Explore the Future of Web3: Shardeum's Whitepaper Released!

Blockchain Interoperability – Types, Benefits and Future

April 20, 2023

Blockchain Basics Blockchain Interoperability

Blockchain Interoperability – Types, Benefits and Future

Blockchain interoperability refers to the ability of blockchains to communicate with other blockchains. Explore its crucial role in connecting diverse blockchain networks for a unified Web3...

Written By

Shardeum Content Team

Home » Blog » Blockchain Basics » Blockchain Interoperability – Types, Benefits and Future

Table of Contents

Introduction

Even though blockchain technology has evolved significantly and several web3 firms are doing cutting-edge work in the space, web3 is still far from seeing mass adoption. What’s stopping blockchain and relevant technologies?

One of the key factors hindering their growth would be a distinct lack of blockchain interoperability. Fortunately, there are several web3 projects working on developing solutions that would allow different blockchains to work together, facilitating seamless integration. These solutions are very likely to help web3 projects be widely accepted by the masses.

But what is blockchain interoperability? And how does blockchain interoperability work? Patience, dear reader, because in this post we answer all your questions!

What is Blockchain Interoperability?

Firstly, let’s understand blockchains. A blockchain can be termed as a decentralized, distributed database technology that functions as an immutable ledger for tracking and recording numerous transactions from anywhere in the world. While it was first developed as a public ledger and underlying technology for the Bitcoin protocol, many new blockchains have been developed subsequently.

The ability for different blockchains to work together is essential for the technology to reach its full potential. At present, interoperability is a major issue for the blockchain industry.

In the simplest terms, blockchain interoperability is the ability of different blockchain networks to communicate and work with each other. This means that transactions and data can be seamlessly transferred between different blockchain platforms, without the need for a central authority or intermediary.

The concept of blockchain interoperability is relatively new and is still being developed. However, it has the potential to lead to the creation of a truly decentralized global economy.

But how does blockchain interoperability work? Jump to the next section!

How Does Blockchain Interoperability Work?

Blockchain Interoperability can work through a concept called cross-chain messaging. A cross-chain protocol simplifies interoperability between distinct blockchain networks and allows data exchange across several blockchain networks. The cross-chain messaging protocol enables direct user-to-user communication across blockchains.

The concept is unique since it enables smart contracts on various blockchains to interact with one another without having to move actual tokens between chains. This implies that a user can access services or assets on non-native blockchains, through applications called cross-chain decentralized applications (DApps).

But how do you think cross-chain DApps differ from multi-chain DApps?

Often, a multi-chain DApp will deploy the same program on many blockchains, but each deployment will consist of a separate set of smart contracts that are not connected to other blockchains. This is the main drawback of such multi-chain apps.

Subsequently, a DApp making use of a cross-chain messaging protocol can get users to different blockchain platforms through copying the same application on multiple chains, and using cross-chain bridges to transfer liquidity between them. Cross-chain DApps increase the scope of blockchain interoperability to newer heights, enabling developers to build cross-chain decentralized exchanges, cross-chain NFTs, cross-chain decentralized autonomous organizations (DAOs), and many other products and services.

The Importance of Blockchain Interoperability

In today’s time, blockchains have spilled over the finance sector and seeped into a range of industries- from education to supply chain management to health services. In each industry, blockchains fulfill a whole different purpose, and to accommodate particular features, sometimes developers have to sacrifice some other crucial functionalities. However, with blockchain interoperability, the need for such compromises would be completely removed, paving the way for mass adoption of blockchain-based web3 applications.

Developers should also be able to fully utilize the benefits of blockchain interoperability to build cross-chain apps that can avail the best features from a number of blockchain networks seamlessly.

Coming back to finance, if blockchain interoperability becomes easy, data and money can be exchanged between different economies smoothly while also cutting down on costs. This can allow more and more people to take part in cross-border transactions.

Types of Blockchain Interoperability Solutions

There are several blockchain interoperability solutions available today:

Token Bridges: Token bridges have emerged as a key solution to improving blockchain interoperability. A smart contract on the source chain locks or burns tokens, and a different smart contract on the destination chain unlocks or mints the tokens. This is the main concept of token bridges.

Token bridges enable the transfer of assets between blockchains, boosting the utility of the token. Hence, token bridges have emerged as a key solution to improving blockchain interoperability.

Native Payments: A major solution for blockchain interoperability, native payments entail a source chain application launching a native asset payment on a destination chain.

Contract Calls: Contract calls occur when a smart contract on one chain, while depending on data from the source chain, contacts a smart contract function deployed on another chain. Token swaps and bridging may be used in a trickier cross-chain application that is created by combining many contract calls.

Programmable Token Bridges: A contract call can be made as soon as tokens are transferred from the source chain to the destination chain in programmable token bridges, which combine token bridging and arbitrary messaging. As a result, deeper cross-chain functionality is made possible, including the ability to stake, exchange, or deposit tokens into a smart contract on the destination chain.

