Blockchain Interoperability – Understanding Cross-chain Technology

We understand Blockchain as a decentralized ecosystem powered by distributed ledger technology. But as we deep dive, we realize that it is not a cumulative ecosystem. Many blockchain exists in the market and the ecosystem for each Blockchain is isolated from one another. Individual chains have been designed with particular use-cases in mind, so they feature specific strengths, limitations and different degrees of decentralization. For instance, if the objective of a particular blockchain is to achieve a higher degree of transaction throughput, then the Blockchain might have a reduced degree of decentralization and security.

Because blockchains exist largely in silos, they are not able to communicate with each other. It means the strength of one chain cannot benefit other chains, or the limitation of a particular blockchain cannot be compensated by leveraging the features of another chain. These silos fragment the potential and value of Blockchain as an industry, further eroding user experience and hindering industry growth.

This is where cross-chain technology comes in. It is the solution for improving blockchain communication with each other. A cross-chain architecture facilitates interoperability, enabling two or more blockchains to trade-off their efficiencies, decentralization, features set, and security. This can improve chain efficiency, reduce fragmentation, allow users and features to flow more freely across multiple blockchains.

In this insight, you will get to read more about blockchain interoperability and cross-chain technology.

Table of content:

• What is cross-chain technology? 
• Why is cross-chain technology important? 
• Why is blockchain interoperability needed?
• What are the available solutions for facilitating blockchain interoperability?
• How does Cross-chain technology work?
• What are the challenges faced by cross-chain systems?
• How can LeewayHertz help?
• Concluding thought- the Future of Blockchain interoperability

What is cross-chain technology? 

As enterprises, large-scale corporations and startups are increasingly adopting blockchain solutions in their businesses; they realize that no blockchain protocol can exist or attain its optimal efficiency in complete exclusivity. Just imagine what would have been the efficiency of email services if it wasn’t feasible to send a mail from Gmail to Yahoo or Outlook. Interoperability between multiple email ecosystems has made email services as efficient as it is today. The same phenomenon of interoperability powers the efficiency of operating systems also.

Blockchain ecosystems also need interoperability – the ability to transfer information and exchange data between any blockchain seamlessly. Cross-chain technology is all about strengthening blockchain communication through the development and deployment of interoperable blockchain systems.

Why is cross-chain technology important? 

As the blockchain industry is expanding, we are witnessing the launch of new types of blockchain protocols, each empowered with a unique approach, new consensus protocols, and an entirely new set of capacities to host different applications. Yet, they all are growing parallelly and not scaling to the next level because the very basic architecture of Blockchain forces them to operate within siloes. This is creating separate ecosystems that cannot interoperate with each other. Cross-chain technology is important because it has the potential to facilitate Blockchain interoperability. Let’s understand with example, why blockchain interoperability is needed.

Why is blockchain interoperability needed?

Blockchain interoperability is needed to subdue the restricted capacities of blockchain protocols and achieve greater scalability, faster block times, and higher security. Interpretability will also help in reducing the operational costs related to blockchain solutions. Listed below are some of the blockchain limitations resulting from poor or no blockchain interoperability.

• Lack of direct interoperability between Bitcoin and Ethereum restricts the bitcoin users from using their crypto funds within the DeFi ecosystem of Ethereum.
• Because of non-interoperability, users cannot even directly transact BTC for ETH without involving a centralized cryptocurrency exchange.
• Ethereum and Binance Smart Chain both individually support USDT, yet one cannot directly send USDT from the Ethereum blockchain to Binance Smart Chain or any other blockchain.
• Blockchain pioneers envision implementing Blockchain into the traditional financial system. But the limitation of interoperability will hinder the implementation of an effective solution. That is because if two banks use different blockchains, then it would be too complex, if not totally impossible, to transact between bank accounts of those two banks. Without interoperability, Blockchain in the finance system would create a rather segregated system than an integrated one.

What are the available solutions for facilitating blockchain interoperability?

The interoperability challenge of blockchain technology is a critical area to be addressed. Taking the cue, blockchain networks like Polkadot, Cosmos, and Harmony are offering interoperability solutions to other blockchain networks. Several public blockchain networks, including Etherum, are focuing on interoperability and scalability, leveraging platforms like Cosmos and Polkadot. Cosmos has rolled out Inter-Blockchain Communication (IBC) protocol. It facilitates inter-blockchain communication and enables the transfer of tokens between Cosmos and other IBC-compatible blockchains. Inter Chain Messaging Protocol by Polkadot uses Bridges for blockchain communication. Harmony, as an interoperability solution, bridges Ethereum and Binance Smart Chain to its ecosystem.

