The Challenges of Blockchain Interoperability

According to a survey earlier this year there are about 9150 active blockchain projects in the GitHub repository. Each one of these projects has its protocol and programming language to ensure security, scalability and privacy. To make these blockchain projects future-proof they should be standardized, thereby allowing them to interact and transact with other existing or upcoming projects.

What is Blockchain Interoperability?

A truly decentralized blockchain, is one that functions without intermediaries or third parties in a trustless environment. Interoperability allows diverse blockchain systems to communicate with each other and make cross-chain transactions seamlessly. This ability to operate smoothly across multiple blockchains is possible through standardization.

Why is it important?

Blockchain interoperability ensures a user friendly experience and thereby increases adoption. It enables multi-token transactions through wallets and enables cross-chain exchange of information to ensure users can work with multiple currencies through a single window. Without interoperability unconnected systems will be independent silos running alongside each other without being able to communicate or transact.

An interoperable ecosystem enables multiple users from separate blockchain networks to interact without spending resources on translating the information received and experiencing downtime. It ensures information is processed and that a response is sent accordingly.

Key benefits of blockchain interoperability:

• Seamless exchange of information across participating blockchains
• Smart contracts can be executed effortlessly
• Partnerships can be developed within the blockchain ecosystem
• IT personnel can develop a good understanding of some prominent standards

Challenges for Blockchain Interoperability

Developers often ignore standards when building a blockchain for more freedom, but this can cause interoperability and communication issues. The most major challenge to interoperability is multiple blockchain networks with different parameters like consensus models, smart contract functionality, and transaction schemes. To remedy this there are several standardization efforts in progress. IBM and Microsoft are using an existing standard developed by GS1 to ensure an interoperable blockchain. Whereas, the Enterprise Ethereum Alliance has developed a standard from scratch – the Ethereum Blockchain for businesses.

Blockchain interoperability endeavors can be divided into two groups:

Open protocols: standardized protocols that permit communication between blockchains without a third party or trust processes required. The most well-known open protocol is the Atomic swap.

Multi-chain frameworks: often referred to as the “internet of blockchains”, these are more complicated than open protocols. Blockchains can become part of a standardized ecosystem and transfer data and value between each other by plugging into a framework.

Which projects are focussed on solving this issue?

Polkadot: its ecosystem contains parachains which are individual blockchains that have become part of the Polkadot environment. A relay chain is a central connector between these parachains. A parachain can have its individual characteristics and spread its transactions across the ecosystem. Chains that become a part of the ecosystem are required to abandon their consensus mechanism to the Polkadot mechanism, but have the freedom of developing the structure and function of their blockchain. Polkadot’s distinguishing characteristic is that it enables not only transactions but data exchange also.

Cosmos: one of the best known names for blockchain interoperability, running on the fault tolerance protocol – Tendermint Byzantine. Zones, which are independent blockchains are plugged into the Cosmos Network. These zones can interact with each other because of the Cosmos Hub and new ones can be connected. A salient feature of Cosmos is permitting zones to preserve their consensus mechanism.

Ark: its aim is to create a blockchain interoperability solution that is adaptable and scalable by automating the creation of new blockchains within the ecosystem. These can be created in a few minutes. Multiple programming languages are supported by Ark – Java, Swift, Ruby, and Python.

Wanchain: a decentralized exchange protocol that facilitates transfers between different blockchains and the exchange of data between different ledgers. Their ecosystem enables the exchange of digital assets between blockchains using cross-chain smart contracts.

Which blockchain applications are already interoperable?

Let’s take a look at some of the applications that are successfully using blockchain interoperability:

Digix: they represent physical gold with DGX tokens using blockchain technology. 1 DGX token is equivalent to 1 gram of gold on Ethereum. These tokens can be transacted and transferred transparently. The immutable ledger heightens security, while the smart contract platform eliminates human error and risk of fraud.

Regen Network: leveraging Blockchain to create a systemic multi-stakeholder, market-driven solution to facilitate verifiable ecological outcomes using an accounting ledger capable of rewarding ecological regeneration through smart contracts.

e-Money: the latest advancements in blockchain are used for issuing interest-bearing, currency backed tokens thereby providing the next generation of money. Blockchain interoperability ensures sustainability through proof-of-stake consensus, scalability ensuring real-time global payments and open access without gatekeepers.

According to Fabio Chesini (Senior Research Director at Gartner) : “Blockchain standards for financial services companies are currently fragmented and immature. We are three to five years until standards mature and settle. It is unlikely there will be a single de facto standard like in the Open Systems Interconnection (OSI) model, at all levels. Given how new and fragmented the state of blockchain standards is, we expect no more than four standards to lead the market in the next three to five years.”

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Last modified on August 18th, 2023 at 2:38 pm