The rapid evolution of Decentralized Finance has shown the importance of interconnection within the cryptocurrency world. So, blockchain interoperability is coming back into the discussion as a must instead of a buzzword.
As for the hype, it is more or less gone. But interoperable blockchains are an absolute necessity for this technology to go forward. There are thousands of blockchain projects that bring innovations and work quite well within their enclosed small ecosystem.
Yet, the lack of communication between networks creates barriers to adoption for all users. And as the blockchain community started approaching this matter in separate projects, it soon turned into a series of numerous alliances and collaborations.
And as we all know now, bridges and wrapped tokens are starting to allow a certain degree of cross-chain communication. Yet, there still is a lot of room for streamlining to achieve true blockchain interoperability.
Table of Contents
What does Blockchain Interoperability mean?
Blockchain interoperability represents the characteristic of several blockchain networks to connect and operate together as a whole, despite them having distinct state machines and consensus.
The state machine is the mechanism that describes what the changes that are agreed upon inside the network are. That includes transactions, the kind of stored data, account model, or unspent transaction outputs model.
The state machine is usually the part that most people look into when they hear about a blockchain project.
The consensus algorithm describes how the network reaches an agreement regarding the state in which a translation is. It also includes the incentive layers used to make the network decentralized and permissionless and how it is included.
The most popular incentive layers built on top of consensus systems are the Proof of Work and the Proof of Stake.
As there are thousands of existing blockchains out there, there are, of course, thousands of state machines and built consensus algorithms that are more or less similar. But although some of the projects come with innovations, they remain obsolete because of the limited use.
Therefore, all these blockchains need the ability to communicate with each other. This ability is called Inter-Blockchain Communication, in short IBC.
To understand IBC let’s further break it down into Intra-Blockchain Communication and Inter-Blockchain Communication.
Intra-Blockchain Communication usually refers to the communication between smart contracts within a single chain. But when referring to IBC, Intra-Blockchain communication describes a concept of blockchain ecosystems that allow the development of many side-chains or shards.
In relation to IBC, Inter-Blockchain Communication is the harder of the two concepts and represents the ability of a blockchain to communicate directly with another fully independent blockchain.
By being able to communicate with each other, blockchains are able to support and interconnect past, present, and future data from different networks.
Also, different blockchain applications can use capabilities from one another, forming one unitary network comparable to the internet. An “internet of blockchains,” you may say.
To some degree, the blockchains are starting to communicate with each other through bridges and wrapped tokens.
Why is the “Internet of Blockchains” necessary?
Imagine you had a computer you use specifically to search on Google, a different one to go on Facebook, and switching between 100 or more cables every time you access a different website. Doesn’t it sound like hell?
Now, imagine a world you could access every software, app, and file, regardless of its format or whether it was developed for Windows, Apple, Android, Linux, or whatever. That does sound amazing, right?
The situation described above emphasizes the major shortcoming of the blockchain industry nowadays. Although a decentralized application may come with some cool features, in most cases, it is limited to an enclosed ecosystem diminishing its use cases.
Yes, companies are open to exploring distributed ledger technology solutions. But if Bitcoin cannot be used together with a dApp for supply chain built on Ethereum and a Connected Vehicles Ecosystem built on IOTA, implementing a blockchain would just turn into another bunch of data silos that are a pain to connect.
Yet apps that need to reach multiple blockchains can do that through dedicated exchanges, swaps, and bridges. However, the whole process can get rather inconvenient for the end-user as it implies more steps and additional fees.
This is similar to how banks operate right now in moving money from one bank to another. A slow and expensive process with different ledger entries created at each bank to record transactions.
So, enterprise needs are not being met.
Different blockchain projects have different requests. And trying to force everyone to use a single mechanism to write their state machine is not always going to work.
When it comes to privacy, private chains must be allowed to make data accessible for dApps on public blockchains on their own terms. That’s due to the fact that companies that operate with private data have to comply with a lot of legislation.
Interoperability would solve this issue by giving more room for specialization in using specific data, formats, and structures.
The Blockchain Interoperability Alliance
At the end of 2017, Wanchain, AION, and ICON created the Blockchain Interoperability Alliance (BIA) to establish collaborations between independent blockchain networks.
The goal was to advance standards that would encourage connectivity between disparate blockchains, address the issue of scalability, and establish best practices for inter-chain communication within the industry.
AION is a project that mainly focuses on blockchain interoperability. AION wants to become a third-generation blockchain platform that will connect other blockchains, both public and private. Apart from interoperability, the team also wants to offer an environment for scalable dApp development.
The AION network consists of 3 key components:
1. The token bridge
- Used for exchanging tokens;
- Works bidirectionally and uses a Byzantine Fault Tolerant-based algorithm to come to a consensus.
2. The AION virtual machine
- A modified version of the Ethereum virtual machine that supports applications written in solidity and java;
- Light-weight and performant.
3. The AION API
- An interface for developers to build dapps;
- The API supports both java and web 3.0 programming languages.
AION offers developers a wide range of tools to develop on the chain. These tools give the ability to create smart contracts as well as migrate the existing Ethereum dApps to the AION root chain in less than 5 minutes.
The AION token works as fuel for the entire network and is used in the token bridge.
AION is looking to change the way blockchains connect with one another in the open and public blockchain world. The project’s focus has been on making their blockchain compatible with and acts as a service for other blockchains to communicate with one another in one network.
The developing team took inspiration from the way the internet works with TCP/IP. Bringing this concept to blockchain technology facilitates messaging between different blockchain protocols regardless of their structure and particularities.
SIDENOTE. TCP/IP -Transmission Control Protocol / Internet Protocol is the core messaging protocol that the internet uses.
The TCP/IP’s concept took the form of the AION Transwarp Conduit technology (which is a reference to Star Trek) to be a “beam” cross-platform transaction through AION.
AION Transwarp Conduit technology establishes that standard messaging protocol for data and state to be modified on the sending and receiving blockchain no matter where they are as long as they’re using AION technology.
In short, you could make a transaction from Bitcoin directly to Ethereum if they would have integrated AION.
“Wan” means “ten thousand” in Chinese, so ‘Wanchain’ translates as “ten thousand blockchains.” WAN also refers to the ‘Wide Area Network’; thus, Wanchain is building a network of many blockchains that previously could not communicate.
Wanchain is a distributed financial platform that facilitates private, cross-blockchain smart contract execution. It was created to unite the world’s isolated digital assets and transform the digital economy by allowing the flow of the world’s digital assets and data.
Wanchain is built of specialized nodes known as Storeman – employees. They are an innovative, secure multi-party computation method with a threshold-protected secret key to process cross-chain transactions.
Every cross-chain transaction goes through a Storemen node which creates a locked account that holds the funds being sent from the original blockchain. At the same time, an equivalent value is made available on the destination blockchain in the form of a corresponding mapping token.
The original funds can then only be released when the value of the corresponding mapping tokens is sent back to the original chain, and the mapping tokens themselves are destroyed.
ICON is a decentralized transaction platform that allows blockchains with varying governance methods to interact with one another. The project aims to give universities, hospitals, and financial institutions the ability to communicate with one another across blockchains.
ICON already made connections with prominent financial South Korean companies and also established government partnerships.
The technology behind ICON is not a connection of blockchains but rather a connection between communities. ICON looks forward to establishing a protocol that promotes real-world connectivity amongst communities.
ICON’s consensus mechanism is an enhanced Byzantine Fault Tolerance called Loop Fault Tolerance (LFT). The LFT provides faster agreement by creating a group of trusted nodes and is able to handle diverse consensus mechanisms by allowing each node or group to determine its own number of votes.
Also, through the ICX token, users are able to generate a staking return on the ICON Network.
The components of the ICON network are:
- the C-Node;
- the C-Rep;
- the ICON Republic;
- the Citizen Node.
