Published in · 8 min read · Apr 29, 2022
This is a question I still don’t have an answer to. Bitcoin, Ethereum, and some other cryptocurrencies use tokens to represent value in their respective networks. However, there are over 1,000 different blockchains with hundreds of tokens on each one. How do they exist simultaneously? This is the question I hope this article will answer.
A blockchain extends across multiple networks which allows it to remain unaffected when there’s a variation in the token of one network when compared to another network.
No. That’s not it. There’s a lot more to it. Many blockchains have their transactions and an internal currency, for example, NEO, Bitcoin Cash, and Ethereum Classic. These transactions are done in the same way an independent network would do things: transfer of tokens between accounts and balances within those accounts. For example, Bitcoin Cash has a distinct ledger of its own that keeps track of its token balances (WAVES). Therefore, when someone transacts with BCH they’re essentially transferring tokens that are in the BCH blockchain’s ledger system to another user with tokens in another blockchain (or vice versa if they’re both BCH users).
The only information that’s relevant between these blockchains is the balance and proof of ownership of the tokens. Cross blockchain transactions are done simply by keeping track of which chain someone has how many tokens in, and then sending the exact equivalent to another network. So for example, if I have 4 BTC, and someone has 1 wave in their address, I can send them 4 BCH and they receive 1BTC from me. However, if someone only has 0.1 BTC and I want to send them 1 ETH I need to convert my ETH into BCH somehow so that I can then transfer 1 BCH to them.
This gets a bit complicated, so I’ll start with the easy part: transfers between networks.
There are a lot of reasons you can’t do that, but for now, let’s assume it’s because of how those blockchains were built. So when you want to send Tokens A to someone who owns Tokens B (say 1 BTC in Bitcoin and 1 ETH in Ethereum) you need to convert your Tokens A into “Token A in network B”. For example, if we’re going to send 1 BTC from Bitcoin over to Ethereum we need some way of converting that BTC into ETH. If we’re sending 1 ETH from Ethereum to Bitcoin, then all we need is to send that Ethereum token balance over to the Bitcoin blockchain (which would be pretty easy).
If you have a large number of tokens then it gets complicated. For example, let’s say I have 10 million BCH Tokens and I want to send 1 BTC from Bitcoin over to Ethereum. The easiest way of doing this is to first use some kind of converter of which BCH can be exchanged into ETH or vice versa. Afterward, I would just convert my 1 BCH token balance which is worth (at the time of writing) USD 10 into 0.00009077 ETH tokens on the Ethereum blockchain.
Now onto the part, some people may not understand transactions between blocks within a blockchain network.
As we said before, transactions are simply proof of ownership, and transfers between independent networks require keeping track of balances in each network and knowing how much of what you own on one chain is equivalent to what you own on another chain. The problem lies in the fact that we’re talking about inter-ledger transactions. This means there’s no way to transfer value within a single blockchain ledger system. I’ll explain with an example:
Let’s say I own 1 BTC which is equivalent to USD 10 on the Bitcoin blockchain, but I want to send my 1 BTC to someone who owns WAVES tokens which are valued at USD 10. How do I transfer the ownership of those tokens? Well first off, there’s nothing that transfers ownership of tokens in my network over to someone else. The only way you can control a token on one network is by owning it in your account. So to give someone else my WAVES tokens I would need to send them my public key which allows them to then send their WAVES tokens to me. However, the only way for someone else to do this is by sending their own public key first… so now we have a huge problem.
The way that Bitcoin Cash solves this problem is by using addresses with built-in smart contracts that can allow any other address to send funds into an account by using a multi-signature address system. However, this is a problem for Ethereum which has integrated its system of smart contracts into its code. So now you have an address that can receive funds sent to it only by the owner of that address. And this is where we get into a messy situation…
So if 1 BTC was worth USD 10 on one network, but another network valued 1 BTC at USD 100, how can you transfer ownership from one to the other? Well, the only way would be by converting the value into BCH first and sending it to their BCH wallet.
