A Guide to Interoperable Decentralized Ledger Technologies

At this juncture in the state of the world’s civilization, it is clear that decentralized ledger technologies (otherwise known as blockchains) have a major role to play in a transition into the 4th industrial revolution.

Blockchain technology is tipping the scales in the world of finance with cryptocurrencies enabling a world of possibilities through decentralized finance where anyone from any part of the world can have free access to top-tier financial products.

It’s not just in finance, DLTs are also shaping other industries such as the music industry where power is shifting back to artists with blockchain-enabled platforms that connect musicians directly to their fans. 

In the digitalization space, blockchain technology is speeding up the process with tools that make it easy for the user to digitize and create physical original paper documents. Simply put, blockchain’s capacity for increased transactional transparency, while reducing operational costs proves to have obvious benefits that are applicable across multiple industries. 

The above examples represent only a small part of what is possible with increased DLT adoption. However, there is a caveat. 

The need for Interoperability

As different blockchain networks serving different purposes emerge, so too does the need for interoperability among these blockchain networks. Blockchain developers across the world are creating innovative solutions that cater to all sorts of needs. 

This creates a scenario where there are a large number of blockchain projects all of which have different characteristics such as different processes of validating transactions, different consensus protocols, and even different capabilities for hosting other decentralized applications.

What’s more, the problem is made worse given that decentralized ledger technologies are run with their economic structures fueled by a native cryptocurrency.

While the concept of blockchain technology by itself perpetuates decentralization, the disconnect between individual blockchains creates siloed ecosystems. These siloed systems are separate from each other thus stagnating the adoption rate and overall growth of the industry.

Without a network of interoperable blockchains, the entire sector would be nothing more than a scattered collection of siloed and weak blockchain networks that are susceptible to manipulation and centralization.

Blockchain interoperability: A definition

The interoperability of decentralized ledger technologies is set to enable different blockchain networks to not only communicate with each other but also exchange transactions with each other seamlessly. This would enable blockchain’s applicability in enterprise-level projects where collaboration and interaction are a must-have. 

At its core, blockchain interoperability refers to the ability of different blockchain networks to share, visualize and access information across multiple DLT networks without the need for significant structural changes or the introduction of an intermediary.

For example, with blockchain’s interoperability, a DLT developer will be able to create a decentralized application in the music industry that is capable of communicating with another application in the finance space. This makes it easy for users of the dApp to navigate across multiple blockchains, switch from one ecosystem to the other, and seamlessly move a digital asset from one network to the other without causing redundancies or compromising the network’s security. 

Bottlenecks to Blockchain Interoperability

The lack of standardization in blockchain development is by far one of the biggest challenges to achieving blockchain interoperability. 

Different DLTs built with varying programming languages and with varying parameters for communication and transaction schemes, not to mention different consensus protocols and smart contract functionality, further increase the disconnect. 

Several solutions have emerged in an attempt to introduce a standard for blockchain development such as the use of open-source protocols with a set standard for dApp development. 

Enterprise Ethereum Alliance for instance, has developed standard specifications that enable different organizations to build applications using Ethereum’s blockchain technology. Other initiatives to introduce standardization include IBM and Microsoft’s GS1 standard that was introduced in 2017 to enable the interoperable development of enterprise blockchain applications for supply chain clients.

Overall, establishing standards for blockchain development could go a long way towards reducing the risk of creating a blockchain industry filled with fragmented ecosystems. Setting up standards will help establish a stronger consensus and consistent terminology for development thereby fostering end-user trust.

Benefits of Blockchain interoperability

Interoperability is beneficial for the application of blockchain in industries such as aviation, healthcare, and trade finance where the value chain is important. In the healthcare system, for instance, an interoperable blockchain network can make it easy for patients to share their relevant medical history with a doctor on a peer-to-peer basis. That same patient can also use cryptocurrencies from a different blockchain network to pay for their medical consultation fee and other services without having to switch platforms. This makes it easy to onboard new users as the learning curve is not at steep as it is currently.

In the finance sector, blockchain interoperability will enable users to retain control over their funds even as they transact from one DLT network to the other. With a high level of cryptographic data security that DLTs are known for, an interoperable network of blockchains will ensure that the user retains control over their data as there is no reliance on third-party processors.

Other benefits include the convenience of enhanced efficiency as well as transparency, where smart contracts can be used to automate most of the interactions and transaction processing. Simply put, an interoperable blockchain ecosystem will be easy to navigate to track different transactions across different networks. 

Blockchain projects solving for interoperability

To bridge the gap of interoperability, several projects have emerged to facilitate seamless interaction between various blockchain networks. Here is a look at the top most popular projects championing interoperability.

Blocknet

Blocknet claims that it is designed to maximize interoperability among blockchain networks. The Blocknet protocol contains tools aimed at helping developers create the next generation of decentralized applications where everything is connected to everything.

Blocknet is working to set up an internet of blockchains where interoperable decentralized applications can use Blocknet’s layer two capabilities, thereby extending the functionality of scabble blockchains. With modular building tools such as the xRouter and the xBridge, Blocknet seeks to offer a seamless interoperability process.

In addition to a cross-chain capability, the Blocknet platform also comes with a decentralized exchange called Block DX. This exchange enables trading across multiple blockchains at near-zero trading fees. 

