What is ThorChain Crypto?

ThorChain is an up-and-coming cryptocurrency that allows people to exchange crypto across different blockchains. In this guide, we’ll go over:

• What is ThorChain and how does it work
• The main benefits and drawbacks of ThorChain
• Should you invest in ThorChain

How does ThorChain work?

One of the main issues with cryptocurrencies is that they exist on different blockchains (see “What is a Blockchain?”). In order to swap from one cryptocurrency to another, you usually have to go to a crypto exchange. 

In general, crypto exchanges do a good job of swapping your crypto from one type to another. But, there are some drawbacks.

One drawback is that the crypto exchange will charge you a fee for swapping your currency. Another drawback is that sometimes the crypto exchange will make you convert your crypto currency back to U.S. dollars in order to make the swap, charging you double fees.

For example, this could look something like this:

Another drawback is that crypto exchanges usually make you share your personal data in order to create an account.

ThorChain tries to solve these problems.

The main benefit of ThorChain is that it can swap one cryptocurrency for another instantly and completely autonomously.

This means that it charges much smaller fees for doing so and you also aren’t trusting your funds to a centrally controlled exchange.

To make these swaps possible, ThorChain uses what’s called a “proof-of-bond” system.

What is proof-of-bond?

Proof-of-bond functions similar to an escrow account. If you’re not familiar with escrow, it works like this:

1. Person #1 wants to trade assets with Person #2
2. To make sure neither person runs off with the other’s money, they give the assets to a trusted independent party: person #3.
3. Once person #3 gets both assets, they then make the swap for both person #1 and #2.

This ensures that no one can run off with the other person’s stuff.

ThorChain makes cryptocurrency swaps in a similar way.

It does this using its own coin called “RUNE” and independent operators called “Nodes.”

Let’s look at an example:

Let’s say that you want to trade 3 Solana tokens for someone else’s 3 Avalanche tokens.

Both you and the other person will give your tokens to an independent operator (a “Node”) on ThorChain.

To make sure that the Node won’t just run off with both of your money, they are required to deposit 2x the amount you’re giving them into a vault.

This looks something like this:

Once the Node receives your 3 Solana and the other person’s 3 Avalanche, they’ll swap them and make the trade for you.

After they’ve successfully made the trade, the ThorChain platform will reward the Node with some extra Rune.

To add even more security into the system, every few weeks ThorChain changes which people are given the role of Node. This prevents any one group from having too much control on the platform. 

Who created ThorChain?

The precursor to ThorChain was a crypto project called Shapeshift. Shapeshift was created by cryptocurrency investor Erik Voorhees. 

In a 2016 interview with CryptoCrooks, Voorhees explained, “I wanted to create a way to instantly convert any blockchain asset into any other. I realized the industry needed such a tool, so I set about building it.” 

At the time, Shapeshift was one of the few apps that allowed people to swap cryptocurrencies from separate blockchains without having to enter their personally identifiable information. Unfortunately, in 2016 Shapeshift was hacked three times and its name never recovered to the prominence it once had. 

In 2021, Erik and team relaunched a beta of their initial idea and called it ThorChain.

The ThorChain Community

Since its launch, ThorChain has become a very active community with several Discords, community events, and developer projects. Some notable projects include:

Thorstarter

Thorstarter is a launchpad for people who want to create things on the ThorChain platform. It’s goal is to fund and incentivize the production of projects that use ThorChain and enable the growth of functions on the platform.

ThorSwap

Thorswap launched a token using Thorstarter on November 1, 2021. Thorswap allows you to “stake” (deposit) your Rune tokens on the exchange to earn interest on your crypto. It will also eventually allow Rune holders to vote and determine the future of ThorSwap. 

ThorGuards NFT

Thorguards are an NFT project which plans to contribute to the ThorChain platform. They plan on offering their NFT holders perks on the ThorChain platform although nothing has been integrated yet. 

ThorWallet

Thorwallet is a mobile first wallet that will allow you to do swaps, stake, and contribute to liquidity pools. They also plan on integrating with ThorYield and ThorSwap to become a multi-chain wallet. ThorWallet competes directly with other multi-chain compatible wallets such as XDeFi.

Should you invest in ThorChain?

ThorChain has many promising features that it brings to the cryptocurrency ecosystem. Among them are:

Cross-Chain Swaps – ThorChain allows you to swap your crypto from one token to another completely autonomously.

Cross-Chain Interest – ThorChain allows you to earn interest on your crypto regardless of what kind of crypto you hold. This allows interest to accrue natively and in real time.

No Know-Your-Customer (KYC) – ThorChain does not require you to share your personally identifiable information to use it. 

Universal availability – ThorChain is permissionless and available for use in every country in the world (unlike many exchanges).

Impermanent Loss – ThorChain allows your impermanent loss to be paid back in RUNE.

All these features make ThorChain a very promising cryptocurrency. But, it should be noted that ThorChain is still in its Beta phase and has some bugs.

ThorChain was unfortunately hacked again in 2021. One of the hackers even left a note on ThorChain saying, “do not rush code that controls 9 figures [in funds].” 

Fortunately, no one sustained any losses because ThorChain paid for the stolen funds themselves. 

This did help ThorChain realize that they need to slow down their development a little bit and focus on stability, rather than rushing to integrate new features. Since then, ThorChain has started doing more audits and debugging to prevent future attacks.

So, should you invest in ThorChain?

It really depends on the level of risk you’re comfortable with. ThorChain is still very new, which means it may have bugs, hacks, and other things that hamper it’s growth. But, if it can overcome those growing pains, it could have a huge potential upside.

Cryptocurrency enthusiasts insist that cross-chain compatibility will be a tremendously influential movement in cryptocurrency for 2022. In the last year alone, Thorswap, powered by ThorChain, has witnessed a staggering growth from lower than $10 million LTV to a total value locked in of $369+ million.

If you decide you do want to invest in ThorChain, you can find a good crypto exchange to start investing using my guide here:

👉 The 5 Best Crypto Exchanges I Use and Recommend

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This article was co-authored by our friends at CryptoCrooks, a blog that helps people new to cryptocurrencies learn about crypto and avoid crypto scams. Follow them on Twitter @cryptocrooks