How to Move Tokens Between Networks

Tokens can exist on several blockchains at the same time. Here’s how to move cryptocurrency from one network to another.

Many cryptocurrency tokens simultaneously reside on more than one blockchain. Sometimes, users want to migrate assets between chains to perform a transaction available only on specific chains. This article explains the process of moving crypto tokens between blockchains.

Key Takeaways:

• While a native coin originally exists on its own blockchain, wrapped versions enable it to be used on other blockchains.

• Actual cryptocurrency does not migrate from one chain to another without extra steps performed by the issuer.

• Holding assets outside of a native chain comes with certain challenges in which the user should be aware.

How to Move Tokens From a Native Chain: Bridges and Peer-to-Peer Swaps

To understand how migrating cryptocurrency between chains works, let’s look at a well-known example: Ethereum. ETH is the native coin of the Ethereum network, but it also exists on many other chains as a wrapped version.

How Centralised Crypto Bridges Work

Step one of migrating is to hand over the original ETH to a trusted party, which holds on to the native ETH and will facilitate the migration. The user gets a representation of that value within the third-party’s system. For example, when depositing 1 ETH into an exchange, the wallet balance will indicate 1 ETH — The platform has the ETH, while the user has a promise they can redeem the wallet balance for the same amount of ETH; but the user no longer has control over the ETH itself.

If the exchange supports more networks for ETH than just Ethereum, then it also automatically doubles as a bridge. The ETH balance can then be withdrawn to any supported chain of choice. For a beginner, this is the simplest way to move assets from one chain to another.

How Smart Contract Bridges Work

Another option to move a crypto asset from one chain to another is by using a decentralised version of a bridge. On one chain, an asset is sent to a bridge’s smart contract, which automatically sends the equivalent to the wallet on the other chain. In order for this to work, there needs to be sufficient liquidity on the service, which isn’t always a given.

A further option is to move between different blockchains via an ‘atomic swap’ — also known as atomic cross-chain trading — which is a peer-to-peer smart contract executed by two parties on two chains. Both parties interact with a smart contract on their end, agree to the transaction by signing it digitally, and then send their funds into the smart contract, which releases the funds to the other party, completing the transaction.

On Which Side of the Bridge Is the Crypto?

It is important to note that, despite the phrasing commonly used to describe bridging, in none of the above cases does cryptocurrency actually move out of one chain to another. Bridging is in fact a representation of who controls the cryptocurrency and on which chain. The migration is only from the perspective of the user, because the value they hold migrates from one chain to another. From a technical perspective, the assets on both chains remain intact. The only time token amounts on these chains are altered is if a token issuer burns tokens on one chain and issues new ones on another.

Moving Tokens: Reasons and Options

A common use case for a wrapped token is to move a wallet balance from one platform to another. Outside of transfers, a typical reason for moving balances between chains includes interest in action happening on another chain, be it attractive yield opportunities, NFT mints, or similar. But if assets aren’t already held on that chain, then they have to be migrated to get started.

Provided the network is supported by both platforms, when doing such a transfer, the user can pick the cheapest and fastest option, rather than being forced to use the native network, which may be slower or more expensive.

Popular Coins and Tokens That Can be Moved Between Chains

Wrapped Bitcoin

The original cryptocurrency Bitcoin (BTC) doubles as a very popular wrapped token. Its value is relatively stable compared to the altcoin market, as it holds a lot of liquidity. Due to this, many chains choose to incorporate their own versions of Bitcoin, which can then be utilised in various ways, such as trading and as collateral. 

Bitcoin is relatively expensive and very slow to move from one wallet to another in its native form, so the wrapped versions make an excellent vessel to quickly get Bitcoin from one place to another.

Wrapped ETH and Ethereum

Ether (ETH), the second-most popular cryptocurrency, is also extremely popular as a wrapped token because many of the chains it can be migrated to also function the same way as Ethereum, usually just with lower fees. The Ethereum chain itself is also the most popular destination for wrapped versions of the coins of other chains.

How to Migrate Stablecoins

Various stablecoins like USDT, USDC, and TUSD are also present on a number of chains. But unlike the wrapped versions of BTC and ETH, they can exist natively on multiple chains because they are tokens instead of coins: the issuer can choose to issue them in any of the chains they want to support. In addition to the officially supported chains, other chains can incorporate their versions of wrapped tokens; these are not directly redeemable from that chain, but can be moved back to a natively supported chain for redemption.

Challenges of Tokens on Non-Native Chains

It is worth knowing the relationship between a non-native and native asset: Who the non-native asset is issued by, and what the steps are for bridging back to the safety of the native chain. 

As with most token projects, the issuer of the wrapped token should be a party the user can trust. Looking into who the issuer is can help establish whether there is sufficient backing for redemption, and reassure the user that their native tokens will be kept safe while they proceed to use the wrapped version.

Bridges Disappearing

In terms of safety, for example, if there is only one bridge offering a non-native version of USDT on a hypothetical alternative chain that is not directly supported by Tether, and that bridge goes down, the USDT held in the alternative chain could potentially become worthless since it could no longer be bridged back or redeemed.

Bridge Hacks

One additional risk, for example, is if a bridge holding the native token is hacked, and the native tokens are stolen: Those who had used the bridge and are holding wrapped versions of the token may not be able to migrate those tokens back onto the native chain. When storing value long term, it is safer to do so on a natively supported chain, as it removes these points of failure that can render assets worthless.

Platform Limitations

Finally, certain platforms may only support Ethereum, and moving cryptocurrency to that platform without keeping this in mind could result in the loss of funds. Because of the risks associated with using wrapped tokens, it is best to be familiar with the concept of assets existing on multiple chains; always check if the chain is supported on the receiving end.

Final Words: Is Moving Tokens Across Chains a Good Idea?

Migrating is advantageous because a user’s assets can be utilised across multiple ecosystems. In certain circumstances, migration to a different blockchain can also allow for minimising transfer fees and making transfers faster than on the initial chain.

It’s essential to be aware that, with each step between the native chain and the chain on which the asset (or the user’s control thereof) resides, a potential point of failure exists that, in the worst case, could restrict a user’s ability to return to the point of origin. 

Due Diligence and Do Your Own Research

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