Understanding the Interoperability Principles of Blockchain Technology

by
Blockchain
Understanding the Interoperability Principles of Blockchain Technology

Blockchains began to showcase their potential in the financial world after the release of Bitcoin in 2009. To this day, the technology is presenting attractive features like decentralization, security, and transparency across all industries. 

A Brief Description of Interoperability

Communication is a huge barrier that restricts the growth of blockchain technology. This downside ultimately creates isolated networks and goes against the general idea of decentralization. Interoperability can address such obstacles with its unique approach to achieving a relatively uniform network. 

Interoperability simply refers to a concept that helps bridge one blockchain network with another. Ideally, most blockchains are inflexible by design, making it difficult to connect and share information. 

Thus, interoperability gives digital ledgers an effective way to communicate and become compatible. That way, private and public networks can operate in a world where data can move from one chain to another.

How Blockchain Interoperability Works 

Cross-chain technologies are the guiding principles that promote interoperability between different ledgers. In essence, cross-chain solutions gather information from external sources and distribute them to a specific network. 

In that regard, such protocols streamline interactions between users and other systems. While it may be an innovative idea, blockchains will adopt different solutions that can eliminate third-party interventions. Such cross-chain solutions include:

Oracles

Oracles represent advanced protocols that relay off-chain data to smart contracts. In some cases, smart contracts may need external information to successfully fulfill an agreement. Oracles can transmit this information on behalf of the blockchain and establish a wider scope where smart contracts can run. Hence, the solution makes smart contracts more relevant to distinct digital ledgers. 

It’s worth noting that blockchain oracles don’t necessarily work as external data sources. Instead, the solution runs as a unique tool that searches, verifies, authenticates, and distributes data. 

An oracle can attempt to fetch data from multiple independent sources before it transmits accurate information. This advantage aids in maintaining interoperability and finding relevant information from trustless sources.

Sidechains

A sidechain represents a separate blockchain network linked to a single mainchain. This technology allows digital ledgers to meet several objectives and offload the tasks performed by the primary chain. 

Essentially, sidechains can come with their digital tokens, security features, and consensus mechanisms. This upside makes sidechains an appropriate tool to run decentralized applications since the mainchain will have smaller workloads. 

Swaps and Bridges

Swaps and bridges are common terms found in the virtual asset world. As a similarity, both mechanisms help establish interoperability by enabling fluid transfer of digital assets to other blockchains. 

In these solutions, users can lock an asset on one network and mint a similar asset on another blockchain. That way, buyers can purchase any digital asset from sellers who are operating on different ledgers. 

Examples of Interoperability Projects

The crypto industry has multiple projects that hope to address interoperability between blockchains. On one hand, these solutions may focus on improving blockchain scalability. Others may intend to solve the communication barrier between different distributed ledgers. Despite the approach, these protocols have one goal in mind; to create compatible networks where users can interact. The protocols include:

Polkadot

Polkadot is a prominent blockchain with a core network known as the relay chain. Here, other blockchains can link and interact with each other through the relay network. Each distributed ledger performs transactional tasks and uses the same security measures as the relay chain. 

This project allows users to not only transfer assets but also encourage data exchange. Therefore, Polkadot creates an interoperable system where blockchains can scale and exchange information/money. 

Cosmos

The second interoperability project is Cosmos, a blockchain network that plans to provide next-gen ledger solutions. Like Polkadot, Cosmos has a central blockchain network known as the Cosmos Hub. This mainchain is responsible for monitoring other blockchains connected to the Hub. The approach makes it easier for users to share data and perform interchain transactions on the same project. 

Chainlink

Chainlink represents a blockchain project that uses oracle networks to link multiple distributed ledgers. In this protocol, special nodes are available to retrieve data from public APIs. The obtained data is then transferred to smart contracts without interfering with a blockchain’s independence.

Advantages of Interoperability in Blockchains

One key advantage that stands out in interoperability is the unrestricted flow of information and digital assets. This aspect means that users can trade digital assets even when parties leverage different networks. Interoperability can also enhance the growth of digital tokens in a blockchain. 

Multiple assets will be able to get new audiences as blockchain networks become connected. In the end, this uniformity in the blockchain space could trigger the global adoption of digital currencies.

Closing Thoughts

Without a doubt, blockchains play an integral role in conserving the crypto transaction system. Even so, there is limited interaction between blockchains and other external sources. This downside, therefore, ignites the application of interoperable solutions that help ledgers coexist seamlessly. Blockchains are taking up cross-chain solutions to expand the networks’ reach. 

Besides communication, digital assets and their underlying technologies can gain more exposure to new users in the market. Interoperability will ultimately transform how blockchains work as it could unlock the ledgers’ latent potential.

While the whole idea may seem far-fetched, it is safe to say that the developments are currently underway.