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What Is Blockchain Interoperability?

8 mins
Updated by Artyom Gladkov
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As the number of blockchains continues to grow, the subject of blockchain interoperability is becoming more and more prominent. This guide will detail several interoperable blockchain projects and detail why the concept is so important.

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Blockchain interoperability: a definition

what is blockchain interoperability

Blockchain interoperability refers to blockchains’ ability to communicate and facilitate seamless data and crypto asset transfers. The concept aims to make it possible for web3 users to seamlessly switch from one blockchain network to another.

Interoperability also encompasses blockchains’ ability to communicate with traditional web2 systems in the off-chain environment.

Cross-chain messaging protocols allow blockchain networks to communicate with each other. These protocols also support the development of decentralized applications (DApps) that can work across different chains.

Why is it important?

The importance of blockchain interoperability is growing as more and more industries adopt blockchain technology.

Unfortunately, the way developers have typically built layer-1 blockchains isn’t sustainable in the long term since they are limited in their scope of use. This could also stifle progress in the blockchain sector. Thus, to get more out of blockchain technology, interoperability is essential. It will also increase flexibility, enabling developers to create cross-chain decentralized applications (DApps).

An interoperable on-chain environment can enable the co-existence of both public and private blockchains, allowing them to share data with one another easily. Moreover, new products and services that leverage interoperability across several blockchain networks can emerge. 

How is blockchain interoperability achieved?

How is blockchain interoperability achieved?

Many of the layer-1 blockchains in existence today were built in isolation. Therefore, they do not have built-in features to enable interoperability. Fortunately, numerous solutions have emerged, enabling layer-1 blockchains to achieve interoperability. These blockchain interoperability solutions include the following.

Oracles

Oracles permit blockchain networks to engage with off-chain data. As a result, smart contracts can execute based on data from the real world. That makes oracles essential since smart contracts require real-world data stored in external systems to execute different use cases. For instance, a deed transfer on the blockchain may need information about the property outside any on-chain environment. Therefore, an oracle will act as a bridge between the on-chain world and off-chain legacy systems.

When choosing blockchain oracles for their networks, projects may consider using decentralized oracles instead of centralized ones. Decentralized oracles protect data integrity by avoiding a single point of failure and data manipulation. For example, Chainlink’s decentralized oracle network is a popular solution in the crypto sector. Its users include projects like Aave, Synthetix, Compound, Crypto.com, or Kyber network. 

Token bridges

Token bridges permit users to move assets from one blockchain network to another. The process of doing this will vary from bridge to bridge. For example, some bridges may use the lock and mint mechanism. In this process, a smart contract locks a crypto asset in a source chain while a different smart contract mints a cloned version of this asset on a destination network.  

Other bridges may operate by burning tokens on the source chain and then minting the same tokens on the destination chain. Moreover, a different type of token bridge locks tokens on the source chain and then unlocks them from a liquidity pool on the destination chain. A liquidity pool is a collection of crypto assets held in a smart contract. Token bridges that use this mechanism encourage people to provide liquidity on both sides of the bridge by creating incentive schemes like revenue sharing. 

Importantly, in most token bridges as of today, tokens created on a destination chain are referred to as wrapped assets. 

Atomic swaps

Atomic swap protocols permit users to exchange tokens across chains. That means they can trade a token on one blockchain and get a different token on another chain. Atomic swaps use smart contracts to enable cross-chain token swapping.

Sidechains

Sidechains are independent blockchains that connect to a parent blockchain through a two-way bridge. Projects build sidechains to help scale the parent chain. To illustrate, Polygon is a sidechain that seeks to scale Ethereum by improving its transaction throughput.

Although sidechains have a connection to the parent blockchain, they use separate consensus algorithms and have different native tokens. Their project roadmaps and history are also distinct from the mainchain, hence their independence.

Native payments

Native payments occur when an application on one blockchain triggers a payment in a different blockchain in its native token. Payments across blockchains may rely on blockchain data. Case in point: payments can occur on one blockchain based on data from another chain.

Smart contract calls

Smart contract calls refer to a smart contract on one chain calling a smart contract function on another blockchain. This solution enables token bridging and swapping.

Blockchain interoperability protocols

Blockchain interoperability protocols are blockchains that focus on cross-chain interoperability. Unlike distinct blockchains that operate in isolation, interoperability protocols aim to bring together multiple blockchains that can interact seamlessly with one another. These protocols also make independent, siloed chains interoperable.