Let’s look at another example: I use Ethereum to send my 1 ETH token balance over to an investor who wants 1 BTC. How would I send them 1 BTC if I only have 1 ETH? Well, the only way would be by converting my 1 ETH into that 1 BTC. And to do that, I would first need to make sure that my wallet under the Ethereum blockchain could create private keys for both Ethereum and Bitcoin addresses.
This continues to get more complicated, but hopefully, you can picture how this process works. For now, let’s just address the most common questions:
A token (or “tokenized asset”) allows access to certain features within an organization or network which aren’t available without it. For example, a token in the Bitcoin Cash network gives its owner the right to store data on the blockchain and utilize smart contracts. For another example, a token on Ethereum allows its owner to do anything an Ethereum account is allowed to do.
ICOs are a way for organizations within blockchain networks (such as a DAPP or DAO) to raise funds for development. An ICO is by far the easiest and best way for developers who are building these blockchain-based DAPPS or DAOs to raise capital. Tokens are a way to enable the holders of tokens to sell their tokens on exchanges. This is feasible for projects with substantial value because, as described above, you can use them to access certain features within a network. So as long as you have a token and you own it, then you can sell it.
For now, there’s no way (yet) to purchase tokens directly. We’ll probably see ICOs first followed by secondary sales later on down the road. You can read more about how we are planning to create an automated secondary market here: https://blog.wavesplatform.com/2017/12/07/waving-ico-2/
Yes! There will be a way to convert any token into any other token. You’ll also be able to purchase any other token in an exchange. We’ll be featuring Waves as the first decentralized exchange for tokenized assets in 2018. Waves DEX supports ERC20 and ERC721 tokens and will launch with ETH and Waves Tokens at launch.
That is an important question, so let’s address it here. When you die, all your tokens go with you. They’re sent to a special address that can only be accessed by your private key (just like how you can’t access funds in the account of someone who died unless you know their private key). The same thing applies to addresses, if the owner of an address dies, then all funds on that address become inaccessible. This was built into bitcoin as a way to prevent theft and fraud.
There are ways of causing someone else to own your account/tokens when you die (such as 1-of-2 multisig) and there is also a concept called “eternal storage”, which is currently being developed. The goal of eternal storage is to be able to store a person’s account/tokens in their will so that they don’t have to worry about it at all. That way, if you leave it in your will for all of your loved ones, then they can access the funds you’ve left them at your death. We think this is a neat idea and we’re super excited to get it up and running!
Well, let’s say there was an investor who wanted 1 BTC worth of tokens. So he would go to an exchange, send his tokens to that exchange, and then buy his 1 BTC of tokens. Now once he has 1 BTC worth of tokens, he needs a way to send them back onto the WAVES network. As we’ve discussed before, this is done by converting the tokens on an Ethereum-based network into BCH and sending those back over to WAVES. However, there’s a problem now…
You see, BCH was created as a hard fork of Bitcoin in response to the scaling debate. So it has its blockchain and its network. And on the BCH network, your public key acts as your address, and you don’t have a smart contract system like Ethereum. So what happens when we try to send his 1 BTC worth of tokens back onto the WAVES network? Well, let’s just say it requires a lot of transactions…
And this is where multi-signature comes in. So if this investor wanted to get these tokens back over to WAVES, he would need a way to do it without having to sign off on every transaction with his entire account balance. He would need a way to split his account up so that he could send some tokens back without having to send them all.
This is where multi-signature comes in. This functionality has been built into Waves since the very beginning and allows you to configure an address with multiple signatures (also known as a multi-sig address). So if someone wanted to get their tokens back onto WAVES, they could create a multi-sig address with five signatures (1 signature = 1 key) and then use 5 different addresses on that chain as signatories.
Now, this is just an example. In reality, they would probably use 2 or 3 addresses instead of 5. But the point remains that the address is designed to follow a specific configuration that splits up its private keys so that you can only access the funds in it with multiple signatures. It’s a way to create an escrow system without having to have anyone else trust you. It isn’t easy, but it’s possible!
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