Introduction to Blockchain Interoperability

Mar 31, 2020 5 min read
Introduction to Blockchain Interoperability

Understanding how it works and why it’s so important.

Hi Readers👩‍💻,

Until now, blockchain ecosystems have remained siloed. Although some solutions have started to appear, in most cases, blockchains still cannot communicate with each other. It means that they cannot exchange data or value; this poses technological severe and scalability challenges and has also led to reduced network effects with communities fighting between each other. Today, we’ll be discussing the meaning and importance of blockchain interoperability and taking a look at some of the best projects out there trying to make this future a reality.

🤓 What is Blockchain Interoperability?

Interoperability refers to the ability of different types of computer systems to exchange information. In the blockchain space, interoperability means the ability of different methods to exchange data, value, and make use of it. It involves transferring on and off-chain assets and ensuring consistency between systems, which has been a significant challenge in the community.

But good news, many significant entities in the blockchain community have been working on this for years, and 2020 might be the year blockchain interoperability is fully accomplished.

So, why is interoperability between blockchains important? First of all, the success of blockchain technology will come down to how different blockchain networks can interact and integrate and off-chain networks.

Interoperability will also assist in getting rid of intermediaries or third parties. When different decentralized networks can communicate with each other without any intermediary, truly and fully decentralized systems will be achieved. Cross-chain technology gives the possibility to understand, read, and interact between different blockchains through multi-asset explorers and tools, without having to put in tremendous amounts of time and energy.

It is also said that blockchain interoperability will lead to multi-token transactions with the aid of multi-token wallet systems. This kind of development will mean that users will be able to have a single wallet for storage and transfer of many different digital currencies.

Finally, blockchain interoperability can empower horizontal scalability through application-specific chains. Instead of having one siloed blockchain processing all the transactions of thousands of Dapps, there could be hundreds of application-specific blockchain processing their purchase and then communicating these to the main hub. With horizontal scalability, blockchains applications are no longer limited by the chain TPS, since it is always possible to create another blockchain and then plug it into the system.

🔑 Key Blockchain Interoperability Protocols

Many different developers and networks are already working on solutions for the blockchain interoperability situation. The number of projects is on the rise. However, today we’d like to focus on some that we are most familiar with: Cosmos, Polkadot, and Icon.

Below are some of the top projects that aim at achieving enhanced blockchain interoperability.

🌌 The Cosmos Network’s Inter-Blockchain Protocol

The Cosmos Network has set its focus on building an internet of blockchains. Aimed at having different blockchain networks work and communicate together. You could compare this with the introduction of the internet. Before the internet, many different ethernets of companies, schools, and governments were there but only existed by themselves. The innovation of the internet made it possible for all those various networks to connect and share information.

Cosmos has created the inter-blockchain protocol (IBC); it is an inter-module communication protocol in which different processes run on different machines. Exciting about this protocol is that any application can be built on the IBC, take, for example, multi-chain smart contracts and atomic swaps.

Many different chains will connect with the Cosmos ecosystem, among which Irisnet. IRIS aims to build a technology foundation that will facilitate the construction of distributed business applications. Key challenges they work on are the integration and collaboration of off-chain computing and resources on a distributed ledger. And they are making sure that services across chains become interoperable.

KAVA is another chain build on the Cosmos ecosystem. The KAVA DeFi is focussed on becoming the first DeFi platform offering collateralized loans and stable coins for significant digital assets. A platform, with a completely different drive, built on Cosmos is the Regen Network. This network aims to realign the economics of agriculture through blockchain technology.

What makes this protocol stand out is the independence that it gives to its hubs. Each hub on the ecosystem has its community of validators. Being a sovereign application no longer means being unable to connect and interact with the central ecosystem you built on.

The Interchain Foundation is an entity working on interoperable blockchain technology. They work in close collaboration with the Cosmos Network. It is their mission to research, develop, and promote open decentralized network technologies that will provide sustainability, sovereignty, and security to communities worldwide.

🟣 Polkadot True Interoperability

Another network that is striving for interoperability between systems is Polkadot. Polkadot is a networking multi-chain protocol, a solution for blockchains to operate with each other, without having to sacrifice safety or reliability.

Through Polkadot, all connected blockchains will be able to transmit value, including messages or any data, in a way that they can trust one another. Like the Cosmos Network, Polkadot has developed a model to make sovereignty for different apps possible.

Some of the leading chains that will connect with Polkadot are Kusama, ChainX, and Acala. Kusama is a canary network for the Polkadot ecosystem. In short, Kusama is a pre-assessor and highly experimental version of Polkadot, aimed to warn for issues and keep things safe for developers. ChainX is an inter-chain hub that aims to improve connectivity. Furthermore, they work on transferring all assets across chains in a decentralized manner. A third chain connected to Polkadot is Acala; this decentralized stablecoin platform instigates cross-blockchain open finance applications. The network allows users to send and receive USD across any blockchain connected to the Polkadot network.

There are a few significant differences between Polkadot and the Cosmos Network, the main one being their different security models. Polkadot has a shared security model, where the relay chain verifies the transaction of the parachains. Parachains are blockchains within the Polkadot network. Within the network, all parachains are part of a ‘parent’ chain called the Relay Chain. The Relay chain has its consensus algorithm, which can finalize blocks on different parachains quickly. The drawback, however, is that the validators in the Relay Chain have final say over any parachain changes.

For more information on Polkadot, check out our article here.

🧑‍🚀 The ICON Network

ICONLOOP created the ICON Network. ICONLOOP is a Seoul-based company focused on making innovative blockchain use-cases in various industries by providing technologies and solutions. Similar to Cosmos, the ICON Network is another protocol that aims to achieve complete interoperability. However, this project has completely different goals from Polkadot and Cosmos.

ICON’s goal is to create a network of interoperable blockchains for various organizations and end-users. A good example is their current collaboration with the Seoul State Government of South Korea. The ICON Network aims to achieve its goals through the implementation of the Blockchain Transfer Protocol (BTP). This protocol makes it possible for blockchains within the ICON Network to exchange value similar to that of a decentralized exchange.

There are many different possibilities for kinds of chains to connect to the ICON Network. One of them is the CHAIN ID, a blockchain-based joint authentication system. CHAIN ID will allow a more seamless user-experience for identification on any systems connected to the ICON Network. The Seoul Standard Blockchain Platform is one of the main chains being built in the ICON ecosystem’ this chain is focussed on building administrative and business blockchain innovations for the people in Seoul. Furthermore, ICONLOOP has secured over 100 different enterprises to connect to the ICON Network. Amongst them are names such as Samsung and SK Planet.

The strength of the ICON Network is its focus on trying to attract followers from the centralized world by creating an internet-clone based on blockchain ideas. Meaning, their developers are working on making private chains compatible with their public chain.

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