, or so-called atomic swaps, allow you to exchange one cryptocurrency for another, between two different blockchains, without the help from a third party.

It’s basically a variation of smart contract technology and hash time locked contracts (HTLC).

This contract acts as a temporary escrow for the funds of both parties. When funds are sent to complete the exchange, both parties have to confirm the receival of funds within a limited timeframe. If one of the parties fails to do it, the transaction is cancelled. If both parties confirm the transaction, the swap happens. This completely removes counterparty risk of exchanging tokens across blockchains.

Below are existing Projects, which have shown this can work, and can be done with very small number of Tokens.

The Komodo exchange was a pioneer of atomic swaps. One year after Tier Nolan proposed the algorithm of atomic swaps in 2014, their lead developer implemented it and allowed to actually swap cryptocurrencies between each other. They were also the first to conduct the swap between DOGE and Ethereum blockchains. DOGE is based on the Bitcoin code, so that means in theory, with some code modification, Bitcoin can be exchanged to Ethereum too. source

VDEX by Volentix. It features the Inter-Blockchain Communication (IBC) proofs, which are designed to simplify interaction with other blockchains. Those chains that can’t process IBC proofs can rely on trusted oracles and escrows. With an EOS-based smart contract, a trusted multi-signature wallet holding the asset in escrow can be used to sign the transaction on the originating chain. Thus the exchange is able to handle any cryptocurrencies and support atomic swaps between them. source

Dex.top - It supports swaps between Ethereum, EOS, and NEO blockchains. All trades are matched initially on the ledger of the exchange itself to improve speed and then sent onchain for settlement. Sadly, they have a very limited variety of tokens for trading. source

Switchneo - This exchange started as a DEX for the NEO ecosystem to allow trading NEO-based tokens, but it has grown beyond that. Now it supports Ethereum, EOS, and NEO trading, as well as limited BTC trading via the Wrapped Bitcoin token. It doesn’t provide any extensive ecosystem, but it may be very convenient for those traders who are interested in NEO or EOS tokens and want to find them all in one place. source

These are interesting projects and show the diversity of code projects for trading cryptocurrencies.

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