Blockchain technology is actually older than it may seem, but the blockchain platforms based on it are relatively young. Like any such phenomenon, it emerges suddenly and evolves independently.
This has created several related issues, namely the isolation of these platforms where each was developed with its vision, approach, and standards. Blockchain developers successfully work on filling this gap, but a lot of work is still ahead and there are several different approaches to blockchain network integration.
Today we will look at what are the key challenges in achieving interoperability in blockchain technology. What are the advantages of blockchain interoperability? And what are the interoperable blockchain platforms that exist today?
Challenges for Cross-Chain Communication
As we mentioned earlier, because blockchain is an open technology, its implementation has been approached very differently without regard to the future popularity of other blockchain platforms and interoperability with them. This created many isolated blockchains that could not communicate with each other and made it difficult for Web3 to evolve in a coherent and uniform manner.
Lack of Standardization
The lack of an initial and unified standard or even established best practices for blockchain platform development and interoperability has created a problem of blockchain isolation. Everyone has developed their own vision, approaches, and standards making blockchain network integration technically impossible.
Liquidity Fragmentation
In turn, this also created the problem that the native tokens of each blockchain could not be natively integrated into the other. The lack of ability to seamlessly flow capital as a very basic problem severely stalled the development of Web3 as an industry.
Scalability Constraints
Also, isolated blockchains can experience network overload and the inability to delegate processing. It can create many challenges such as network slowdowns, rising costs, and security issues that ultimately negatively impact scalability.
Security Risks
Of course, blockchain security has also suffered from isolation. Finding a vulnerability in the protocol could result in all its assets risking being stolen or frozen without the ability to move them to another secure blockchain until the problem is resolved.
Achieving Blockchain Interoperability
When the development of this became inevitable, and the capital invested in it became impossible to ignore – it became obvious that each individual platform, as well as the whole Web3 industry, required solutions that could bring blockchain interoperability benefits. And to solve this there were several views, each with its features.
Blockchain Bridges
Centralized and decentralized blockchain bridges are separate, complementary solutions that work in conjunction with the main blockchains and help enable data exchange between them. Examples include Wrapped Bitcoin (WBTC), which allows Bitcoin to be used in the Ethereum ecosystem by locking it to a centralized custodian and issuing the equivalent amount of WBTC on the Ethereum network as an ERC-20 token. It is also an Avalanche Bridge (AB), which allows the transfer of Avalanche and Ethereum tokens using trusted relayers, while significantly increasing speed and reducing cost.
The problem with centralized bridges is their vulnerability, namely a potential single point of failure, which in turn has given rise to decentralized bridges. The most prominent example is Wormhole, a decentralized blockchain bridge that connects Ethereum, Solana, and BNB Chain. But it doesn’t guarantee security either, and in particular, it was hacked in 2022.
Layer Zero & Interoperability Protocols
There is also a more fundamental approach to solving the problem, namely seeking to provide a means not for interoperability between specific blockchains, but a foundation for interoperability between all. Of course, here there are several visions of how to approach and implement this too. Some have focused on developing a so-called Layer 0 blockchain as the underlying infrastructure for Layer 1 blockchains like Bitcoin, Ethereum, etc. Others instead of Layer 0 focused on developing decentralized middleware and interoperability protocol as such.
IBC (Inter-Blockchain Communication)
IBC is a cross-chain interoperability protocol that runs on top of Cosmos’ Layer 0 infrastructure and uses light clients and Merkle proofs to verify the state of the chains to ensure safe and reliable data transfer between independent blockchains. In turn, Tendermint’s consensus mechanism ensures transaction completeness within individual Cosmos chains, which connect into Cosmos Hub and implement their proprietary Hub-and-Spoke Model. This is a decentralized security model where each chain is responsible for its security while maintaining interoperability with each other. IBC can use this Layer 0 infrastructure for more efficient functioning, but it also supports direct interoperability between blockchains without Tendermint and Cosmos Hub.
Cross-Consensus Messaging (XCM)
XCM is another cross-chain interoperability protocol, but now from Polkadot, that communicates between parachains within Polkadot Layer 0 called Relay Chain, the general architecture of which we have described here.
Although XCM can exchange data directly between parachains, full functionality is achieved through the Relay Chain which coordinates interactions and also implements shared security for the entire Polkadot ecosystem using Polkadot Validators and nominated Proof-of-Stake (NPoS) consensus. As you may have noticed this is different from the decentralized security approach of Cosmos, which has its fans, but XCM can provide a few features of its own. It allows not only data and asset sharing, but also smart contract invocations, asset management, and consensus commands.
Chainlink Cross-Chain Interoperability Protocol (CCIP)
Another approach taken by Chainlink with its CCIP – cross-chain interoperability protocol that enables cross-chain smart contracts execution. It does not rely on a Layer 0 architecture like Cosmos or Polkadot but uses the Decentralized Oracle Network (DON) as the base infrastructure to verify and securely transmit messages based on a trust-minimized approach. Especially given the recent updates, CCIP v1.5 has significantly expanded its capabilities far beyond asset transfers, aiming native integration across different blockchain networks and even traditional financial systems, bringing a wide range of functionality such as Self-Serve and Permissionless, Programmable Token Transfers, Defense-in-Depth Security and more. All this makes it highly welcoming for developers and promising blockchain connectivity solutions.
Future of Blockchain Networks
The future of connected blockchain networks is difficult to predict accurately, as it is an event without predecessors, and the current development is so rapid that it provides unexpected solutions and unpredictable implementations. However, there are a few key aspects that can suggest the vector.
Directed Acyclic Graphs
As contradictory as it may sound, the future of blockchain platforms could be not a blockchain technology, but one that can potentially bring its advantages and avoid its drawbacks. One of these could be Directed Acyclic Graphs or DAGs, which could also be the foundation for decentralized, open, and immutable networks, but could be easier to scale, cheaper, and more efficient. While there are already some who have implemented, such as Hedera, Constellation, and IOTA, and have already become part of Web3 – blockchain is still the central technology and that may not change.
Zero 0 Development and Interoperability Protocols
Since the main capital is in Layer 1 solutions, the development of Zero 0 solutions is likely to be increasingly important to maintain and grow the Web3 economy. Layer 1 solutions require enhanced functionality that is not inherently built into them such as seamless flow of capital between blockchain networks and beyond – so Zero 0 and Interoperability Protocols such as IBC, XCM, and CCIP are likely to gain importance for the future of connected blockchains.
DeFi and TradFi Integration
While any technology can be improved constantly, blockchain platforms are mature. And even with all the great development and regulatory changes – it seems we won’t wake up to Web3 one day. At least for now, it seems likely that DeFi and TradFi will mutually exist for some time to come, and even more likely integrate into each other creating cross-platform blockchain solutions.
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Conclusion
Unification and standardization of Web3 are critical because their lack is one of the key barriers to its even more rapid development and mass adoption.
The completion of this has come and for several years some projects have been fully dedicated to solving this problem, already showing impressive results. If things go the same way, this barrier may be completely and finally overcome soon.
However, it should be kept in mind that a number of factors, ranging from the enthusiasm of developers to the flow of capital and favorable crypto regulations, should favor it.
To keep up with the latest developments and updates in crypto and blockchain space, be aware and stay tuned.
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