The C-Node, or the community node, is the component that impacts the consensus part of the community. They can be used by organizations or by individuals. With a C-Node, node policies are defined by the members of the community.
The C-Rep, or the community representative, is the representative of the community and is chosen through the community’s vote.
The rep votes on governments, transaction verifications and receives incentives from activating and maintaining the ICON Republic. The representative may change from one node to another or from situation to situation.
The ICON Republic
The ICON Republic is the protocol used to connect communities to one another. It’s formed of C-Reps along with other Citizen Nodes. The ICON Republic is a decentralized platform, making communication between communities possible, and doesn’t get involved in community governance.
The Citizen Node
The Citizen Node is an individual node on the loop chain component of the ICON blockchain. They do not hold voting rights and only have permission to create transactions.
SIDENOTE. The Loop Chain is a high-performance network for enterprise use that has smart contract futures. It is created in such a fashion so it can be easily connected to other distributed ledger technologies and blockchains.
Other Blockchain Interoperability projects
Cosmos proposes the concept of the internet of blockchain and wants to achieve it by creating an ecosystem that connects all the isolated blockchains. The consensus mechanism employed by Cosmos is called Tendermint, which is a Byzantine Fault Tolerant consensus mechanism.
ATOM is the native token of the Cosmos hub and serves three purposes:
- As fees as a spam protection mechanism;
- For staking to incentivize node behavior;
- To participate in the Governance of the Cosmos Hub.
The Cosmos hub is also formed of three main pieces:
- The Tendermint core;
- The Application Blockchain Interface;
- The Cosmos SDK.
The Tendermint core contains the consensus algorithm and the inter-blockchain communication protocol.
The Application Blockchain Interface offers dapps replication within various programming languages and also serves as a conduit between the core and the SDK.
The SDK is the application layer of the project’s network. It provides a basic blockchain framework for developers.
Chainlink is a decentralized oracle network that provides off-chain data to on-chain resources. It acts as a middleware between different environments by making a connection between them. Chainlink doesn’t just offer interoperability by connecting blockchains but also connecting decentralized environments with centralized environments.
These days, numerous decentralized apps work with data that is external to them. And although a smart contract is built and hosted in a trustless and secure system, most of the time, it references data from centralized sources that can easily provide manipulated or incorrect data.
However, Chainlink wants to solve these issues through the use of the oracle nodes. These oracles are meant to form a trustless and robust network where off-chain data can easily be accessed and verified. The node operators have their historical and real-time performance immutably stored on the network for all to see.
Chainlink received a major vote of confidence by forming a partnership with the software giant Oracle. Chainlink also became an official cloud partner of Google, which will place all its bigquery data on the blockchain using a Chainlink smart oracle.
Through its partnerships, Chainlink is able to support numerous complex use cases, with insurance, market data, retail payments, and events data being just a few of them.
Link is the native currency of Chainlink and is also one of the best-performing altcoins. It is an ERC20 token with additional ERC 223 functionality and is mainly used to compensate the off-chain nodes.
Metronome is one particular crypto project when it comes to blockchain interoperability. It proposes a system in which a cryptocurrency can exist on multiple blockchains simultaneously. As a matter of fact, once it’s transferred to another blockchain, a currency can still go on even in the event where its original blockchain gets shut down.
And besides most crypto projects, Metronome is inflationary.
- These days, blockchain interoperability is not as hyped. However, as the DeFi emergence has shown, this characteristic is extremely important for the third generation of blockchain.
- Blockchain interoperability is the ability of a blockchain system to connect and operate together as a whole with other blockchains, despite them having distinct state machines and consensus.
- There are a lot of blockchain ecosystems that work well but are limited only to their network. In order to not create data silos, different blockchains must connect and communicate, allowing for specialization.
- At the end of 2017, Wanchain, AION, and ICON created the Blockchain Interoperability Alliance (BIA) to establish collaborations between independent blockchain networks.
- Besides the Blockchain Interoperability Alliance, there are projects such as Cosmos, Chainlink, and Metronome aiming to make the blockchain world interoperable.