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I am very new to cryptos and trying to understand how transferring of a coin from one blockchain network to another works.

For example, let's say that:

  • The Bitcoin blockchain has X coins in circulation
  • The Ethereum blockchain has Y coins in circulation

Now a user transfers P number of coins from the Bitcoin blockchain to the Ethereum blockchain which equates to Q number of coins in the Ethereum blockchain.

As each coin is native to the blockchain, what happens under the hood for such a transfer? Do both still have same X and Y number of coins but

  • the value of each coin in the Bitcoin blockchain decreases and
  • the value of each coin in the Ethereum blockchain increases?
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    It's not clear which of two very different things you're talking about. Are you talking about converting bitcoin on the bitcoin blockchain to bitcoin on the ethereum blockchain (or vice-versa)? Or are you talking about converting bitcoin on the bitcoin blockchain to ethereum on the ethereum blockchain? You say "X coins", but the term "coins" is ambiguous and can refer to bitcoin or ethereum. (This gets confusing because we use the same words for both coins and blockchains, but they are different things.) May 30, 2022 at 6:29

6 Answers 6

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Your confusion comes from the fact that the term "transfer" is a misnomer. You are correct, movement cannot be made between the chains.

What is actually happening is that one is being sold and the other purchased. The exact mechanics will depend on how the intermediary is handling the trade. For example, there may or may not be a counterparty or counterparties seeking the opposite trade. The number of Etherium coins would depend on the value after the sale of the Bitcoin.

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    I'm sure Mr Ponzi and his pals had a way of dealing with this sort of thing. May 30, 2022 at 11:12
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    @MichaelHarvey that was not part of the question. I bit my tongue and asked the question that was asked. May 30, 2022 at 20:34
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    Yes, I thought so. May 30, 2022 at 20:52
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    A simple example would be (ignoring exchange rates etc.): Adam has 5 ETH and Bob has 5 BTC. Bob wants some ETH, so he purchases one from Adam for one BTC. At the end of this transaction, Adam owns 4 ETH and one BTC, and Bob owns 4 BTC and one ETH. Neither coin "jumps" chains. May 31, 2022 at 15:42
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A coin can't change from Bitcoin to Ethereum, any more than a share of one company can turn into a share of another (absent a merger). If you want to move your money from one to the other, you'd have to sell your Bitcoin and use the money you get to buy Ethereum. Those would be two separate transactions (at least; often buying and selling crypto involves intermediate steps). Selling Bitcoin would reduce the market price slightly, and buying Ethereum would increase its price.

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  • Technically, you can buy ETH using BTC (or vice versa), just like you could use ETH or BTC to buy something else, you don't necessarily have to convert to say dollars to effectuate the trade. Though, the fact that most people would make some sort of conversion to non-crypto currency to effectuate a trade is telling as to whether crypto assets should be considered "currency".
    – Ryan
    May 31, 2022 at 18:11
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Most chains do not support transferring coins from one chain to another, at least not natively.

Some chains (such as Ethereum) support smart contracts, which in this context, it makes most sense to think of as "plugins" for the code powering the chain, that add extra capabilities and extra rules. On chains that support smart contracts, it's possible to created "wrapped" versions of coins from other chains, where a "guest" coin from a guest chain is held in trust by an intermediary on that guest chain, and you can move the wrapped version around on the "host" (smart contract) chain. The intermediary who is holding the asset on the guest chain will allow anyone holding the wrapped asset to "unwrap" it on the guest chain, and get the coins held there back.

If the "guest" chain also supports smart contracts, it's possible that the intermediary is also a smart contract, and you may get some assurances that they can't run away with the coins that are held in trust, because the code doesn't allow them to (although bugs in code do happen, and have lead to these intermediaries being compromised and drained in some instances). If the guest chain doesn't support smart contracts (which Bitcoin doesn't), then the intermediary needs to be someone you trust, because the safeguards that prevent them simply taking the coins they hold in trust are much weaker.

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  • "If the guest chain doesn't support smart contracts (which Bitcoin doesn't), then the intermediary needs to be someone you trust" Bisq allows trustless exchange between bitcoin and other crypto. The rest of your answer is good.
    – User65535
    May 30, 2022 at 22:20
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    Doesn't look very trustless to me. Put your security deposit into an escrow account, and if the trade doesn't go well then the way to get your money back is arbitration? Great, if you trust the arbiters...
    – amalloy
    May 31, 2022 at 9:13
  • @User65535 there is a distinction between trustless exchange and trustless wrapping. Trustless exchange only needs something equivalent to HTLC, which Bitcoin does have, and Bisq uses. Wrapping requires much more sophisticated intrastructure.
    – James_pic
    Jun 1, 2022 at 9:07
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There's two different scenarios; You can either be using an exchange or you can interact directly with your personal wallet.

I will explain the case where you interact with your personal wallets first. The way it works is that you need a "bridge". These "bridges" are webpages which connect with your personal wallet once you give them permission. Once given permission, you transfer assets from your wallet to an address that is given. Then they either ask for a new address where you receive the other chain funds, or you can use the same (in case it's compatible). Once the funds are transferred from your wallet to the bridge destination, then the entity behind the bridge send the "new" assets that you are going to receive in the specific wallet you specified.

The tokens aren't leaving their chains, nor they are burned or minted, they are just transferred between addresses.

In the case of an exchange, it's a similar process, but all internal. The internal software of the exchange is the one rebalancing the balances between the token pools, there isn't any external transfer because it's all internal and close doors.

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For a real decentralized transfer of coin C to be possible, you need:

  • two layer 1 blockchains such as Ethereum and Solana
  • a smart contract on the first blockchain which accepts deposits of coin C
  • a smart contract on the first blockchain which supports withdrawals of coin C
  • a way for these two smart contracts to communicate

The way it works is that you deposit some amount of coin C on network 1, which will then allow you to withdraw the same amount on network 2 (minus any applicable fees). The deposited crypto is held in a smart contract (which itself is/has a wallet & balance).

It is a little like depositing 100 USD in cash in one bank and taking it out through the ATM of another bank - your cash doesn't really travel, you don't really get the same bank notes, but your bank sends 100 USD to the ATM bank so the sums are equal to zero (again, not including any fees).

There are web3 applications for doing this sort of thing and they are usually called bridges. Bridging is usually done with stablecoins such as USDC, with Ethereum if you want to move it to a cheaper network, or with the father of crypto, which is Bitcoin.

The Ethereum foundation has an information page describing this basic principle, its risks, and further reading:

https://ethereum.org/en/bridges/

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  • So.... you're still using an intermediate currency, just as the other answers described. So, not a transfer.
    – littleadv
    May 30, 2022 at 18:25
  • @littleadv ?????
    – user253751
    May 31, 2022 at 17:21
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In the ETH bridges for example ETH-Polygon, what they do Is they mint an equivalent token on the other chain "side of the bridge" and lock in the actual side using smart contracts on both sides. Usually the backend that does this is higly centralized thats why is are vulnerable.. If you use two EVM blockchains you keep your same seed phrase and keys and they work in the same way in both blockchains.

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