Home Blockchain Interoperability: Why It Matters and How to Make it Happen?

Blockchain Interoperability: Why It Matters and How to Make it Happen?

The blockchain industry market size is estimated by some to reach more than $69 billion in the next six years. The market capitalization of the entire cryptocurrency market already sits over $2 trillion. Blockchain and cryptocurrencies may once have been only for nerds and tech geeks, but things have changed significantly since.

Today, governments, businesses, institutional investors, and individuals are growing more optimistic about the evolving blockchain space. To support the argument, we have the numbers we shared.

Yet, it won’t be wrong to say that the industry and technology are both in their early stages. There are challenges blockchains face hindering their way to mainstream adoption.

One of the key challenges blockchain technology faces today is the lack of interoperability, a.k.a. cross-chain compatibility. So, what’s that, and what have we to gain from it?

Understanding the Basics of Blockchain Interoperability

Many things are so common that our brains often choose to ignore them. Such is the case with interoperability, not just of blockchains but of so many other technologies. To start with, let us take examples of some things that we’re familiar with: mobile phones, computers, and email.

Emailing wouldn’t be half as efficient and impactful as it is today if only two email platforms built on two different infrastructures were not interoperable.

For example, what if you couldn’t send an email from an account on Gmail to an account on Outlook? Surely, emails wouldn’t have made it this far into the future.

The same is the case with mobile and computer operating systems. What if you couldn’t call an Android user from your iOS device? Or, what if two users using Zoom on Windows and macOS couldn’t video call each other? What if it was not possible to send money from the Android version of Google Pay to its iOS version? The lack of interoperability would’ve made things fairly difficult for users.

The Interoperability of Blockchain Success Today is as Important as Cell Phone and Email Interoperability Was in the Beginning.

The blockchain industry is growing, and numerous promising blockchains are coming up, each claiming to be better than the other. Yet, they’re growing parallelly because the traditional architecture of blockchains does not allow them to communicate with each other. This forces blockchains to operate within siloes.

Every blockchain network represents an entirely new set of records and hosts different applications. They use different consensus protocols and take a unique approach toward blockchain, creating separate ecosystems not ready to interoperate with others.

Separate systems is true for every major blockchain, including Bitcoin and Ethereum. But thankfully, we have solutions such as the Harmony blockchain that help these blockchain networks interoperate. This ability of blockchain networks to communicate and share data with each other is what we call blockchain interoperability.

Now, the question is, why do we need interoperability?

Need for Blockchain Interoperability

Satoshi Nakamoto created the first blockchain, Bitcoin, to offer freedom to users who so far relied on intermediaries to process financial transactions. Since then, finance has been one of the principal target areas for most blockchain projects.

Then came Ethereum and showed the world that blockchain use cases range way beyond monetary transactions. Six years since the launch of Ethereum, we have blockchains disrupting every large industry from supply chain to video games, real estate to healthcare, and agriculture to entertainment.

The Rapid Expansion of Blockchain

As this rapid expansion of blockchain happens across industries, there are numerous blockchains that strictly focus on beating each other with better features. The features will include: greater scalability, faster block times, higher security, and so on.

The Main Point of Interoperability

Even in offering better features, these projects miss one critical point, i.e., without interoperability, the adoption of blockchain will be highly segregated and restricted.

The best example is to think of the two biggest blockchain networks — Bitcoin and Ethereum. The first supports the most widely used cryptocurrency, BTC. The second supports the most number of decentralized applications (dApps) and a majority of the decentralized finance (DeFi) ecosystem worth billions of dollars.

How to Use My Funds

Due to the lack of direct interoperability between Bitcoin and Ethereum, users of the world’s largest cryptocurrency cannot use their funds within the world’s largest DeFi ecosystem. This creates a barrier to the adoption of DeFi and cryptocurrencies.

Users cannot even transact BTC for ETH directly without going over to a centralized cryptocurrency exchange. It is also impossible to directly send tokens like USDT from the Ethereum blockchain to another blockchain such as Binance Smart Chain even if both blockchains individually support USDT or another token.

Supply Chain in Blockchain

Another great example can be the supply chain sector. Blockchain has a huge potential of disrupting supply chain processes. This could be for supply chains of healthcare, food, aviation, luxury items, or other industries. But if only blockchains are not interoperable, transmitting data from one to the other would be almost impossible. This would restrict companies from switching from traditional infrastructure to blockchain technology.

If we speak of implementing blockchain to the traditional financial system, lack of interoperability can be an even bigger nightmare. That is because if two banks use different blockchains, customers of those two banks will be completely cut off from each other.

It would be either too complex or totally impossible to transact between bank accounts of those two banks. This will create a rather segregated system than an integrated one like blockchain pioneers envision to create.

This is why blockchains must communicate with each other.

Now, we are left with another question… how do we make blockchains interoperable?

Blockchain Interoperability Solution

We aren’t the first people to be discussing the interoperability challenges of blockchain technology. The topic has been discussed and debated at length ever since blockchain started making inroads into major industries. All this has successfully led us to where we stand today in the blockchain space.

There are not one but multiple blockchain networks that offer interoperability solutions to other blockchain networks. Some of the most famous of these solutions include Polkadot, Cosmos, and Harmony.

Blockchain networks take different approaches to offer blockchain interoperability.

Polkadot and Cosmos follow a similar approach where they create a separate ecosystem that can contain different blockchains and enable them to communicate with each other.

Bridges make one of the three major components of the Polkadot blockchain and allow the network to connect with other blockchains. Cosmos, on the other hand, uses its inter-blockchain communication (IBC) protocol to enable interoperability. However, there are several incomplete components of these networks that are delaying their progress.

Harmony, which has recently emerged as one of the most trusted interoperability solutions, takes a slightly different approach. The platform has been successful in bridging Ethereum and Binance Smart Chain to its ecosystem.

How Does the Platform Bridge?

The platform bridges by deploying smart contracts on all blockchains and allowing the same set of nodes to read and validate relevant transaction requests on all blockchains. This is a unique approach as blockchains have their own exclusive nodes that can validate transactions only on one network.

How Do the Nodes Work?

These nodes keep an eye out for crypto transactions requesting a cross-chain transfer between the bridged blockchain networks. Once they find a request, they approve the transaction on the blockchain where the request originated and relay that information to the other blockchain. Then on the second chain, the same amount of assets are minted.

These functionalities have slowly started taking blockchain toward a future where blockchains can interoperate.

The Future of Blockchain Interoperability

Interoperability is a must for blockchains to gain adoption across the several industries that they can disrupt. There’s a ray of hope that very soon, blockchain interoperability will be more seamless.

Not only will we be swapping crypto assets across blockchains but also sharing other information such as supply chain records, health records, certificates, and so on.

Harmony’s vision is bringing the beauty of trustless consensus to 10 billion people. The only road to that vision is through interoperability.

Image Credit; worldspectrum; pexels; thank you!

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Stephen Tse
Founder and CEO of Harmony.one

Stephen Tse, Founder and CEO of Harmony.one, has been obsessed with protocols and compilers since high school. He reverse-engineered ICQ and X11 protocols, coded in OCaml for more than 15 years, and graduated with a doctoral degree in security protocols and compiler verification from the University of Pennsylvania. Stephen was a researcher at Microsoft Research, a senior infrastructure engineer at Google, and a principal engineer for search ranking at Apple. He founded the mobile search Spotsetter with institutional venture capital; Apple later acquired the startup.

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