Blockchain was introduced to the world by Satoshi Nakamoto back in 2009 through the Bitcoin Whitepaper. Since then, thousands of different kinds of blockchains have been created with each blockchain trying to solve a different problem.
While the blockchain technology has gained prominence, this industry is still in its infancy. One of the major hurdle holding blockchain from mainstream adoption is the lack of communication between different blockchains. That is because blockchains follow a different protocol or a different consensus or are written in an entirely different language.
In today’s article, we will read about this inter-blockchain communication ( known as blockchain interoperability ), its importance and how the industry is solving this challenge.
What is Interoperability?
In general Information Technology (IT) terms, interoperability is the ability of a system to interact and work together with a different system or a product. The system may be similar or completely different from each other.
Similarly in a blockchain, interoperability is the ability of a blockchain to read & pass information to other blockchains, without the use of centralised intermediaries. This communication between blockchains expands the functionality of a blockchain and ensures a blockchain application is truly decentralised.
Why is Blockchain Interoperability important?
As the blockchain technology matures, more developers and enthusiasts are realizing that there can be no one blockchain that handles all the industry needs. And this means for blockchain technology to play a wider role in the industry they need to interact and complement each other.
For example, VeChain blockchain is optimized for data regarding supply chain. While it is entirely possible for the developers working on VeChain blockchain to add payment functionality inside the blockchain, this move would increase complexity in an already complex system. With interoperability, the problem is easily solved. Instead of including a distributed ledger technology inside VeChain blockchain, the developers can easily connect with Stellar blockchain which already is an optimized distributed ledger. This saves time for the developers and extends the functionality of an existing blockchain.
Another example could be the use of inter blockchain communication to exchange multiple cryptocurrencies. Currently to exchange cryptocurrencies between different blockchains a centralised entity (crypto exchange) is required. With interoperability, two cryptocurrencies can be exchanged with one another without a centralised entity.
Given the obvious advantages of blockchain interoperability, many developers have already started working on an optimal solution. The term used to define the technology related to blockchain interoperability is called Cross-Chain technology.
Projects Working On Cross-Chain Technology
Cross-Chain technology is gaining momentum and many analysts believe that the Year 2021 will be dominated by cross-chain technology and cross-chain applications.
Below are some top projects and applications working towards enhancing blockchain interoperability.
Chainlink is a decentralised oracle that reads publicly APIs and converts them into a form readable by smart contracts. This allows a smart contract to access data that is outside a blockchain. DeFi applications, especially decentralised exchanges are dependent on oracles for the current market value of tokens.
One of the most prominent projects in the blockchain interoperability ecosystem along with Polkadot, Cosmos uses a “hub & spoke” model to interconnect different blockchains. Different blockchains connect to a decentralised hub which facilitates the exchange of information between different blockchains. These hubs are specifically governed in a decentralised manner.
The brainchild of former Ethereum’s co-founder, Gavin Wood, Polkadot is arguably the most hyped project in the world of blockchain interoperability. Polkadot uses private chains (called Parachains) and public chains (called relay chains) to facilitate the exchange of different kinds of information between blockchains.
While most of the cross-chain platforms focus on “forward compatibility”, that is old applications cannot use the benefits of interoperability, Centaur is using cross-chain technology to create backward compatibility with existing blockchain protocols. The project is using a separate chain ( called Centaur Chain ) as a settlement layer for an existing protocol. This solution enables users to access DeFi solutions for several blockchains at the same time without the need to go through a centralised intermediary.
For example, a Centaur user looking for a loan of TRON (TRX) could put up Ethereum (ETH) as collateral. The user could then take advantage of decentralised applications built on the TRON blockchain. Once the TRX loan was returned the user’s ETH collateral would be released.
Because of the backward-compatibility of Centaur’s cross-chain interoperability, these established blockchains do not need to conform to new frameworks or protocols to ensure compatibility.
Thank you for reading our article on blockchain interoperability. If you like this article and found this useful, please do leave an applaud on this article.
For more information on Centaur, please take a look at our: