What’s Wormhole? Crypto cross-chain messaging explained
Jan 27, 2026・5 min read
Crypto has a communication problem. Under the current model, blockchains can only understand and execute commands within self-contained ecosystems. This inherently insular design works well within closed networks, but it limits liquidity and opportunities for users and developers. Without the ability to send data across chains (aka cross-chain interoperability), Web3 can’t reach its full potential.
Wormhole is one of the few proposed solutions to blockchain’s interoperability issues that has found real-world success. At the time of writing, this cross-chain protocol has processed over 1 billion messages across 30+ blockchains. Anyone interested in the future of blockchain technology needs to understand what Wormhole is in crypto and how it’s expanding Web3’s reach.
What’s Wormhole in crypto?
Wormhole is a decentralized protocol designed to seamlessly connect different crypto networks to send assets and messages across multiple blockchains. In 2020, the blockchain infrastructure company Certus One released Wormhole as a way to send digital assets between the Ethereum and Solana networks, but it continued to expand its services after Jump Crypto acquired the firm. Jump Crypto decided to make Wormhole a separate entity in 2023, and the protocol later announced a Wormhole airdrop claim for its W governance token.
Besides Ethereum and Solana, over 30 blockchains use Wormhole, including BNB Chain, Polygon, and Arbitrum. And programmers can access liquidity through Wormhole or send messages across multiple blockchains by creating multi-chain decentralized applications (dApps) or using the Wormhole software development kit (SDK).
How does Wormhole work?
Wormhole uses an elaborate off-chain verification procedure to send irrefutable proofs between different blockchains. At the core of this process is a group of 19 nodes called Guardians who observe Wormhole’s core contracts on supported blockchains. When the Guardians receive a multi-chain request, they review the data before signing and completing the transfer. Wormhole won’t process a message unless at least 13 Guardians sign it, creating a verifiable action approval (VAA).
Once the message is processed, relayers transfer the data to the destination chain, and the contract on this chain interprets the data in the VAA to initiate the action.
What’s the W token, and what’s it used for?
In 2024, Wormhole announced its protocol-specific W token and released details on a Wormhole airdrop checker for eligible community members. There ’s a total supply of 10 billion W tokens, but only 18% entered circulation on launch day. The other 82% is on a vesting schedule that gradually releases it into the market over four years.
If traders just want to use one of Wormhole’s services, they don’t need the W token. Instead, W serves a few security, governance, and incentives-related functions within Wormhole’s expanding ecosystem:
- Voting power: Anyone who holds W tokens has the right to participate in Wormhole’s MultiGov portal that connects multiple decentralized autonomous organizations (DAOs). In this model, users cast their votes for proposed upgrades to various aspects of Wormhole’s system with their tokens.
- Security and staking rewards: To incentivize participation, Wormhole offers a W staking rewards program (SRP). People who stake W have priority access to any new features or utility using the W token.
- Wormhole Reserve: In 2025, the Wormhole team announced a treasury composed of W tokens known as the Wormhole Reserve. By locking away W tokens and transferring revenue to users from Wormhole’s initiatives, project leaders hope the Reserve will contribute to future expansions and build long-term value for W holders.
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Is Wormhole safe? Security overview
Wormhole’s VAAs, off-chain Guardians, and strong connections in the crypto ecosystem make it a reputable interoperability protocol. However, in 2022, hackers successfully exploited Wormhole’s Solana-Ethereum bridge to create 120,000 wrapped Ethereum (wETH) on Solana without collateral. In response, Jump Crypto immediately sent the necessary ETH to affected users, and the Wormhole team patched the vulnerability. Since the 2022 hack, Wormhole has increased its security standards, adding regular third-party audits and a bug bounty program, among other features.
This hack wasn’t unique to Wormhole. Protocols for bridging crypto assets have a higher-than-average risk of exploits due to their novelty and the large volumes of crypto they handle. Even with strong support and a multi-layered security model, interoperability solutions carry inherent risks.
How to bridge assets using Wormhole
Transferring assets on Wormhole is virtually identical to using a decentralized finance (DeFi) portal.
First, users have to connect a compatible self-custodial wallet to a dApp that integrates with Wormhole. After linking a wallet, people choose the blockchain they’re sending from (the source chain) and their final destination chain, as well as the digital asset they want to transfer. This information goes to Wormhole’s Guardians and, provided two-thirds of these nodes approve, moves to the target blockchain.
Common Wormhole mistakes to avoid
Despite all of Wormhole’s security measures and integrations, users could lose their crypto if they aren’t careful. Here are the most common problems beginners see while using Wormhole:
- Using unofficial or scam interfaces: Malicious actors may use Wormhole’s name to create fake front-ends and steal crypto funds from unsuspecting users. Always verify the URL and research a DeFi project’s official documentation to ensure the Wormhole link is legitimate.
- Confusing wrapped tokens with native tokens: When users bridge cryptocurrencies across chains, they usually receive a “wrapped” representation of their original digital asset. Since these wrapped tokens follow different coding standards, they only work on a single crypto network, and trying to transfer the wrapped coins off their blockchain could result in lost funds.
- Sending assets to unsupported networks: Just because Wormhole works on 30+ networks doesn’t mean every chain can automatically connect. Always double-check the latest compatibility updates between specific cryptocurrencies and blockchains, and be aware that some centralized exchanges (CEXs) might not support Wormhole-bridged assets.
- Not accounting for gas fees across chains: Because transfers on Wormhole involve two blockchains, users are responsible for paying the transaction fees (aka gas fees) on both networks. If someone doesn’t have enough crypto to cover these costs, their transaction won’t go through.
Tax considerations for Wormhole transactions
At the time of writing, the IRS doesn’t have official tax guidelines for bridged cryptocurrencies on protocols like Wormhole. However, the most conservative reading of IRS tax policy suggests that transfers between native and wrapped cryptocurrencies are subject to capital gains tax if the original purchase price (aka cost basis) is lower than the cryptocurrency’s fair market value (FMV) at the time of the transaction. Since the IRS's official policies aren’t clear, crypto investors often record all their Wormhole transactions using software like CoinTracker for transparency in case rules change in the future.
In other situations, the tax implications of using Wormhole are better defined. Whenever someone receives crypto rewards through Wormhole staking or airdrops, these digital assets count as taxable income at their FMV at the time of receipt. If traders dispose of tokens they bridged through Wormhole to buy an item, such as a non-fungible token (NFT), or to swap for another cryptocurrency, these count as capital gains.
Taxpayers who held their digital assets for less than a year must pay short-term capital gains on their profits using their federal income bracket, while the IRS allows long-term capital gains for assets held for over one year.
Keep multi-chain transfers in one place on CoinTracker
Since there’s no clear guidance on how the IRS treats bridged assets on Wormhole, the safest approach is to keep a detailed list of all your DeFi-related activity. To simplify this task, CoinTracker links to many public wallets and thousands of smart contracts to record details across multiple blockchains.
Want a clear view of your assets at all times? With CoinTracker, link your wallets and exchanges to monitor your portfolio’s performance in real time. Create a free account and see why crypto investors trust us.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.