In NOWNodes, we are curious about the blockchain interoperability and we have decided to find out how does it work.
Blockchain gives freedom to developers as there are no fixed standards in the world of blockchain. But can we say the same for the IT departments? Ask any IT guys dealing with blockchain technology, and they will tell you what a big headache it can be for them because blockchain lacks interoperability. Due to a lack of interoperability, blockchains cannot communicate among themselves.
The IT departments value the interoperability feature because of a particular reason. With blockchain interoperability, it would be possible to share information and value throughout the blockchain networks. What’s the great news about it? Well, there’s no need for the intermediaries here.
Another plus point of interoperable systems is that you won’t have to spend any resources to translate or face downtime issues while interacting with users from other blockchain networks. Do you want to receive information from members on the blockchain networks? Check! Do you want to process the information quickly? Check! Do you want to respond quickly? Check! With blockchain interoperability, all this is possible.
Two Groups of Blockchain Interoperability
There are two groups when it comes to blockchain interoperability efforts, and these are:
- Open Protocols
- Multi-chain Frameworks
Let’s look at each of them to understand what it means.
These protocols make it possible for blockchains to communicate with each other and that, too, without any preset trust processes or intermediaries. Do you know any open protocols? We are sure you do if you know about the cryptocurrency industry for some time. Atomic Swap is the most popular open protocol today.
When we take a look at the open protocols that contribute toward interoperability within blockchain technology, protocols can be seen as the basic set of rules that allow data to be shared across different computers. In other words, within the sphere of cryptocurrencies, they are responsible for establishing the structure of the blockchain, which is the distributed database that allows digital money to be securely exchanged through the usage of the internet.
Open protocols allow cryptocurrencies to be decentralized through the blockchain, which means that they are spread across a network of computers that have no central hub or authority. Ever since the launch of the original Bitcoin protocol, there have been subsequent rulesets that have evolved to feature a higher range of functionalities, and due to this, there are now thousands of cryptocurrencies, all of which have their own protocol.
Some of these cryptocurrencies, however, follow an open protocol structure, which means that multiple ones can follow the same rules as other blockchain networks, which in turn leads to a higher level of interoperability between them. This has spawned a wave of a wide range of decentralized financial products that aim to decentralize and automate everything from lending, to savings, to insurance.
Blockchain is very flexible as technology. You can plug blockchain technology into any framework, and it becomes a part of it and acts as a subpart of the ecosystem. Thus, it enables the transfer of data and value among the standardized ecosystem once plugged in the framework.
When it comes to complexity, open protocols are far less complicated than multi-chain frameworks. The multi-chain frameworks have proved that it is very complicated.
Multi-chain technology is a platform that essentially enables users to establish blockchains that can be used by organizations for the procedure of financial transactions. Within a multi-chain framework, anyone can get access to the option of building and deploying private blockchain applications that function within or between organizations. The platforms will typically provide APIs and command-line interfaces which are suitable and specifically tailored toward financial transactions.
They typically provide comprehensive sets of features, which include things such as native assets, data streams, per-chain configuration, and permissions management, with the eventual goal of aiding enterprises in their overall efforts of scalability, confidentiality, integration, and compliance.
Once on these multi-chain networks, native tokens, such as assets, can be created and transferred between different blockchains. This, in turn, leads to a higher level of interoperability, as well of them can be compatible with one another, which leads to a more open and structured ecosystem without much further development down the line. Any granting or revoking of privileges ade here is through the usage of special metadata. Streams can also be used as a means of getting general data retrieval, timestamping, and archiving. All of this contributes to the healthy growth of an ecosystem, and numerous cryptocurrency and blockchain projects have implemented multi-chain technology.
Blockchain Interoperability & Blockchain 3.0
Blockchain 2.0 began in 2015 with the launch of the Ethereum blockchain. It enabled developers to build DApps over it and also implement self-executing contracts through smart contract technology. With all these new additions, the role of blockchain in securing and recording the transactions remain intact as a permanent ledger undertakes this quite well.
But with the advent of blockchain 2.0, many new issues and questions started arising. The most prevalent question was regarding interoperability. The importance of assimilating blockchain technology with the enterprise’s existing record-keeping systems was realized. Another question was that if several blockchains are working in tandem, how can we get them to work without any issues?
