The crypto industry was recently hit by a large-scale hacking incident causing around $330 million in damage. The incident happened through Wormhole Bridge, a protocol that connects different blockchains, and is the fourth-biggest crypto hacking event.
Such a large-scale incident occurring on the bridge protocol has lent strength to the argument that blockchains such as Ethereum and Solana should exist separately and has spurred debate between multi-chain and cross-chain camps.
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A major blow for ‘cross-chain leader’ Bridge
On February 2nd, 120,000 Wormhole Ethereum (WeETH) worth over $320 million were stolen from Wormhole, a cross-chain project connecting the Ethereum and Solana blockchains.
Wormhole connects different blockchain assets and acts as a bridge for moving them. In a nutshell, Wormhole supports the movement of assets by locking up funds in one blockchain and then minting (newly issuing) tokens in another blockchain. In other words, the ETH in blockchain A is held as collateral and equivalent assets are issued in WeETH on blockchain B.
In the recent hack, the attacker broke the connection (pegging) structure of WeETH by exploiting a vulnerability in the Solana part of the Wormhole bridge. Using just a small volume of ETH as collateral, the attacker created 120,000 WeETH, which was then pulled out by exchanging it into Solana, USDC, and other cryptocurrencies.
Quantitative crypto trading firm Jump Trading responded by announcing that it would compensate for the loss with its own funds. The Chicago-based global quant trading company acquired Certus One, the Wormhole developer, in August 2021. Via its specialist cryptocurrency subsidiary Jump Crypto, Jump Trading announced “@JumpCryptoHQ believes in a multichain future and that @WormholeCrypto is essential infrastructure. That’s why we replaced 120k ETH to make community members whole and support Wormhole now as it continues to develop”.
Wormhole incident boon to multi-chain
The fact that the Wormhole incident was caused by a cross-chain vulnerability has reignited a debate between multi-chain and cross-chain supporters.
Multi-chain refers to a system where layer 1 blockchains such as Ethereum (EHT), Solana (SOL, Terra and Binance Chain exist in parallel. Supporters of this system argue that because cross-chains such as Wormhole have many security vulnerabilities, each blockchain and related layer 2 solution should exist independently. They point out that when bridges such as Wormhole lock up assets as collateral, the chain nodes read the bridge data rather than the block data stored on the blockchain. This results in a significant technical risk of funds being stolen.
Multi-chain supporters further criticize that while the cross-chain structure offers the advantage of interoperability by connecting blockchains, it leads to greater damage in the event of hacks or other incidents. This is because if the bridge is hacked, damage can occur not only on blockchain A, but also blockchain B, C or any other connected blockchain. In the worst case, the value of all connected blockchain tokens could be at risk of collapsing. Advocates argue that multi-chains are relatively safe because all transactions are checked in one data availability layer. There is no need for a bridge, which means there is no risk of hacking the bridge data, and since there is also no need for collateral, there is no pegging risk.
When the Wormhole incident occurred, the community also again talked about remarks made on January 7th by Ethereum founder Vitalik Buterin. Buterin had pointed out that in the case of a 51% attack in the multi-chain system, the remaining participants running the node can contain the attacked block, but in a bridge-based cross-chain system, manipulation is possible even by only attacking the transaction vulnerability.
A 51% attack refers to a hacking attack that attempts to steal funds by manipulating transaction information after securing more than 50% of the hashing power of all blockchain nodes. Writing in support of the multi-chain system, Buterin notes: “It’s always safer to hold Ethereum-native assets on Ethereum or Solana-native assets on Solana than it is to hold Ethereum-native assets on Solana or Solana-native assets on Ethereum”.
Cross-chain supporters: “Multi-chain needs us too”
Unlike the multi-chain system, cross-chain aims to interconnect each chain based on a bridge that connects different layer 1 chains. Blockchain bridges like Wormhole, where the hacking incident happened, were a major infrastructure project supporting the cross-chain ecosystem by locking up assets through smart contracts while issuing ‘wrapped’ assets in parallel on another chain.
Known for expanding interoperability between different blockchains and expanding the blockchain industry pie, cross-chain has been a major trend in the industry until recently. As numerous bridge solutions emerged, including HopProtocol, Connext – which connects chains based on Ethereum Virtual Machine (EVM), Wormhole and Biconomy, there had been a strong market opinion that this would be the year for the cross-chain ecosystem to take off in earnest. However, the Wormhole hacking incident has now intensified the debate between the multi-chain and cross-chain camps.
Erik Ashdown, head of ecosystem growth at Covalent holds that cross-chain is needed to support the creation of a multi-chain system. Ashdown concedes that bridging technology faces limitations but argues that one should consider that cross-chain is still at an early stage, and that the cross-chain ecosystem is essential to the multi-chain-centered future in which Web3 is heading. “To say that the future is multi-chain but not cross-chain might be true for the Web3 space today, but not in the next few years or even months”, Ashdown said, adding that “just like the humble aeroplane, bridges will be what makes the world of blockchains feel all the more expansive and accessible for users and developers”.