Advantages of blockchain interoperability

Blockchain interoperability can create a more efficient web3 ecosystem where data sharing is seamless across different types of blockchains. That means private blockchains can communicate with public ones, for example, and vice versa. This level of interoperability will permit collaboration across various companies that adopt interoperable blockchains. 

Interoperability creates a network of connected chains that people can use instead of having a few siloed chains that dominate the market. This can help increase decentralization across the entire sector and give rise to an interconnected multi-chain world. Also, interoperability can allow innovation to grow beyond the original chain. This can accelerate growth across the entire crypto ecosystem. 

When blockchains are distinct and isolated, transferring value from one chain to another is restrictive and prevents free trade. Interoperability can help web3 users freely move value across interconnected chains.

Disadvantages of blockchain interoperability

Blockchains do not have the same level of trust or security. Therefore, transferring data or digital assets from a less secure blockchain to a more secure chain can leave the latter vulnerable to manipulation. Transaction throughputs also vary from chain to chain. That means a chain with lower transaction speeds may be suddenly overwhelmed if many transactions flow from a blockchain with a high transaction throughput.

Another barrier to blockchain interoperability is compatibility. It’s easier connecting blockchains that are compatible with each other than those that aren’t. For instance, blockchains that have adopted Ethereum Virtual Machine (EVM) like Avalanche, Polygon, and BNB Smart Chain can easily become interoperable. However, connecting an EVM-compatible blockchain to a non-EVM-compatible chain isn’t an easy task. Further effort and work are needed in this regard. 

Top interoperable blockchain projects

1. Polkadot

Polkadot is a blockchain built with interoperability in mind. It brings together an ecosystem of private and public blockchains (parachains), enabling them to communicate. Non-blockchain systems can also become parachains under certain conditions. 

Parachains are hosted on Polkadot. This works because chains plug into a connectivity layer (called the Polkadot Relay chain), where they use the pooled security system of Polkadot to confirm transactions. And independent blockchains like Bitcoin can still enjoy the interoperability of Polkadot through bridges. 

Ethereum’s co-founder Gavin Wood is the founder of Polkadot. Other founders include Robert Habermeier and Peter Czaban. The Polkadot network launched in May 2020.

2. Cosmos

Cosmos, which calls itself the internet of blockchains, is a network of blockchains (called zones) connected through the Cosmos Hub and a communication layer called the inter-blockchain communication protocol (IBC). These blockchains can communicate with each other, enabling users to transfer value from one chain to another. The Cosmos Hub monitors the state of all blockchains in the network.

Cosmos released its whitepaper in 2016 and held a token sale in 2017. The people behind Cosmos are Zarko Milosevic, Jae Kwon, and Ethan Buchman. Tendermint was originally the core contributor to the network. Today, Cosmos gets support from the Interchain Foundation. 

3. Wanchain 

Wanchain is a blockchain that introduces interoperability through decentralized bridges that connect siloed blockchain networks. The Wanchain project aims to build an interoperable web3 ecosystem where all blockchains can communicate with each other, including EVM-compatible blockchains and their non-EVM counterparts. In 2021, Wanchain built a direct, decentralized bridge between Bitcoin and Ethereum, making them interoperable. 

The network provides three types of bridges: direct, NFT, and layer-2. These bridges rely on the support of bridge nodes (also known as storeman nodes). Wanchain requires at least 25 bridge nodes to be active at any given time. Jack Lu established Wanchain in 2017.

Blockchain interoperability solutions are crucial to web3

Blockchain interoperability is essential to the development of web3. Developers must be more intentional about creating interoperable blockchains going forward. This will prevent third-party service providers from coming in with centralized interoperability solutions to connect blockchains. Interoperability will also encourage blockchain adoption across various industries as companies strive to capture the benefits of interoperable blockchains.

In the coming years, we could see more interoperable blockchains emerge as the demand for cross-chain value transfer rises. Moreover, the interaction between existing independent blockchains may also increase as innovation advances to new highs.

Frequently asked questions

Which blockchains have interoperability?

What is a blockchain interoperability example?

Which is the top interoperability blockchain?

Why are blockchains not interoperable?

Top crypto projects in the US | May 2024

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Alex Lielacher
Alex Lielacher is the founder & CEO of Rise Up Media, a content marketing agency that works with a range of bitcoin businesses. He first came across bitcoin in 2011 and has worked full-time in the cryptocurrency industry since 2016. Alex started his career in the banking industry in London, working in bond trading and sales. After a little over half a decade, he swapped his seat on the trading floor for a spot in cafés around the world, where he started his career as a freelance...
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