The importance of improved scalability, privacy, interoperability, sustainability is finally coming to the forefront with blockchain 3.0. In the era of blockchain 3.0, many projects are focusing on making sure that there is a seamless interconnection between blockchains.
There’s no doubt that there is a long way to go before we achieve the standard of interoperability required for blockchain 3.0. We are still only in the early stages of blockchain 3.0 interoperability. At least the enterprises are conversing about blockchain interoperability from a business aspect and technical point of view.
Why is Blockchain Interoperability Important?
Industry leaders like IBM feel that lack of clarity in terms of standards and governance is the biggest barrier to the blockchain adoption. There are no established standards when it comes to blockchain technology, and hence, a majority of companies and industry leaders do not feel comfortable with blockchain technology.
The interoperability standards do exist for enterprises using multiple blockchain solutions as traditional standard making bodies have updated it. But there is no data, identity, and event standardization yet. If standards about data, identity, and events are created, it would increase the trust in blockchain technology. It will, in turn, help progress the market and increase blockchain technology adoption.
Everyone will agree to the fact that a user-friendly experience is a must for increasing the adoption of any technology. With blockchain interoperability, you can offer a user-friendly experience. Thus, it will lead to an increase in the adoption of blockchain technology.
With blockchain interoperability, both cross-chain exchange of information and multi-token transactions are possible. Hence, users can remain in a single window while working with multiple currencies. Do you know what will happen with the systems that don’t have interoperability? In this case, the unconnected systems will act independently of each other and won’t be able to transact or communicate.
As we said in the beginning, blockchain interoperability makes it possible to communicate with users in other blockchain networks. At the same time, you don’t even have to spend any resources on translating the information that you receive on the blockchain.
Leading Projects Focused on Solving Interoperability Issues in Blockchain
Horizen is a blockchain network that was originally created under the name ZenCash in 2017 before rebranding itself in 2018 as Horizen. Horizen is a privacy-focused cryptocurrency and blockchain network with the main goal of solving scalability and security issues that are commonly found within competing blockchain networks. As such, Horizen specializes in scaling data privacy and aims to enable businesses and developers to custom build public or even private blockchain networks through the utilization of a unique sidechain technology that is known as Zendoo.
When we take a look at Zendoo, it is Horizen’s unique technology that enables sidechain functionality. It was specifically created with the main goal of solving scalability, flexibility, and efficiency within the blockchain network by enabling developers and businesses to create blockchains and decentralized applications (dApps) on top of Horizen’s privacy-preserving network. They also have the ability and opportunity to introduce the specific logic or data and address any kind of requirement that they need to resolve. ZEN is the native cryptocurrency token that is used across the Horizen network, and it is a coin that can be mined through the Proof-of-Work (PoW) consensus mechanism.
Furthermore, it is important to understand that the Horizen network is also multi-tiered. What this essentially means is that not all of the nodes on top of it play the same role within the broader ecosystem. There are regular full nodes, such as those found on Ethereum or Bitcoin, for example, that feature a full copy of the blockchain network transactions as well as data. However, there are also Secure Nodes which are regular full nodes but feature special encryption that aims at securing communication between nodes and can prevent snooping when nodes end up communicating with one another. Then there are even Super Nodes that are powerful, Secure Nodes that host the Horizen side chains.
Polkadot is a cryptocurrency and blockchain-based project that was originally developed by the Web3 Foundation, which is led by one of the co-founders of the Ethereum blockchain network known as Gavin Wood.
This project was specifically developed due to the fact that, at the time of its creation, there was a requirement to have a platform that could run multiple chains in a decentralized as well as parallel way whilst also being able to adapt the innovations brought on by the blockchain network.
What this led to was the fact that Polkadot was specifically developed to allow blockchain networks to operate together. In other words, Polkadot as a network enables interoperability between the different blockchains within the network, adds scalability, gives its network the best possible security, allows for independence in the form of governance of blockchains, enables updating blockchains in a way where they do not bifurcate, and provides a validation platform that’s eco-friendly and sustainable.
In order for it to function, Polkadot works with a relay chain that uses a variation of the Proof-of-Stake (PoS) consensus mechanism.