Acknowledging the need for blockchain interoperability, even mainstream private blockchain network like HyperLedger that hosts most enterprise blockchain applications has moved toward leveraging public blockchain networks such as Ethereum.

Next, let’s try to understand how blockchain interoperability solutions are leveraging cross-chain technology.

How does Cross-chain technology work?

There is no single approach on how cross-chain technology is used. Different networks may take different approaches to blockchain interoperability to facilitate transactions across multiple chains without involving third parties or centralized solutions. Following are some of the approaches to cross-chain communication.

Atomic Swaps

Atomic swaps are not a true form of cross-chain communication because two chains don’t actually communicate with each other. But the mechanism allows users to coordinate transactions across chains facilitating trading of one cryptocurrency for another directly in a peer-to-peer transaction.

Stateless SPVs

It permits a sufficiently advanced smart contract to verify a subset of Proof of Work history. Stateless SPVs can be adapted to a wide variety of use cases as these are relatively inexpensive.

Relays

Relays allow a smart contract on a particular chain to verify the events that have taken place in other chains. Relay can verify the entire history of a chain and specific headers on-demand. The relay method applies trade-offs between the security of the relay and the cost of operation. However, relays are often quite expensive to operate.

Merged Consensus

This method uses a relay chain to allow two-way interoperability between chains. To enforce merged consensus, it needs to be built into the chain from the ground up. Projects like ETH2.0 and Cosmos use merged consensus.

Federations

A selected group of trusted parties can leverage federations to confirm the events of one chain on another. Federations are powerful, but it requires trusting a third party. That is its major limitation as it breaks every essence of Blockchain’s decentralization.

What is the challenge faced by cross-chain systems?

Difference of trust

Though interoperability is strongly needed, the cross-chain systems or solutions are subjected to the ‘difference of trust’ challenge. The trust system in every blockchain ledger is not equal. Some are backed by 1000 miners, while some are backed by five miners. Transferring data from a weaker trustable ledger to a stronger ledger can make the latter susceptible to third-party manipulation and various other discrepancies.

Transaction rate bottlenecks

Another potential technical challenge is ‘Transaction rate bottlenecks’, which can affect large-scale blockchain interoperability by clogging the throughput capacity of one particular chain when it is receiving transactions from many chains.

How can LeewayHertz offer cross-chain development services?

Committed to offering blockchain solutions for startups and enterprises, we, at LeewayHertz, have built a cross-chain platform for blockchain app development. Our solution is compatible with multiple blockchains. This helps in easy migration and sharing between blockchains. Our platform supports the development of blockchain applications using prebuilt components for rapid prototyping and MVP development. This eliminates the need to deploy multiple nodes and infrastructure. Developers get to focus on writing and deployment of blockchain business logic to start saving data on the blockchain.

Why choose our blockchain cross-chain solution for your next dAPP development:

• Facilitate blockchain app development in any technology
• Apps developed can seamlessly integrate with REST, AMQP or MQTT protocol
• Facilitate the development of hybrid blockchain applications
• Help you save data on-chain and off-chain
• Provided with OAuth User Management for login, registration and verification process
• Convenient migrating of data between blockchains or cloud databases
• Realtime rapid persistent data storage for hybrid application
• Store data in multiple Blockchains, including Tezos, Hedera, Stellar, EOS or Hyperledger.
• Integrate your application with main Network, test network and shared blockchain

Concluding thought- The future of blockchain interoperability

For blockchain to gain adoption across several industries, interoperability is a must. The need for interoperability is not limited to just swapping of crypto assets across blockchains. But going forward, it must also facilitate sharing of other information such as health records, supply chain records, certificates, and so on. Cross-chain solutions are still emerging and they are viable as an encouraging sign hinting at a future with better blockchain interoperability solutions. The hope prevails as different blockchain protocols and tech giants envision the road to blockchain disruption through interoperability.

Are you looking for a comprehensive rapid blockchain application development solution? We can help you. Our SaaS platform lets you build rapid blockchain applications without managing the infrastructure. To know more connect with our blockchain experts.