The word is almost like a tongue twister, you hear it in almost all the four walls of the crypto space, well, fortunately, it is first an English word before being a Blockchain Jargon. These are two major oxford dictionary definitions:
- The ability of computer systems or software to exchange and make use of information eg. interoperability between devices made by different manufacturers”
- The ability of military equipment or groups to operate in conjunction with each other E.g staff believe interoperability between forces is crucial to effectiveness”
But what does it mean for the Blockchain?
Imagine a world where you can seamlessly move funds between any blockchains in real time regardless of what blockchain a digital asset was launched on. Imagine if you could use your Bitcoin (BT) holdings from your Bitcoin wallet to execute a smart contract on Ethereum without needing to convert them into Ether (ETH).
The simplest example of blockchain interoperability would be allowing a person who has funds on the Ethereum blockchain to transfer his funds to the Stellar blockchain.
As a whole it is the ability for different blockchains to connect and share information or value with each other in a seamless way using decentralized applications or “DApps” as they are commonly referred to in cryptocurrency circles Interoperability has led to the creation of more complex products and services.
A block contains all of the data that has happened on the network since the last block was created. For example, a transaction is an event. When I transfer my bitcoin from one address to another, this transaction will be added to all of the other transactions that have happened since the previous block was created. Every 10 minutes, these events are compiled into a single unit called a block and added to a chain of blocks containing every event that has ever occurred on that specific network. The most important part about this process is that each new block contains within it all of the information from its predecessor — hence why we call it a chain!
Blockchain interoperability will be important to the cryptocurrency ecosystem because it will help solve many of its challenges, including scalability, privacy, and lack of trust among users.
It is important because it reduces the cost of development by allowing developers to build on top of existing blockchains.
It also allows users to easily switch between chains, makes use of existing assets on different chains, and enables the exchange of data and information across two different blockchains.
The importance of cross-chain communication
Blockchain interoperability is critical to the success of blockchain technology. Blockchains that are not able to communicate with each other will be unable to harness the full potential of their decentralized networks. Interoperability can be achieved through different solutions that enable exchanges between different blockchain networks, such as atomic swaps and side chains. While atomic swaps generally allow cross-chain communication within a single ecosystem, side chains may facilitate interoperability across different ecosystems by allowing users from one blockchain network to exchange tokens with users on another network.
Atomic swaps (also called atomic cross-chain trading) are a direct peer-to-peer exchange of cryptocurrencies between two parties without using an intermediary like an exchange. In this setup, the two parties involved in the trade execute smart contracts on their respective blockchains that allow them to swap coins or tokens directly without going through a third party.
Sidechains facilitate interoperability across different blockchain ecosystems by allowing users from one network to transfer funds or assets to another network while maintaining all the benefits associated with being on a particular chain.
Problems facing this Technology
The blockchain industry is still in its early stages, and while it has enormous potential, it also faces serious challenges. As a crypto enthusiast or developer, you’ve probably heard of the major problems facing blockchains today: issues with scalability, centralization, and complexity; security threats like 51% attacks; the issue of interoperability between blockchains; difficulties in maintaining an efficient consensus mechanism; cost and speed concerns; lack of regulation.
Conclusion — Blockchain Interoperability
You might be thinking, “Okay, so what? How is this relevant to me as a user?”
Blockchain interoperability isn’t just relevant, it’s important.
This technology has the potential to reshape the current blockchain ecosystem for us all. It will bridge the gap between existing protocols and allow users to interact with multiple blockchains from within their current DApp or wallet, without having to rely solely on exchanges. This could help alleviate many of the issues that have plagued the industry thus far, like those around scaling and liquidity.
And most importantly for you, blockchain interoperability will enable seamless cryptocurrency transactions across multiple chains — something that’s sorely needed in today’s fragmented market.