Interoperability on the blockchain

Published On: July 16th, 2021

 

It has been more than 10 years since the first blockchain network was introduced to the world. From that moment until today, the technology around decentralization has evolved and now there are thousands of networks with new projects emerging within the ecosystem at every moment and with diverse functionalities. The market capitalization of the entire cryptocurrency market already exceeds two trillion dollars and according to some estimates, the market size of the blockchain industry will reach more than 69 billion dollars in the next six years. Interoperability on the blockchain

There are more than 11 thousand active blockchain projects on GitHub. Each has its own protocols, algorithms, consensus models and communities. The absence of any standard may be good for developers, but this situation may not be so good when it comes to different blockchains interacting with each other. Blockchain networks operate in isolated ecosystems, as they solve a specific and unique set of needs, representing a limit to their real expansion. A blockchain has no knowledge of the information that might exist in a different blockchain (e.g. a public blockchain operates independently of a private or permissioned blockchain and cannot exchange data in real time). In other words, blockchain-based projects are isolated from each other. Having a multitude of blockchains is beneficial, as each can serve different purposes. But it is even better that these ecosystems can connect with each other and exchange assets. Thus, solutions must be sought to improve interoperability on the blockchain, allowing different chains to communicate with each other effectively and securely. 

 

What is interoperability in the blockchain? 

Interoperability is the ability of a blockchain to view and share information with other blockchains seamlessly and smoothly. This allows systems to communicate with each other, without the help of intermediaries, and work together to provide a complete service. 

There are numerous blockchains that focus on improving their intrinsic characteristics to achieve greater scalability (large-scale transaction capacity) and greater security (data protection). But all this becomes meaningless if interoperability between blockchains is not possible, as communication between different blockchains is very important for mass adoption of the entire network. Without interoperability, adoption will be completely limited and restricted. 

 

Why is interoperability on the blockchain scalaimportant? 

As we discussed above, the success of blockchain technology will come down to how different blockchain networks can interact and integrate. Interoperability is essentially the ability to view and access information across multiple blockchain systems. A person should be able to send data from one blockchain to another, the recipient should be able to read it, understand it and react with a few intermediate steps. This is not possible at the moment; it is not possible to share information between – for example – Bitcoin and Ethereum blockchains.

Cross-chain technology seeks to resolve this conflict by improving interoperability between blockchains. Emerging projects are creating platforms that can communicate with each other without the need for a third party. Blockchain interoperability should do much to get rid of intermediaries or third parties, this being one of the main characteristics of centralized systems. The ability of different decentralized networks to communicate with each other without any intermediary should result in fully decentralized systems. 

Individuals should be able to make payments across multiple blockchains. Therefore, a fully interoperable blockchain network should be the core of the digital economy in the future.

Blockchain interoperability should also lead to multiple token transactions, across multiple wallets. This development will allow users to rely on a single wallet system for storing and transferring tokens with ease across multiple blockchains.

 

What is cross-chain technology? 

Cross-chain technology could be the ultimate solution to improve interoperability between blockchains. It is an emerging technology that seeks to enable the transmission of value and information between different protocols. The inability of different blockchains to communicate with each other has made it impossible for people to enjoy the full benefits of blockchain technology. Cross-chain technology seeks to solve all these problems by enabling interoperability between blockchains, which facilitates communication between them and the exchange of information.

 

What are the challenges to overcome to achieve interoperability? 

For the ability to share data between blockchains to be viable, some technological challenges must be overcome:

  • Creation of data standards that allow the integration of different networks
  • Data privacy and security: each network has data security and privacy standards that are particular and independent from the rest, depending on the purpose for which it has been created and the objective it must fulfill. Thus, meeting data privacy needs while allowing networks to operate with each other is vital
  • Smart contracts: terms and conditions must be unified in order to operate jointly

 

Compatibility of cross-chain blockchains 

The cross-chain protocol ensures interoperability between blockchains, thus enabling the exchange of securities as well as information between various networks. Fulfilled with the benefits of decentralized public blockchains, such protocols should lay the groundwork for mass network adoption and use. 

In a business ecosystem, companies will no longer have to deal only with customers on the network on which the business is based: companies will be able to transact with customers on other compatible blockchains. The whole process will be carried out in a short time and without high transaction costs. Compatibility between blockchains will provide networks with an efficient means of transmitting value. 

 

Conclusions 

Interconnecting existing blockchains, which have their own protocols and features, is not an easy task. According to ConsenSys research, “commercialization promotes competition and innovation, incentivizing developers and entrepreneurs to build systems that work better for their customers.” As a result, open source interoperability is overlooked. 

However, several projects are focusing on interoperability across different systems: Polkadot, Cosmos, Chainlink, Wanchain, Harmony. It is important to keep in mind that the crypto ecosystem is still relatively new, and most startups are in the early stages of their roadmap. We will have to wait to see what new possibilities and opportunities may arise from such initiatives and others we have yet to see. 

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