Polkadot

Another project looking to promote interoperability in the blockchain space at the moment is Polkadot. The project is often touted by proponents as the Ethereum killer as it is designed to be a blockchain of blockchains similar to how Ethereum supports the building of decentralized applications.

Founded by the founders of Web3, Polkadot’s ethos is built on interoperability. The project was designed by former Ethereum’s CTO Gavin Wood and other stakeholders, including Peter Czaban and Robert Habermeirer with an underlying concept that is quite similar to Cosmos. 

Polkadot uses so-called ‘parachains’ to allows different blockchains on its ecosystem to talk to one another as well as deploy Polkadot’s relaychain capabilities. Through this approach, various users of the network can transact both value and data on a scalable network. Primarily built for developers, Polkadot has since gathered a loyal following of fans looking to take advantage of its future-proof design. 

Solana

Just recently, Solana (a blockchain network that promises higher transactional throughput) launched a cross-chain bridge that enables developers who build on Solana to connect their application with the Ethereum blockchain, as well as with the Binance Smart chain and Terra (LUNA) network.

The inter-chain portal is called Wormhole and operates with the use of smart contracts to enable multi-chain messaging without any structural changes to the core protocol of each connected blockchain network.

Solana’s ecosystem has been expanding rapidly in recent months given its promise of high transactional throughput at considerably lower transactional fees. Solana also offers a system of standardization for developers looking to build their decentralized applications on top of its network as there is a manual with guidelines and standards for building on top of Solana. 

Chainlink

Chainlink is an open-source and decentralized oracle network with smart contract functionality that can be used to develop real-world applications on the blockchain. The Chainlink network is designed with tamper-proof inputs and outputs that not only allow developers to build applications that connect with other blockchains but also with any API (Application Programming Interface). 

Chainlink does this using smart contracts as well as a collection of pre-built and time-tested oracle solutions that work by converting input data from one blockchain translating it for the next blockchain. This chainlink functionality also enabled off-chain computation where developers can use Chainlink’s network of nodes to mitigate the risks of centralized systems. 

At the moment, Chainlink has partnered with other blockchain projects championing interoperability on networks such as Ethereum and Polkadot. With Ethereum as the largest blockchain network for hosting decentralized applications, Chainlink is enabling various dApps on Ethereum to interact with one as well as interact with non-blockchain ecosystems.

Wanchain

For developers looking to build applications that can be operated across different blockchain communities, Wanchain offers a variety of tools including a cross-chain decentralized exchange, a cross-chain mobile payment network as well as an interoperable enterprise-ready blockchain network. Wanchain works based on an idea that combines two cryptographic concepts, thus guaranteeing security as well as the confidentiality of network transactions. This makes it possible to secure the transactional data of the network even if there are multiple computational processes involved. 

Developers building on top of Wanchain can establish interoperability with heterogeneous blockchains such as Ethereum, Bitcoin, and EOS thus facilitating cross-chain communication seamlessly. The Wanchain platform is already live with enabled integration for Bitcoin, Ethereum, EOS, Maker Dao, Chainlink, and other prominent blockchain projects. 

Cosmos

Also known as the internet of blockchains, the name Cosmos is almost synonymous with blockchain interoperability. Cosmos is designed as an ever-expanding ecosystem of interconnected applications built on a decentralized framework. 

With over 249 applications and services already launched on its network, Cosmos achieves interoperability using the Tender mint Byzantine Zones which is a type of fault-tolerant protocol. 

Cosmos comes with an SDK platform designed to help developers create applications and services that not only achieve interoperability but also scale. The smart-contacts enable DLT networks, however, to prioritize interoperability above everything else with an inter-blockchain communication system built with a ‘hub-and-spoke’ type of architecture.

At its core, Cosmos is primed to serve as the economic center of all blockchains thus providing services such as a marketplace where swapping different digital assets from varying blockchains is possible. Cosmos aspires to enable this while also guaranteeing network security and scalability with reduced transactional costs. 

Ark

Founded in 2017, Ark is a modular framework for building custom blockchain applications. Ark offers a way for developers to create completely adaptable applications. Ark is an open-source platform and offers a complete suite of blockchain development tools designed with a Smartbridge to link existing blockchains, thus allowing these DLTs to transfer data and value with one another. What’s more, the Ark platform supports the development of multiple blockchains using multiple programming languages ranging from Python to Java and even Swift.

Other examples

In addition to the platforms mentioned above, several real-world uses cases of interoperable decentralized ledgers are already at work to increase the interoperability of blockchains.

AVA Network for instance, is an enterprise-grade blockchain solution that is already facilitating a highly interoperable and scalable ecosystem of DLT networks. Although it is designed as an open-source platform, AVA has a codebase for blockchain development on its network such that interoperability is achieved from the foundation of every DLT-based project. 

Transledger is another decent example of a blockchain interoperability platform at work. Transledger is designed to facilitate value transactions across multiple and separate DLTs. Transledger features an Inter-Blockchain communication (IBC) system designed such that separate and disparate blockchain networks can interact and perform various functions together.

Interoperability is an important aspect of blockchain technology as it will enable the full realization of blockchain’s potential. 

It will also be a key step towards increased adoption of cryptocurrencies and blockchain as it will introduce convenience and intuitiveness that makes it easier to onboard new users onto DLT-based applications. 

With increasing developments of blockchain interoperability solutions, the future seems promising as the blockchain landscape continues to gain more legitimacy across the board even as more people venture into the industry.