Web2 Validation

When someone does a cross-chain transaction using a web2 service, this is known as web2 validation. For personal transactions, Web2 validation can be relatively convenient and requires less technological knowledge. The most frequent instance of this in action is when users utilize centralized exchanges to bridge or trade their own coins. The user merely deposits their funds into an exchange-controlled source chain address and then withdraws the same tokens or other tokens through a swap to an address on a destination chain that the user controls.

External Validation

When a set of validator nodes that are not part of either blockchain for which the cross-chain interaction is being done are used to validate the state of the source chain and trigger the next transaction on the destination chain (when a set of conditions are satisfied), it is known as external validation.

Most external validator nodes should perform responsibly during the external validation to maintain the integrity of the cross-chain connection.

Local Validation

Peer-to-peer cross-chain transactions occur from cross-chain interactions where the counterparties check one another’s states and agree that the other is valid. This is called local validation. Most cross-chain liquidity protocols, involving liquidity pools that exist independently on each chain, use local validation.

Local validation through atomic swaps offers a high level of trust reduction since the swap either occurs or both transactions fail. It cannot be particularly generalized to different cross-chain contract calls, though.

Native Validation

In a cross-chain interaction, native validation occurs when the destination blockchain confirms a transaction by checking the status of the source blockchain, after which it conducts a follow-up transaction on its own chain. This is often achieved by running the destination chain’s virtual machine alongside the source chain’s light client or by operating both chains simultaneously.

Native validation is better suited for blockchains with comparable state machines, such as layer-2 networks based on Ethereum and the EVM or solely Cosmos SDK-based blockchains. It is the type of cross-chain communication that minimizes trust the most, but it is also more costly and provides less development flexibility.

Benefits and Challenges of Blockchain Interoperability

A few advantages of blockchain interoperability are:

Through blockchain interoperability, industries and individuals could exchange data between public and private blockchains. It would enable users to access a wider range of services and applications and help drive adoption of blockchain technology.

It could help create a more diverse and robust ecosystem of blockchain networks and potentially lead to the development of new standards and protocols for blockchain technology.

It could help improve the security of blockchain networks by making it more difficult for hackers to target a single network.

On the other hand, a few challenges of blockchain interoperability remain:

Each blockchain network has a unique model of trust. While only a handful of nodes support some blockchains, others are backed by a hundred. Moving data from a less trustworthy ledger to one that is more trustworthy may expose the more reliable blockchain to external tampering and other issues.

If blockchain interoperability is to be a reality, blockchains need to be made to scale better.

Growing Web3 Through Blockchain Interoperability

Blockchain technology’s unique ability to provide a secure, decentralized ledger for transactions has already made it a game-changer in the world of finance. But as the world of web3 expands beyond finance into other domains such as healthcare, supply chain management, and identity management, it is becoming clear that blockchain alone is not enough. What is needed is blockchain interoperability for the growth of the web3 ecosystem.

With interoperability, different blockchain networks can share data transactions, opening up a world of possibilities. Blockchain interoperability will be essential for creating new-age apps that can be accessed through more conventional user interfaces, speeding up the adoption of web3. Many web3 projects are currently working on blockchain interoperability, such as Polkadot and Chainlink.

The Future of Blockchain Interoperability

The future of blockchain interoperability looks very promising. In the near future, we might see more blockchain networks working together to create a truly interoperable ecosystem. This will allow for more seamless and efficient data sharing and value transfer between different blockchain platforms. It can potentially improve the security and efficiency of the entire web3 ecosystem.

Governments and regulators worldwide also need to form a global consensus on web3 regulations to help the blockchain industry realize its true potential.

Conclusion

In conclusion, blockchain interoperability is an important issue that must be addressed to enable the widespread adoption of blockchain technology. A number of initiatives are underway that are working on solutions to this problem, and it is hoped that with continued effort, a viable solution will be found that will enable blockchain networks to interoperate seamlessly.

We hope we have been able to answer the questions ‘what is blockchain interoperability?’ and ‘how does blockchain interoperability work?’ to your satisfaction! Hit us up with any queries in the comments below!

Frequently Asked Questions (FAQs)

1. What is Interoperability in Web3?

In Web3, interoperability refers to the capability of different blockchain networks to work together. This means that data and assets can be transferred between different blockchain platforms, allowing users to take advantage of the best features of each network.

Interoperability is a key factor in the growth of the blockchain industry, as it opens up new opportunities for collaboration and innovation.

2. What is the Need for Blockchain Interoperability?

In a world with numerous blockchains with varying characteristics, interoperability is the key to ensuring that these blockchains can connect and work together.

Interoperability in web3 describes the ability of different blockchains to connect and share data with one another. This is important because it allows for the development of a more accessible and decentralized web3 ecosystem, where users can easily move between different blockchains and applications.