Wednesday, December 1, 2021

What is cross-chain technology?

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Day by day, Blockchain is becoming mainstream. With that, the web is emerging to become a decentralized web, where users will have the utmost sovereignty and no centralized body or handful of superior companies will control user data.

However, to actualize complete decentralization in web or web data, Blockchain has to grow way more powerful than what it is today. Certainly, a lot is happening in the blockchain space, especially to improve its application as a business solution. However, one of the main limitations that restrict the capacities of Blockchain or limit down its use cases in the real world is the challenge of interoperability.

What is blockchain interoperability?

Blockchain interoperability can be understood as a state where two or more blockchains can transfer data with each other. But the problem is blockchain protocols lack interoperability. At present, we have multiple blockchain protocols, and each has different capacities, strengths, consensus mechanisms, degrees of decentralization, and limitations. Each blockchain protocol is an ecosystem in itself. But it functions in silos. In simple words, lack of interoperability restricts two blockchain protocols or ecosystems from interacting or communicating with the ecosystem of another blockchain.

For lack of interoperability, transferring tokens or any kind of data from one Blockchain to another gets difficult without involving a intermediary. Some of the real-world challenges that result from lack of blockchain interoperability are listed below:

  • Bitcoin users can't use their crypto funds within the DeFi ecosystem of Ethereum because there is no direct interoperability between Bitcoin and Ethereum.
  • Transaction of BTC for ETH is not possible without involving a centralized cryptocurrency exchange.
  • Users can't send USDT from the Ethereum blockchain to Binance Smart Chain, though both Blockchains support USDT.

Imagine if your Gmail or Outlook or yahoo mail were not interoperable. Suppose you could not send emails from Gmail to outlook or receive mails from yahoo mail on Gmail. In that case, would the email system be as effective as it is today? Certainly not. The same logic applies to blockchain ecosystems. For Blockchain to be an integrated solution and avoid creating segregated systems, blockchain interoperability is a must.

How to achieve blockchain interoperability?

Blockchain interoperability can be achieved with the aid of an Interoperable Blockchain that leverages cross-chain technology. Polkadot is an interoperable blockchain with a multi-chain architecture that uses a 'relay chain' and a parachain to cross-chain. Its key components include

  • Relay Chain is responsible for managing cross-chain interoperability, shared security and consensus of the polkadot network.
  • Parachains are the heterogeneous blockchains that connect to Polkadot for achieving interoperability
  • Parathreads are also similar to parachains but abide by the pay-as-you-go model
  • Bridges are reposnsible for connecting parachains with external networks like Bitcoin and Ethereum.

By implementing cross-chain technology, Polkadot allows interaction between multiple blockchain chains and improves their scalability. It uses the Substrate framework, which can be understood as a universal template that integrates various blockchain functions. A blockchain built using Substrate can easily cross-chain with Polkadot; otherwise, it needs to use a bridge.

Different types of Cross-chain technologies

Relay chain for blockchain interoperability is just one of the many approaches of cross chain technology. To facilitate cross-chain transaction or communication, different blockchain networks use different approaches. Relay is a popular one, other approaches are Atomic Swaps, Stateless SPVs, Merged Consensus and Federations. Following are basic details of these cross-chain technologies:

Atomic Swaps

Atomic swap is not true cross-chain communication. It simply facilitates direct peer-to-peer trading of one cryptocurrency for another.

Stateless SPVs

It allows an advanced smart contract to verify a subset of Proof of Work history.

Relays

A smart contract on a particular chain can verify the events that have taken place in other chains.

Merged Consensus

It also uses a relay chain and allows two-way interoperability between blockchains. Projects like ETH2.0 and Cosmos use merged consensus.

Federations

Here, a selected group of trusted parties confirm the events of one chain on another. Federations are powerful, but it requires trusting a third party.

Endnote

A lot of Blockchain development work is happening to improve the adoption of blockchain technology across several industries. And interoperability is one of the fundamental necessity that defines the real-world usability of blockchain. Blockchain Interoperability is not just about swapping of crypto assets, but it is to achieve a state where any kind of data can be transferred between any kind of blockchains. Cross-chain solutions are still emerging. Tech giants and blockchain development companies are profusely focusing on interoperability for powering the future blockchain disruptions.

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