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Interoperability in the context of blockchains refers to a blockchain’s capacity to freely exchange data with other blockchains. Cross-chain interoperability allows smart contracts on different chains to communicate with each other without having to send the actual tokens between chains.
For example, assets, services, and transactions are recorded on a blockchain as documentation. Whatever activity takes place on one blockchain can be represented on another blockchain with the right interoperability solution. This means applications work with any asset or service regardless of which blockchain they are on.
Why Is Interoperability Important?
Blockchains today are in a similar position as the early days of the internet: there are many isolated ecosystems unable to exchange information.
This lack of interoperability and connectivity poses a significant obstacle to the broader adoption of blockchain technology, as it prevents the seamless flow of data and value across different networks.
From a developer’s perspective, each deployment constitutes an isolated and independent instance, resulting in the backend contracts being unconnected and unaware of each other. For example, a decentralized exchange (DEX) DApp may need to be deployed on Ethereum, BNB Chain, and Polygon networks individually. It leads to each version of the DApps being isolated.
As a user, the multi-deployment approach can present several challenges. It doesn’t allow for the seamless transfer of tokens from one blockchain to another. This is usually done in a process in which assets are destroyed on the source blockchain and minted again on the destination blockchain using a third party bridge. The process can be time-consuming and confusing, leading to fragmented data islands and poor user experience. The security risks associated with holding assets across multiple blockchains can also be significant, opening the door for hacks and potential loss of funds.
Cross-Chain Interoperability Solutions
Cross-chain connectivity is improving as developers build solutions making it easier to connect and transfer data and value across various networks. This can unlock new possibilities for more user-friendly and interconnected blockchain applications.
There are different approaches to improving cross-chain interoperability. Here, we list some examples to showcase a wide array of solutions.
Chainlink
Chainlink is developing the Cross-Chain Interoperability Protocol (CCIP), which is an open-source standard for enabling cross-chain communication, including messaging and token transfers. The goal of CCIP is to enable a universal connection between hundreds of blockchain networks using a standardized interface. It has the potential to reduce the complexity of building cross-chain applications and services.
Wormhole
The Wormhole protocol is a generic interoperability protocol that allows for the transfer of tokens and messages between different blockchain networks. Messages on a source chain are observed by a network of guardians who verify and facilitate transfers to target chains. Developers using Wormhole can build cross-chain decentralized applications called xDapps.
LayerZero
LayerZero is an omnichain interoperability protocol for lightweight message passing between blockchains, providing secure and reliable message delivery with configurable trustlessness.
LayerZero’s ultra-light nodes (ULN) are smart contracts that provide block headers of other bridged chains to improve efficiency. The ULN is only triggered on-demand and the smart contract communicates with an oracle and a relayer through the LayerZero endpoint. This design allows for lightweight and efficient cross-chain communication.
Hyperlane
Hyperlane is a delegated proof of stake (PoS) chain protocol that validates and secures cross-chain communication via configurable consensus methods. In Hyperlane’s network, each validator is responsible for validating every chain that Hyperlane is connected to, ensuring that cross-chain communication is secure and accurate.
Inter-Blockchain Communication
Inter-Blockchain Communication (IBC) is the standard protocol for blockchain interaction in the Cosmos Network, which is designed to enable interoperability between different blockchains. IBC defines a minimal set of functions that are specified in the Interchain Standards (ICS), which define how blockchains can communicate and exchange data with each other.
One example is Osmosis, a DEX that enables users to swap tokens between different blockchains. Osmosis utilizes the IBC protocol to enable seamless swaps of tokens from different chains, allowing token holders to directly benefit from the interoperability that IBC offers.
Avalanche Warp Messaging
Avalanche Warp Messaging (AWM) is designed to be flexible and allow developers to create their own messaging specifications to power communications. The AWM specification itself requires an array of bytes, an index of who participated in the BLS Multi-Signature, and the BLS Multi-Signature. AWM makes it easier for developers to build powerful DApps on the Avalanche network.
BTC Relay
BTC Relay is a chain relay to be deployed in a live setting. It enables the submission of Bitcoin block headers to Ethereum. By doing so, it provides a way to verify the inclusion of Bitcoin transactions on the Ethereum blockchain, creating a trustless bridge between the two networks.
Cross-Consensus Message Format
The Cross-Consensus Message Format (XCM) allows different consensus systems to communicate with each other on Polkadot. With the successful merger of XCM version 3, developers can build applications that enable bridges, cross-chain locking, exchanges, NFTs, conditionals, context-tracking, and more.
For example, the Moonbeam XCM SDK primarily supports XCM token transfers, allowing developers to interact with the Polkadot network using XCM.
Axelar
Axelar offers a solution for cross-chain communication through the use of the General Message Passing protocol, allowing developers to build decentralized applications that can operate across multiple blockchain networks. Axelar also provides secure interchain communication through delegated PoS (dPoS) for users bridging tokens.
For example, Axelar’s bridging app, Satellite, connects the Ethereum-based BUSD to Cosmos, enabling interoperability between the two ecosystems.
Benefits and Limitations of Interoperability
The benefits of blockchain interoperability is clear. Users can potentially conduct transactions across different blockchain networks seamlessly, without the need for centralized intermediaries. It also reduces fragmentation, improves interoperability within the broader blockchain ecosystem, and opens up new business boundaries and models.
There are some limitations to these solutions, however. Different blockchains may have different security solutions, consensus algorithms and programming languages, which can add to the technical complexity. These solutions can potentially increase the probability of attacks and present new governance challenges among different blockchain networks.
Closing Thoughts
Cross-chain interoperability solutions have the potential to significantly improve the efficiency and functionality of blockchain networks by enabling communication, data, and value transfers among different networks.
The future development of cross-chain interoperability is expected to foster greater innovation between different blockchain networks and new possibilities for blockchain applications. These can lead to a more connected and user-friendly blockchain ecosystem.
For widespread use, however, various cross-chain interoperability solutions need to achieve more stability and security. It’s unclear which solution will provide the most efficient, stable and secure tools.
