If you’re familiar with bitcoins or cryptocurrencies, you’ve come across the concept of blockchains.
Blockchains have emerged as a revolutionary technology that can potentially transform multiple industries, from finance to healthcare. Moreover, being the fundamental building block for cryptocurrencies like Bitcoin, there has recently been tremendous interest in this field, sparking various research and development initiatives.
The blockchain industry, however, grapples with fragmentation as customers navigate many incompatible technologies. There is still no interoperability across multiple blockchains due to existing protocols and operating standards. As a result, token transmission and execution of smart contracts are limited to a single blockchain.
In this article, we will delve into the concept of blockchain interoperability, how it is achieved, and the technology’s myriad benefits and challenges.
What are Atomic Cross-chain Swaps?
Before discussing blockchain interoperability, you need to familiarize yourself with atomic cross-chain swaps. Sometimes called atomic swaps, atomic cross-chain swaps refer to the idea of a trustless cryptocurrency exchange. It stands as one of the first building blocks of blockchain interoperability.
With atomic swaps, cryptocurrency users securely and seamlessly can exchange their assets. But, there is a caveat. Atomic swaps don’t allow direct transfers of tokens from one blockchain to another. Instead, they function by destroying a specific amount of assets on the source blockchain and subsequently recreating an equivalent amount on the destination blockchain.
What is Blockchain Interoperability?
Put simply, blockchain interoperability refers to the integration of multiple blockchain networks. In other words, blockchain interoperability enables one blockchain to communicate with another blockchain.
This is a necessary feature in the Web 3 space as it enables multiple blockchains to communicate, collaborate, and perform tasks, such as executing smart contracts, sharing and accessing data, and transferring digital assets.
Blockchain interoperability, commonly called cross-chain interoperability, can be best understood by picturing a bank.
Imagine a bank where transactions are restricted to accounts within the same bank, compared to another bank that allows you to interact with accounts across different banks. It is evident that consumers will prefer the latter as it is much more convenient and efficient.
Interoperability isn’t inherently built into most blockchains, mainly due to the variance in existing protocols and standards. This may sound surprising because the notion of seamless information sharing and cross-blockchain transactions is practical and necessary; the reality is that most public blockchain projects do not prioritize interoperability.
However, things are changing, and companies backing the development of private networks are increasingly advocating for blockchain interoperability.
Why is Blockchain Interoperability Important?
As previously discussed, one of the major hurdles existing blockchain networks face is their inherent inability to exchange information due to protocol incompatibilities. This limitation greatly affects the future potential of the technology.
Recently, we have observed a growing prevalence of blockchains, which has raised concerns about processing speed and scalability. Moreover, if blockchain networks operate in isolation, without integration, it is probable that the actual advantages and true potential of the technology may never be utilized.
The time has come for blockchains to embrace and comprehend the importance of interoperability. Blockchain interoperability is pivotal in fostering the development of innovative products, services, and platforms that can harness the advantages of multiple networks simultaneously.
Furthermore, blockchain interoperability can expand the reach of blockchain technology and help establish a robust framework that will be conducive to its widespread adoption and mainstream acceptance.
How to Achieve Blockchain Interoperability
It is evident that blockchain interoperability is advantageous. The real challenge lies in transforming this concept into reality. However, the task is challenging as competing blockchain projects may be reluctant to embrace interoperability due to the unfounded fear that it may somehow diminish the value of their own networks.
Nonetheless, two main approaches can be considered for blockchain interoperability:
Cross-Chain Technology
Cross-chain technology is a vital bridge between networks to facilitate seamless transactions across them. Consider Bitcoin and Ethereum, two separate networks with no inherent means of communication. Through cross-chain bridge protocols, this technology holds the potential to establish a network that bridges Bitcoin and Ethereum, enabling a direct exchange of information between the two cryptocurrencies.
Nonetheless, the challenge lies in ensuring compatibility, as constructing a network capable of adapting to the unique characteristics of diverse blockchains demands a sophisticated approach.
Sidechain Technology
According to Ethereum, a sidechain is an independent blockchain that operates separately from Ethereum but is linked to the Ethereum Mainnet through a two-way bridge. Essentially, this technology creates a parallel network alongside the main blockchain, allowing the sidechain network to maintain its nodes and code while remaining fully interoperable with the main network. Sidechain technology is primarily used for testing network features.
Bottom Line
Blockchains have numerous benefits and can potentially disrupt various industries. However, like other emerging technologies, blockchain faces challenges, particularly in network interoperability. Overcoming this hurdle is crucial for mainstream adoption and acceptance. Blockchain interoperability is essential for sharing records, transferring digital assets, and most important unleashing the true potential of the technology. Though we are still far away from finding a viable solution, the industry has made significant strides in the field with more likely to follow in the future.