The basic technology behind cryptocurrencies like Bitcoin blockchains is now acknowledged as a potentially transformative technology in various areas, including supply chain tracking and healthcare. Numerous research and development activities have been in the culmination of massive interest in blockchain technology.
As a result, the blockchain sector is highly fragmented, and clients can select from various incompatible technology. But because interoperability across different blockchains is often not expected in existing protocols and standards, specific functionality, such as sending tokens from one participant to another and carrying out smart contracts, can only be carried out within a single blockchain.
When discussing blockchains, interoperability refers to a blockchain’s ability to exchange data with other blockchains easily. For instance, every item possessed and every transaction made are recorded on a specific blockchain. With the correct interoperability solution, we can represent any economic activity on one blockchain. It suggests that one of the fundamental characteristics of blockchain interoperability solutions—the potential for economic activity from one chain to extend to another chain—can be achieved.
One of the initial contributions to blockchain interoperability was the idea of a trustless cryptocurrency exchange, which is achieved through atomic cross-chain swaps or, better still, atomic swaps. Users of multiple cryptocurrencies can trade via atomic swaps.
However, atomic swaps don’t allow the transfer of a token from one blockchain to another because of the destruction of a certain quantity of assets on the source blockchain, and the same amount is (re)created on the destination blockchain.
Atomic swaps, as the name suggests, allow for token exchanges rather than transfers across blockchain boundaries. It indicates that a business ready to transfer tokens is a requirement for atomic swaps at all times. Online markets offer a back door for trading tokens. However, up until now, to do this has necessitated the establishment of a trustworthy, centralised entity, which runs counter to blockchain’s decentralised nature. Cross-chain technology is now widely regarded as the most effective means of enhancing interoperability between blockchains.
What Is Cross-Chain Technology?
Interoperability is simply the ability of a distributed ledger technology (DLT) model to obtain data from an exchange using external systems. Cross-chain technology enables data exchange between DLT models or external systems to achieve interoperability. Such data exchanges can increase the DLT model’s security, increase its flexibility, and fix performance issues.
For instance, sharding can solve problems with low throughput and inadequate scalability. Sharding allows for parallel transaction processing to increase performance and scalability by breaking a distributed ledger into distinct pieces that we can handle independently.
The potential applications of cross-chain technology include asset transfers, cross-chain oracles, and cross-chain smart contracts. There is a transfer of assets from one distributed ledger to another.
How Does Blockchain Interoperability Work?
The cross-chain protocol simplifies interoperability between distinct blockchain networks and allows data sharing across numerous blockchain networks. The cross-chain protocol enables direct user-to-user communication. As a result, blockchains with similar networks can trade information and value.
It differs from network to network, nevertheless, as no one predetermined approach can be applied uniformly across all networks. Each network has a different approach to blockchain interoperability to enable transactions without third-party interfaces.
Atomic swaps enable cross-blockchain token exchanges between two parties. Blockchain networks can also keep an eye on what’s going on on other chains owing to relays. They work chain-to-chain, allowing a single contract to act as the central client for numerous other nodes over multiple chains without the need for distributed nodes. It enables it to validate particular primary headers and the entire transaction history immediately. However, the relay approach’s security requires a lot of money to operate and maintain.
Why Is Blockchain Interoperability Important?
Blockchain interoperability helps to solve the problem of assets and data interacting across multiple chains. Digital data and value exchange is a simple process when two parties use the same blockchain platform, as it is with Bitcoin. The same, however, is not feasible if the parties are utilising distinct blockchain systems.
The fact that businesses adopting blockchain technology around the world operate inside a variety of blockchain networks makes the data transfer procedure substantially more challenging. In anticipation, interoperability will significantly lessen these problems, making it more straightforward for participants to transact across blockchains and profit from blockchain interoperability.
Techniques Of Blockchain Interoperability
1. Notary Schemes
This system depends on a third-party notary for transactions. A responsible third party, known as a notary, manages the lack of trust between the two parties to the trade. The notary could be a controlled exchange or a network of businesses. The single element influencing a notary scheme’s effectiveness is the notary’s integrity.
Another problem with the plan is that, despite being decentralised by a group of notaries, it still has a centralised component. Notary schemes include centralised cryptocurrency exchanges like Coinbase and Binance.
2. Blockchain Routers
Multiple blockchain networks can communicate with one another thanks to blockchain routers. According to the design of the blockchain router, many blockchain networks, such as Bitcoin, Ethereum, and others, are seen as terminal components known as sub-chains in the routing network.
Sub-chains cannot directly communicate with one another; we can only use a blockchain router for this purpose. A cross-chain communication protocol, for instance, is used by the blockchain router to allow communication between sub-chains.
3. Oracles
In the context of blockchain technology, oracles close the informational gap between on-chain and off-chain contexts. Decentralised oracle services like Chainlink ensure that off-chain data links blockchain-enabled smart contracts by guaranteeing that diverse ecosystems are referring to a single source of truth.
4. Sidechains
Two active blockchains can communicate with one another using a sidechain. In sidechains, the mainchain and sidechain are two distinct blockchains. The mainchain and sidechain connect via a cross-chain communication protocol, and each maintains a list of assets.
Benefits And Challenges Of Blockchain Interoperability
The advantages of cross-blockchain compatibility are numerous. Interoperable smart contracts, for instance, allow for data interchange across private and public blockchains in sectors like law and healthcare, making it possible to build Web3 platforms that were previously inconceivable.
Application-specific blockchains can communicate with one another via the central decentralised hub, thanks to blockchain interoperability. Additionally, if blockchains used by diverse businesses and industries can interact with one another, independent enterprises that were previously regarded to be wholly separate will be able to move data and value more efficiently.
A registered blockchain on a network, however, is unchangeable. As a result, it is essential to verify the data before submitting a starting node. Moreover, blockchain interoperability is a somewhat limited process. Even though this function guarantees data security during transfer, nothing in a world dominated by technology can be guaranteed.
Every blockchain ledger also has a unique trust model. While just two miners fund others, some are supported by a hundred. Transferring data from a less trustworthy ledger to one that is more trustworthy may expose the more reliable blockchain to outside manipulation and other issues.
Conclusion
The future of blockchain technology and its applications in terms of cryptocurrencies are a function of the efficiency, capability, and usability of blockchain interoperability solutions. Nevertheless, many initiatives are running right now to encourage blockchain platform interoperability.
