As the blockchain industry expands, new blockchain protocols with unique approaches, consensus mechanisms, and application hosting capabilities are introduced. Blockchain’s architecture compels them to operate in silos, prohibiting growth. Due to concurrent development, they can’t scale. Creating incompatible ecosystems. Cross-chain technology promotes Blockchain interoperability. Consider why blockchain interoperability is important.
Why Should Blockchains Be Interoperable?
Interoperability across blockchains is required to overcome the limitations of blockchain protocols and gain better scalability, quicker block times, and stronger security. Additionally, interpretability will reduce the operating expenses associated with blockchain technology. Below is a list of blockchain restrictions stemming from insufficient or nonexistent interoperability.
- Due to the lack of direct compatibility between Bitcoin and Ethereum, Bitcoin users are unable to spend their crypto money inside the Ethereum DeFi ecosystem.
- Due to a lack of interoperability, consumers are unable to convert BTC to ETH without using a centralized cryptocurrency exchange.
- Both Ethereum and Binance Smart Chain support USDT, however it is not possible to transmit USDT straight from the Ethereum blockchain to Binance Smart Chain or any other blockchain.
- Blockchain pioneers want to integrate Blockchain into the conventional banking system. However, the lack of compatibility will impede the development of an efficient solution. Because if two banks utilize separate blockchains, it would be difficult, if not impossible, to conduct transactions between their bank accounts. Without interoperability, Blockchain in the financial sector will produce a system that is more fragmented than integrated.
How Is Cross-Chain Technology Implemented?
There is no one method for using cross-chain technologies. Different networks may adopt varied methods for blockchain interoperability in order to permit transactions across numerous chains without relying on third parties or centralized solutions. Listed below are many techniques for cross-chain communication.
Atomic Swaps
Atomic swaps are not a genuine kind of cross-chain communication, since two chains do not genuinely communicate. However, the system enables users to coordinate transactions across chains, permitting the direct exchange of one cryptocurrency for another. If you are looking for a cross-chain exchange, look no further than Atomex.
Ungoverned SPVs
It allows a sophisticated enough smart contract to validate a portion of Proof of Work history. Due to their low cost, stateless SPVs may be customized to a broad number of use cases.
Relays
Relays let one chain’s smart contract verify events on other chains. Relay can check the whole chain history and individual headers on demand. The relay approach employs trade-offs between relay security and operational expense. However, relays are sometimes costly to run.
Merged Consensus
This approach employs a relay chain to facilitate interoperability across chains in both directions. Merged consensus must be integrated into the chain from the ground up in order to be enforced. ETH2.0 and Cosmos are projects that employ merged consensus.
Federations
Using federations, a restricted set of trustworthy people may validate the happenings of one blockchain on another. Federations are strong, yet relying on a third party is necessary. This is its worst shortcoming, since it contradicts every principle of Blockchain’s decentralization.