Blockchain interoperability in a nutshell.
Blockchain interoperability is generally defined as the ability of diverse Blockchain networks to share data, without limits and restrictions.
It’s been a decade since the world welcomed the inception of Blockchain. Today, a great majority of governments and corporations are taking advantage of the benefits brought by this technology. It now enjoys a great deal of attention and adoption by mainstream users, mainly because of the ease and comfort it provides to different sectors. Aside from the tech industry, other areas such as real estate, health care, agriculture, and more are showing the sheer interest of exploring the wonders of this technology.
Just like in any other industry, competition emerged in the Blockchain industry. One after the other, businesses and projects exhibiting the power of this technology, are gracing the marketplace, all competing for the title of being the best in their niche. Furthermore, each one claims of having the most secure and scalable product in the market. However, regardless if these entities are overstating or not about the characteristics of their Blockchain products, one thing is sure. Most of what is being offered in the market are built on independent and disconnected Blockchains. There are diverse models and ecosystems, different hashing algorithms, and stand-alone communities. Thus, the wall of isolation continues to grow taller. The concept of decentralization is being pushed further to the corner.
In today’s competitive Blockchain space, one Blockchain network remains clueless of whatever that is happening in the other. For example, the independent Bitcoin Blockchain does not know the information gathered and recorded by the Ethereum Blockchain. Although these two networks operate within the same niche using similar technology, the details of their projects are not up for disclosure within each other.
ConsenSys, an Ethereum-centric firm, dubbed the phenomenon as an industry’s balkanization. The marketplace is filled with a variety of systems operating side by side but are unconnected with one another, all vying to lead the race. Blockchain interoperability, in its essence, aims to break these boundaries by allowing networks to access and exchange data without restrictions.
Is Blockchain interoperability of crucial importance?
Yes, because as isolation exists, the industry would have troubles of evolving as a whole, making mass adoption an impossible feat.
As the competition in the Blockchain industry increasingly becomes tighter and tighter with each passing time, some businesses tend to focus on how they can beat their rivals instead of improving the general Blockchain infrastructure. The battle about scalability is just one example. Notably, the original Bitcoin Blockchain can only process seven transactions/second. Developers focused on beating this figure, and as a result, new Blockchains that can handle a higher number of transactions were introduced. Currently, there are Blockchain projects that claim to have a processing capacity of 50,000 transactions per second, and some even more.
In comparison, the Visa network has an estimated processing capacity of 25,000 transactions per second. However, despite the demand, the system only processes an average of 1,750 TPS. What’s ironic is, no other existing Blockchain can beat this figure, and the promise of 50,000 TPS is yet to be witnessed.
Processing payments with a Blockchain is not something corporations would fall for due to the issue of security and interoperability. Despite having higher scalability power than Visa’s network, its function would still be limited if valuable information remains isolated. In contrast, Visa, American Express, and MasterCard issue interoperable cards across ATMs and merchants worldwide.
Another great example is the Internet. Users can access and modify a variety of datasets –thanks to APIs (application specific interfaces). It had grown to what it is today because it is interoperable and users find it easy to use the network. If the Blockchains’ goal is to gain the same mainstream appeal, then it must first prove to the world that they can work alongside one another seamlessly.
In what situations can Blockchain interoperability prove its importance?
Blockchain interoperability can revolutionize our life by moving all sectors of industry in immense ways. Public record-keeping, real-estate and the healthcare industry are few examples.
Let’s say we have gained much adaptation in the next several years and the world depends utterly on Blockchain. Businesses and corporations use Blockchain to record and keep valuable data. Let say you are in the market for a house and found a few that meets your criteria. You would then request the complete property records from the seller or their agent. This information would consist of all aspect and details of the property including proof of ownership and any possible lien against the property.
With the digital consent from the seller, your agent or your virtual assistance requests or search for the same records from a leading real estate Blockchain. This information is necessary to authenticate the ownership and other vital details. Unfortunately, the property record is kept on a different Blockchain, and immediately accessing the records proved to be impossible. More importantly, the integrity of the Blockchain platform is unknown to you and your agent. Let say the transaction is time-sensitive and every second is critical. What would happen?
