Multichain: What It Is, Why It Matters
Blockchain technology has come a long way over the last decade, from Bitcoin enabling a secure, decentralized, and trustless way to transfer value, to Ethereum enabling smart contracts and decentralized applications, opening up a wider range of logic with new use cases. We are already seeing a fast rate of adoption in blockchain applications such as decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs). Many blockchains outside of Bitcoin and Ethereum are also gaining adoption, widening the funnel for the mainstream to enter this space. The time is ripe for multichain.
Before diving into multichain, let’s first go over the three layers in the blockchain ecosystem: layer 0, layer 1, and layer 2.
Layer 0 (L0) is the base layer among blockchain protocols. Think of it as a blockchain of blockchains. It supports different types of blockchains and allows them to interoperate with one another (e.g. Polkadot and Cosmos).
Today, if you ask anyone outside of the vibrant crypto community to describe blockchain, most would mention: Bitcoin (or maybe Dogecoin). Bitcoin and Dogecoin are both layer 1. Layer 1 (L1) is a blockchain itself and acts as the base layer for applications.
Layer 2 (L2) is a network built on top of the underlying layer 1 blockchain. They are designed to help scale the underlying blockchain, for instance, by handling the computation of many transactions off-chain and submitting a single proof so that users can enjoy fast transaction speed and low gas cost for using the network.
A multichain world represents the world of multiple blockchains spanning layer 0 to layer 1 to layer 2.
We believe multichain is already here.
Check cryptofees.info, a site that offers usage metrics on blockchains and protocols, today versus a year before today.
Crypto Fees chart, 1 year ago
A year ago, Ethereum, Bitcoin, and protocols built on Ethereum represented nearly the entire list. Today, new players — L1s outside of Ethereum, protocols built on separate L1s, and various L2s — have gained popularity.
Crypto Fees chart, today
This is not to say Ethereum combined with its ecosystem of protocols is losing its dominance, but rather the total addressable market is being realized faster. This trend is just getting started. Time will tell, but we do not see this as a winner-takes-all-market.
Currently, adoption of multichain seems to be mainly driven by problems stemming from network congestion in blockchains with high demand. This means that since there is so much demand to use the blockchain, unless you pay really high gas fees, your transaction will take a long time to be completed. As a result, other blockchains that focused on scalability (fast transaction times) with low cost of entry (cheaper gas fees) have benefited . Of course, this provokes the question: is it acceptable to compromise security and decentralization for scalability? Is it making the right tradeoffs in the blockchain trilemma model? We will dive more into that in the next section.
At Magic, we would like to share our thoughts on pragmatically taking Web3 to the mainstream, and this starts with focusing our lens from a purely UI/UX perspective.
Scalability and cheaper gas fees as the two main factors that need to be addressed to onboard the next billion Web3 users.
Scalability enables fast transactions. Fast transaction time is already a massive UI/UX improvement. Just look at Amazon losing revenue for every hundred milliseconds of latency. Unless everyone goes down the rabbit hole of how blockchains actually work, people will simply not wait and drop off. Time is precious.
Cheaper gas fees lower the cost of entry for the mainstream. Currently, the “mass” are priced out of using Ethereum (hopefully ETH2 + L2s will address this) for a few reasons:
- Not understanding or appreciating the cost of using a highly secured and decentralized blockchain which does not justify the high cost they need to pay to use the blockchain
- Not having enough capital to use chains with high demand
Thankfully, there is great progress in L0s, L1s, and L2s working in tandem to address those issues and level the playing field for everyone.
What should the right mental model be for deciding which blockchain to pick over another? Is the blockchain trilemma model the only one to look at? There are different implications that you may run into when you compromise one aspect over another. At the same time, this is not completely binary. It is more like playing around with the levers based on your preference or requirements. How much speed does your application need? How much decentralization is enough? How much security is required?
Let’s go over some hypothetical scenarios with respect to the trilemma model:
- Your application does not benefit from the network effect of users that already exist in the blockchain. You are also concerned that you may experience network congestion issues during busy times even in scalable blockchains that could affect your app’s experience. It would make sense to launch your own blockchain on L0. This likely means you would first be prioritizing speed and security over decentralization.
- You are launching a DeFi application and your #1 priority is tapping into the blockchain with the most liquidity and the network effect of DeFi users. Fast transaction speed and low gas cost are nice-to-haves. It would make sense to launch your application on a blockchain with the most liquidity and many DeFi users. People would be most comfortable providing liquidity to the blockchain that is secure and decentralized.
- You would like to tap into a diverse set of user bases. It would make sense to launch your application on multiple chains with different sets of user bases. If the user base is the top priority, perhaps the trilemma model does not matter as much.
- You are launching a NFT game application and you care about fast transaction speed and low gas cost. It would make sense to launch your application on a highly scalable chain that offers low gas cost. This likely means you would be prioritizing speed over security and decentralization.
It does not always have to be systemic related. There could be one blockchain community that really aligns with your ethos and you are also aligned with their vision that they are chasing towards and you would like to be part of their journey. Or you may strongly care about developer experience, and the blockchain project that offers the best developer experience according to your criteria may be attractive to you.
In the end, multichain is a choice.
At Magic, we serve developers.
Magic is empowering developers with the tools needed to put them in the best position to succeed. This is why we are committing to supporting the multichain ecosystem.
We are here to support developers when they have made their choice.
Multichain opens up so many more possibilities and enables us to think bigger — mainstream adoption. Mainstream adoption starts with onboarding.
Magic started out in the world of Web3. We have been laser-focused on helping companies from gaming to NFT marketplaces to media, onboard millions of mainstream users to decentralized apps and platforms, like:
Currently we support 18 blockchains, with more coming in the pipeline.
If you’re interested in learning and discussing multichain in more depth, join us on the Magic Discord! If you’re a developer looking for plug and play auth and non-custodial key management, try Magic out for free.