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Blockchain Interoperability

Last Updated : 23 Dec, 2022
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Blockchain interoperability is a term used in the bitcoin and cryptocurrency industry to describe the process of blockchain-based or blockchain-related systems being able to interact with other non-blockchain systems.

Blockchains are inflexible by design, meaning that it is not possible for one blockchain to interact with another. This makes most blockchains incompatible with each other. However, there are a number of blockchains in existence, each with its own unique properties. 

  • The goal of interoperability is to make blockchains more compatible with one another and to allow their integration into existing systems.
  • Interoperability is the ability of two companies to work together on an existing system that only uses blockchain technology in order to reduce the costs of blockchain management and compliance for both companies. 
  • The concept of interoperability enables many new applications to be built on top of existing frameworks, allowing users to access data from multiple blockchains within a single application. 
  • For example, Imagine using Ethereum as a basis for smart contracts within an existing website, like WordPress or Shopify.

Here, we will discuss the following topics:

  1. Importance of Interoperability In Blockchain
  2. Why is Blockchain Interoperability Integral?
  3. Solutions For Executing Blockchain Interoperability
  4. How Does Blockchain Interoperability Work?
  5. Advantages of Blockchain Interoperability
  6. Disadvantages of Blockchain Interoperability

Let’s start discussing each of these topics in detail.

Importance of Interoperability in Blockchain

The blockchain is a distributed network of nodes from which no single node has a complete copy of the ledger. This ensures that blockchains are not susceptible to physical or digital theft and fraud, as the whole system is reliant on the credibility of thousands of independent validators. It is important that blockchains maintain accurate records just like traditional ledgers to promote trust in a system. 

  • Without this interoperability, it would be difficult for large companies to utilize blockchain technology because they need access to an unlimited number of independent parties rather than just one centralized authority.
  • It increases the network of blockchains making the process more productive.
  • It will help in getting rid of intermediaries, and third parties, synonymous with centralized systems.

Why is Blockchain Interoperability Integral?

In its simplest form, a blockchain is a decentralized ledger that can store transactions without the need for trusted intermediaries. Organizations use blockchains to track data and assets across disparate systems while providing immutability. However, as the number of blockchain networks operating in isolation increases, so too does the number of participants looking to utilize these networks.

  • Blockchain interoperability is important because it allows for different types of blockchains, both public and private, to coexist in a world where their data can be exchanged freely.
  • It also enables different types of transactions on these networks, like those with smart contracts or confidential transactions to take place simultaneously such that all parties can see them.
  • The result is a more efficient and simpler system for enterprises and individuals alike. It streamlines how complex transactions can take place without requiring middlemen, while still maintaining complete confidentiality.

Solutions For Executing Blockchain Interoperability

Below are some of the solutions for blockchain interoperability:

1. Polkadot: It is an open-source blockchain platform and cryptocurrency that has taken blockchain interoperability to another level. 

  • It provides interconnectivity and interoperability between the blockchains.
  • It enables independent chains to securely perform transactions with each other without a trusted third party and securely exchange messages.
  • It unites a network of heterogeneous blockchains called parachains and parathreds.

2. Hybrix: It is an open-source blockchain platform that unites all digital ledgers. 

  • It aims to provide a solution to moving value between ledgers.
  • It enables one token to exist on all ledgers.
  • Hybrix is borderless as it is not restricted to any single distributed blockchain, DAG, or another digital ledger.

3. Cosmos: It is a blockchain interoperability project that enables blockchains to transfer value with each other through IBC and Peg-Zones while letting them retain their sovereignty. 

  • It creates independent blockchains called zones that connect to the main blockchain called Cosmos Hub.
  • The hub monitors and maintains the record of the state of each zone.
  • It enables blockchain applications to scale to millions of users through horizontal and vertical scalability solutions.

4. Blocknet: It is a blockchain interoperability protocol that enables communication, interaction, and exchanges between different public and private blockchains. 

  • It allows nodes on separate networks to communicate and execute both value and data transfers.
  • The team developed their own blockchain with a native token of BLOCK used to pay execution fees.

5. Wanchain: It is a decentralized blockchain interoperability solution and a sustainable Layer 1 PoS blockchain. 

  • It allows for the exchange of assets and data between blockchains.
  • It is a full Ethereum-like environment that works with industry-standard Ethereum tools, Dapps, and protocols.

How Does Blockchain Interoperability Work?

Blockchain interoperability is the process of incorporating blockchain technology into other types of business entities. 

  • This often involves an entity on a traditional company merging with a blockchain project to allow the two businesses to work together more efficiently and effectively than they could either separately or working with each other in the past.
  • Blockchains are limited to what they can do without cooperation from third-party entities, so blockchain integration companies help integrate blockchains into other systems like businesses or governments by using their particular know-how and experience. 
  • Companies specializing in this kind of integration often take on smaller projects that are easier for them to handle than larger, more complex developments and missions.

Advantages of Blockchain Interoperability

  • Increases ease of sharing data: Blockchain interoperability increase the ease of sharing and integration of data. This encourages blockchain transactions.
  • Increases success rate of projects: Blockchain interoperability increases the success rate of future and current projects especially the projects like healthcare, finance, aviation, etc.
  • Cross-chain transactions: It has eased the process of cross-chain transactions as blockchains can share their data with one another.
  • Enhanced privacy and security: Blockchain interoperability is a safe and secure process thus there are no chances of fraud.

Disadvantages of Blockchain Interoperability

  • Highly restricted: The process of blockchain interoperability is highly restricted, though it can be complicated and complex for the users it ensures safety while transferring data.
  • Limited skilled manpower: Since this type of work is still new, it may be hard to find qualified professionals to help blockchain integration companies with the process since there aren’t enough developers out there yet who have experience with this type of work.
  • No Interoperability between two different networks: Currently blockchain interoperability is possible between different blockchains of the same network. 
  • No reverse flow of blockchain: A blockchain registered on a node cannot go back to its original location. 

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