What's the Deal With Chain Signatures?
If you've noticed the phrase “chain signatures” appearing in crypto Twitter and tech media lately, you're not alone. This cryptographic technology is enjoying its moment to shine as a number of web3 projects advance ways to utilize chain signatures to enhance blockchain security, scalability, and efficiency.
It's not unusual for emerging blockchain technologies to claim to solve these core challenges, but the promise doesn’t always live up to the reality. So what about chain signatures then: can they really solve such overarching problems as blockchain scalability and security? Is the hype justified in this instance? Let's take a closer look.
The Case for Chain Signatures
Chain signatures are a type of cryptographic technology that allows smart contracts to do much more than they currently can. Essentially, they extend the capabilities of smart contracts by allowing them to execute commands based on actions that occur on other blockchains, or even off-chain altogether.
This might sound like a fairly conventional interoperability improvement that's primarily of interest to blockchain developers and blockchain devs only. But this tech actually has much broader implications for end users and for the entire digital economy – not just web3.
As Petr Volnov notes, using chain signatures, “a message can be processed anywhere — on another blockchain or even in your banking app. The recipient can verify that the message was created by the smart contract. So if it says “Bob deposited 1,000 USDC,” you can trust that he really did.”
In other words, using chain signatures it's possible to code a smart contract that will release funds on one network based upon a wallet on a different network receiving funds. This is very useful because at the moment it's quite difficult for developers to create smart contracts that can react to anything beyond events that occur on their own chain.
Okay, so it’s possible to create trading dapps that draw pricing data from off-chain oracles. But in situations where you need to be able to execute commands with a high degree of certainty in the integrity of the data, chain signatures come into their own.
What Else Can Be Done With Chain Sigs?
There's more to chain signatures than just delivering more powerful smart contracts. Chain signatures are also very useful in developing more efficient and sophisticated multisig transactions. Multi-signature or multisig is increasingly used across the blockchain landscape for approving transactions, including releasing payroll to employees, processing exchange withdrawals, and cold storage.
And while highly secure, multisig entails greater complexity than a conventional onchain transaction and thus is costlier to execute because it’s more computationally intensive. Chain signatures have the ability to make this process much more efficient, reducing blockchain data usage and lowering fees.
Over the next few months, you're going to be hearing a lot about chain signatures in the context of such use cases as MPC wallets – that’s multi-party computation. This technology is used in a variety of ways when it comes to web3 wallet design. For example, MPC makes it possible to do away with mnemonic seed phrases, which simplifies user onboarding.
But when you introduce chain signatures to MPC wallets, it becomes possible for a wallet on one chain to sign a transaction on a different blockchain. Essentially, this means that one wallet can be used to interact with multiple blockchains in a highly efficient manner without users being priced out due to the cost of gas on Ethereum, for example.
You’re also going to see chain signatures being used for omni-tokens – a single token that exists on multiple blockchains. For instance, there is one Ethereum blockchain, but there are many EVM and non-EVM chains where you can trade ETH. Using chain signatures, it's possible for a smart contract on Optimism, for example, to execute when a wallet on an entirely different network, such as Solana, receives ETH.
A Cornerstone of Cryptographic Innovation
There’s a lot more in store for chain signatures, which can also be used to create more sophisticated cryptographic protocols including advanced consensus algorithms. The best way to think of them is as a cornerstone for broader innovation; a building block for greater web3 experiences.
Using chain signatures allows developers to do more with data, do more with decentralized applications, and do it all much more efficiently and at a lower cost. This results in a better user experience while ensuring that Layer 1 and Layer 2 blockchains don't become congested.
Much of the time, you won’t even be aware that they’re there, streamlining your onchain experience and driving down the cost of dapp interactions. And that’s the sign of a good technology that’s working as it should: invisible, ubiquitous, and indispensable.
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