Introduction

Blockchain technology has gained widespread popularity in recent times. It has made remarkable breakthroughs in different fields such as medicine, finance, and supply chain. However, cryptocurrency exchanges have emerged as one of the most popular applications of the technology.

The number of cryptocurrency exchanges has seen a considerable rise over the past two years owing to the growing recognition of digital currency as an investment option. That said, these exchanges are not without challenges. Cryptocurrency exchanges lack ease and efficiency when it comes to facilitating the trade of one cryptocurrency for another, from a different blockchain. The process of exchange depends on the obscurity of the token or currency to be traded.

Trading of certain coins may require you to use multiple exchanges before getting the token you are looking for. In addition to the trouble of having to access different exchanges, multiple transactions may also incur a high fee that adds up, following each transaction. The difficulties do not end there. By the time the transactions on multiple exchanges are completed, the prices of the traded coins can change significantly, owing to high volatility in their prices.

BankDex solves this dilemma with the help of a well-concocted cross-chain technology that enables multi-chain transactions without incurring a high cost or time. But before we go onto the details of BankDex’s cross-chain transactions, let’s have a look at the challenges of blockchain technology that BankDex is looking to conquer.

Addressing the inadequacies of Blockchain Technology

Blockchain is widely acknowledged as the technology that would maneuver the next-generation internet. Although they have made significant inroads in various sectors, they are yet to overcome some momentous difficulties that have constrained their growth in certain applications.

One such issue involves the inability to establish a direct trade of different cryptocurrencies with one another. The limitations can be attributed to the fact that all cryptocurrencies exist on its respective parent blockchain. They cannot be simply transferred across the chains unless they are compatible. Blockchain technology is also yet to overcome the hurdles of interoperability and scalability.

The constraints of interoperability

Despite its vows, Blockchain still faces many issues, such as interoperability, that have constrained it from realizing its complete potential. Interoperability refers to the inability of blockchains to share data or establish a communication with each other. In simpler words, it is difficult to trade BTC for ETH without having to rely on one or many third-party exchanges. This has severely limited the mainstream use of this technology.

Another major challenge faced by technology is scalability. The number of transactions that can be processed, even when it comes to the most advanced blockchain is very limited today; it is only about 10 to 15 seconds for Ethereum. With the increase in applications, the number of transactions that need to be processed will rise exponentially.

Cross Chain Transactions in BankDex

The BankDex decentralized exchange is built on a flexible architecture that embraces the best practices of blockchain technology. The different components work together to ensure a smooth, efficient and secure trading experience. The BankDex exchange core runs on the lightning network that formulates a star topology with a permanent kernel, dynamic domains and domain extensions.

The assets from Bitcoin, Ethereum, Cardano or any other blockchain flows through the kernel by the distributed gateways or domains of the lightning network. The exchange consists of 7 different blockchains that communicate with the BankDex core through communication protocols. The communication between the blockchains is established with the help of an interoperable blockchain router.

Sidechains and Inter blockchain communications

Sidechains are a contemporary mechanism that allows digital assets and tokens of one blockchain to be used on another blockchain securely and transferred back to the original blockchain if required. The tasks are distributed evenly on the side chain. This helps in improving the processing efficiency of the exchange.

The communication between blockchain, including those concerning the transfer of assets is conducted with the help of interoperable blockchain routers. The inter blockchain communication mainly involves the movement of tokens or cryptocurrencies from one blockchain to another. This communication between the blockchains is established on the light client version of Merkle proofs. In BankDex, the main net is connected with the sister chains and side chains, enabling transactions between the various blockchain networks on it.

The cross-chain technology applied in BankDex is a different and more improved version of the atomic swap technology used for inter-blockchain communication today.

Atomic Swaps and their distinction with Cross-chain technology

An atomic swap is a technique of conducting multichain cryptocurrency transfer without the risks normally associated with such transactions performed on exchanges. For example, the trade of BTC with ETH on a conventional digital currency exchange is conducted as two separate transactions. The trader sells the Bitcoin which the exchange buys while the trader buys the ETH as the exchange sells it.

The exchange incurs a high fee for this and is also in control of the trader’s fund throughout the process. Hence it is at risk of being attacked at all times. Atomic swaps conduct trade on a peer to peer basis on the principle of Hashed Timelock Contract (HTLC).

HTLC helps in the opening up of payment channels that transfer money to the parties before the agreed timeline. They are acknowledged by the submission of cryptographic proofs. However, HTLC can only be applied if the blockchains involved in the transaction, satisfies the following conditions.

· The blockchains involved in the transaction should follow the same hashing algorithm.

· The blockchains involved in the transaction should possess time-locked contracts; the contracts help to avoid double-spending.

· They should follow specialized programming functions.

The cross-chain technology applied in BankDex does not demand stipulations such as the ones mentioned above. The transfer of assets is conducted off-chain which exponentially decreases the transaction time while improving the processing efficiency. This helps BankDex in increasing the throughput (transactions per second) and effectively addresses the scalability concerns associated with blockchain technology.

Conclusion

Lack of interoperability and scalability are two of the most complex issues that are haunting blockchain exchanges today. With BankDex, we aim to provide a solution that would effectively address these issues while creating a secure and smooth trading experience for our traders.