Fortunately, this kind of scenario stays within our imagination. An isolated Blockchain has no appeal to the real-estate market, and the same goes in logistics, auditing, Healthcare, and in others. Blockchain interoperability proves itself as the only catalyst of mass adoption.
How can Blockchain interoperability be achieved?
There are different ways to achieve Blockchain interoperability: swaps, proxy tokens, sidechains, and cross-chains, to name a few.
There are many existing Blockchains and interconnecting these networks would take a massive effort. As per the research conducted by ConcenSys, commercialization paves the way for innovation; however, it also makes room for competition. Thus, people in business and developers strive to build systems that would serve their respective customers’ best interest. This attitude knocks off the idea of interoperability based on open-source. Furthermore, most existing Blockchains lack the features that would enable this conjunction.
Fortunately, there are emerging Blockchain projects that recognize the importance of interoperability, and thus they were built using different approaches. The following are some examples:
Chainlink is a decentralized oracle technology which enables the transfer of data from off-chain APIs to the Blockchain. It functions as a bridge between Blockchain networks and off-chain infrastructures. The system relies on oracle nodes which receive and process the information before passing it to the Blockchain. Chainlink coordinates with SWIFT, A network that allows financial institutions across the world to send and receive data in a standardized, secure, and reliable ecosystem.
Cosmos is a technology that also relies on the cross-chain protocol. To achieve interoperability, it uses an inter-Blockchain communication principle and serves as the Blockchains’ messaging protocol, just like what TCP/IP does. Cosmos also utilizes “peg zones” to connect the networks to the Cosmos Hub because most of the existing Blockchains today do not have the feature that supports IBC. The objective behind this project is to bind the zones altogether and facilitate communication between connected networks using standardized languages.
Nevertheless, there is a minor setback. Cosmos Hub is a part of the Cosmos interchain ecosystem where other entities exist. One of these is the Iris Hub which serves Chinese customers and enterprise clients.
Polkadot is a cross-chain technology developed by Ethereum’s co-founder, Gavin Wood. It enables various Blockchains to connect into a more significant and consistent ecosystem. Polkadot is made up of parachains –parallel Blockchains and relay chains. Parallel Blockchains are responsible for processing transactions and transferring them to the primary Blockchain. Meanwhile, a relay chain ensures that parachains are connected to each other. It also ensures security and acts as a bridge between Polkadot and external Blockchains.
Wanchain is a technology that relies on Blockchain-tradable “wrapped” tokens in facilitating data transfers between unconnected Blockchain networks. For example, to transfer 20 ETH to the Bitcoin chain, Wanchain would need to use smart contracts to lock the Exact amount of ETH on the Ethereum Blockchain. Then, 20 Wanchain-wrapped ETH would be minted and later be traded with Wanchain-wrapped BTC. The wrapped Bitcoin tokens can be converted into the tokens which are located on Bitcoin’s chain.
Unlike the first four examples, Quant is not identified as a Blockchain. It relies on Overledger principle, a layer that operates over prevailing Blockchains. Notably, Overledger enables developers to build MApps decentralized applications that use a variety of Blockchains simultaneously. There are no required infrastructure, only three lines of code. This system provides Blockchain engineering with more options. For instance, an MApp can turn to the Ethereum Blockchain for storing date while using BCH (Bitcoin Cash) for value transfer.
Does Blockchain interoperability already exist?
In the crypto industry, exchanges serve as the interoperability medium. If a user needs to trade ETH for BTC, the centralized crypto trading platforms serve as the perfect and convenient channel. However, there are significant drawbacks, especially in terms of security.
Furthermore, despite the efforts of a few projects in terms of Blockchain interoperability, major networks still opt to keep the details of their developments to themselves. However, it’s worth noting that the Blockchain industry is still in its infancy, so as the developers. Only time can tell whether transforming this concept to reality is still far from the picture or close enough to hope.