Blockchains have created an impartial and trustless digital system for multi-party record-keeping and process automation. However, these decentralized ledgers lack an in-built communication feature among themselves. Thus, every blockchain is like an isolated bubble with zero level of interaction and integration with each other. This aspect also restricts a blockchain from interacting with traditional systems. So, the concept of blockchain interoperability comes to light to enable smooth data and token sharing among blockchains. This concept can lead to blockchain app development with multiple blockchain networks. Additionally, there are some challenges associated with this concept. This article gives you an overview of this topic, its importance, challenges, and how to achieve it.
Blockchain interoperability is the capability of enabling blockchains to transfer information and digital assets without any centralized authority. Thus, it ensures better interaction and collaboration. Cross-chain messaging is the underlying protocol that lets blockchains read or write data of other blockchains. Cosmos and Polkadot blockchains use this protocol. Developers can create a decentralized app (dApp) that can operate across multiple smart contracts in various blockchains. Arbitrary data messaging can support more complex dApps, including cross-chain decentralized autonomous organizations (DAO), cross-chain decentralized exchanges (DEXs), cross-chain NFTs, and more modularized applications.
Most software organizations rely on interaction and collaboration. So, blockchain interoperability can enhance business processes and offer new add-on values to firms and their customers. Businesses, wherein data transfer is a crucial functioning factor, can use blockchain interoperability in a customizable and controllable manner. Such industries may include supply chain, healthcare, electronic voting, and more.
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Blockchains work on a set of procedures. They use various consensus mechanisms to verify every transaction. However, these mechanisms can only work natively. When a transaction occurs outside blockchain networks, they do not have any way of reaching a consensus and verifying that transaction.
Another challenge with this concept is the interoperability trilemma. Blockchain uses blockchain bridges to communicate between blockchain layers. Since a blockchain offers decentralization and security, a blockchain bridge must possess three traits: trustless, extensible, and data agnostic. Current blockchain bridges can only provide two out of these three traits. It is known as the interoperability trilemma.
Blockchain interoperability can enhance the growth of different industries due to its ability to share data across networks.
Blockchain interoperability enables the development of Web3 instruments and platforms that Web2 industry and enterprise models cannot produce. Businesses can share data in a customized and controllable way between public and private networks.
Every blockchain network has a framework and token standard to deploy tokens. A token developed on the Ethereum blockchain will only be compatible with wallets, applications, and exchanges on the network. However, you can make that token compatible with other blockchains with interoperability.
Various blockchain networks have unique selling points (USP). For instance, the USP of Stellar is fintech solutions. Users can develop blockchain-based fintech applications in this blockchain network. Similarly, VeChain mainly focuses on supply chain management. These blockchains can use interoperability for exchanging information without changing their system designs. It helps blockchains to function with a unique purpose-built design. This integration can increase the compatibility and community of blockchains.
Most layer-1 blockchains do not offer cross-chain interoperability. But, some tools enable interoperability between networks. Apart from Oracles and sidechains, you can achieve blockchain interoperability with the following tools:
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Blockchain routers are tools developed for arbitrary cross-chain interactions. It lets several networks interact with each other.
Notary schemes use third-party authority to enable transactions. This trusted authority, also known as a notary, regulate transactions between two parties. It could be a controlled exchange or a network of exchanges.
A party can use cross-chain bridges to lock digital assets on one network and create identical assets on another blockchain. Here, the original owner will receive the address of the duplicate assets. So, the owner can use the same asset on a different blockchain network.
Atomic swaps let individuals interchange tokens among different blockchain networks. Smart contracts enable these tools for seamless cross-chain value transfers.
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Although blockchain technology has advanced significantly in the last ten years, it still requires considerable development. Users can transfer assets and data between chains if blockchains can communicate with one another. Developing such a cross-chain technology is not easy. Still, there are some upcoming projects that will support interoperability at a large scale. Blockchains may be able to communicate with one another sooner rather than later in ways that are beyond our comprehension.
If you are looking for blockchain-based services, Oodles Blockchain can assist you. Our blockchain developers have years of expertise in developing blockchain-based solutions.