DOT is the native cryptocurrency token that is used to link and incentivize the validators, to act honestly within the network, with the goal of gaining a financial interest due to the fact that they verify the transactions within the network. What this leads to is the fact that anyone can use DOT tokens to block the token into a contract in order to carry out some functionalities that are required for it to work. They can pick and be in numerous roles, such as validating roles, nominating roles, collecting roles, and fishing roles. DOT as a token is also used for governance, betting, linking, and even fees, all of which contribute to the overall functionalities of Polkadot as a blockchain network.
Cosmos has been seen by many within the crypto space as the “internet of blockchains” due to the fact that it was developed with that specific intention in mind. In fact, the project was originally launched in 2014 when the founders ended up creating an SDK platform with the main goal of facilitating blockchain development. The decentralized ecosystem allows independent chains to fit together through seamless means. An application, for example, which was created through the usage of a distributed registry technology can be, as such, considered to be a chain.
These chains are all then separated within zones. However, they are all interconnected through the usage of hubs. Each of these hubs is the node that is used for the process of verifying the legality of the transactions.
These nodes provide compatibility between the different blockchains as well, and due to facilitating this role, they are rewarded for their efforts in the form of what are known as ATOM cryptocurrency tokens.
Every single network has a unique software stack, as well as autonomous management, which allows users to bind these blockchains. As such, we can look at the Cosmos network as a system that aims to solve scalability, interoperability, usability, and certainty.
In other words, we can view the Cosmos Network is a network that aims to enable any blockchain network to communicate, share data, and transact with any other within the network. Due to the fact that it allows many different blockchains to interoperate, there is less of a need for all of these networks to compete with one another, and instead, many can coexist with their own specialized use-cases as well as advantages that they might have, whilst also operating within a single ecosystem. As such, Cosmos is a complete technology stack that has created a streamlined development process that enables developers to create their own custom blockchains within the span of weeks or months instead of having to do so within the span of years.
Chainlink is what is known as a decentralized oracle network, otherwise referred to as a blockchain abstraction layer. What this essentially means is that it utilizes blockchain technology as a means of securely enabling computations on and off the blockchain network that supports what it calls hybrid smart contracts.
What this essentially means is that enterprises can utilize Chainlink with the main goal of accessing many major blockchain platforms with ease.
Chainlink as a blockchain network supports decentralized data feeds, provides verifiable sources of randomness, can enable automation, and even supports cross-blockchain interoperability. The Oracle Smart Contract is at the center of the overall design of Chainlinks as a blockchain network. This is a core aspect of how it is used throughout blockchain networks. The contract essentially communicates with the Chainlink network nodes through the process of publishing EVM events specifically designed to broadcast the client requests for the external data or job execution, OracleRequest. Chainlink was originally launched in May 2019 on top of the Ethereum mainnet.
However, Chainlink is unique in the sense that it created a secure bridge through which the outside world could communicate with the blockchain. In other words, it enabled the points where data can come into the blockchain. In order to improve the security of the oracles, Chainlink acquired a company known as TownCrier, and through the utilization of their technology, Chainlink as a network became more secure by using trusted-execution environments as well as specialized extra secure hardware.
Within the Chainlink network, purchasers can select the data that they want to provide and bid to provide this data. Providers can then commit a stake of LINK tokens, where they can make a bid. This will be taken away if they misbehave. However, once the providers are selected, it is their job to essentially bring the correct answers to the chain. Chainlink uses an oracle reputation system as a means of aggregating and weighting the data which is provided, and if everything goes smoothly, the providers get rewarded.
What’s Ahead on the Road for Blockchain Interoperability?
Blockchain technology is getting due recognition and is seeing adoption in a variety of industries worldwide. At the same time, increasing adoption is also making people familiar with blockchain interoperability.
The common man may not understand the concept of blockchain interoperability yet as the IT specialists do. But we can rest assured that whoever wins or fails in the race of blockchain interoperability, the winner would still be the industry and the end-users. Blockchain interoperability will definitely prove to be a game-changer for all.
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CRYPTO CONTRIBUTOR, CONTENT CREATOR, INVESTOR & FOUNDER OF MT AGENCY.
I have written guides and educational content on thousands of cryptocurrencies and financial services and conducted various types of analysis, including price forecasts and technical analyses of blockchain projects.