every year, We see new blockchain networks developing to cater to specific niches within certain industries, with each blockchain having specialized functions depending on its purpose.For example, Layer 2 scaling solutions like Polygon are designed for ultra-low transaction fees and fast settlement times.
The increase in the number of new blockchain networks is also a result of the recognition that there is no perfect solution that can meet all the needs of blockchain technology at once. So, As more organizations become aware of this emerging technology and its capabilities, interconnecting these unique blockchains becomes essential.
What is interoperability?
Blockchain interoperability refers to a variety of ways that allow multiple blockchains to communicate, share digital assets and data, and work together more efficiently., This allows a blockchain network to share its economic activities with another. For example, interoperability allows data and assets to be transmitted across different blockchain networks using a decentralized cross-chain bridge.
Interoperability is not something most blockchains have as each is built with different standards and codebases. Since most blockchains are inherently incompatible, all transactions must take place within the same blockchain, regardless of the characteristics of the blockchain.
Marcel Hermann, Founder and CEO of THORWallet DEX, a non-custodial decentralized financial (DeFi) wallet, told Cointelegraph: “Interoperability can be understood as independence in the exchange of data. Currently, base layer protocols can interact with each other. Unable to communicate effectively with layer 1 protocols. Ethereum or Cosmos have smart contracts built into their Fabric, which only allow secure data exchange within their own ecosystem. The transfer of digital assets leaving the network raises a question: how can a blockchain trust the legitimacy of the state of another blockchain?
Harman continued, “Each blockchain’s consensus mechanism dictates the authenticity history of all transactions that were valid. This generates very large files that must be processed with each block and viewed only in the specific native language of the blockchain. Interoperability between two or more blockchains means that one or both chains can understand and process the history of the other chain, thus allowing, for example, the exchange of assets between different Layer 1 networks. given.
While it seems obvious that public blockchain projects should be designed with interactivity from the start, this is not always the case. However, heOrganizations are demanding more and more interactivity because of the benefits of information sharing and collaboration.
Why is interoperability important?
To exploit the full potential of decentralization, it is advantageous for people participating in multiple blockchains to be connected through a single protocol. This reduces friction for the user as they can access various decentralized applications (dApps) without having to switch networks.
Since blockchains operate independently of each other, it is difficult for users to take advantage of the benefits offered by each network. To do this, they must have tokens backed by each blockchain to participate in their network protocols.
Interoperability can solve this problem by allowing users to use the same token on multiple blockchains. Also, By allowing blockchains to communicate with each other, users can more easily access protocols from multiple blockchains. Thanks to this, there is a greater chance that the value of the industry will continue to grow.
Fabrice Cheng, co-founder and CEO of Quadrata – a Web3 passport network – told Cointelegraph:
“Interoperability is important because it is one of the main benefits of blockchain technology. Decentralized open source technology enables the creation of interoperable products across chains, enabling more users, businesses and institutions to stay connected.”
Cheng continued, “People using blockchain technology want to make sure people are screened, KYC verified, and have good credit. DeFi users can access trading options or access real-time prices. Interoperability is an effective way for users to cut out the middleman and allow businesses to focus on their core values. »
When it comes to decentralized finance, giving merchants more ways to access their assets could bring additional growth and opportunity in this space. For example, multi-chain yield farming allows investors to generate multiple returns in the form of passive income across multiple blockchains by owning the same asset.
The investor only needs to hold bitcoin (BTC) or a stable currency such as the USD coin (USDC) and then broadcast it through bridges across multiple protocols on different blockchains. Interoperability will also improve liquidity across multiple blockchain networks, as it will be easier for users to move their funds across different chains.
Interoperability is not just about connectivity between blockchains. Protocols and smart contracts are also interoperable. For example, t3rn, a smart contract custody platform, allows smart contracts to run on multiple blockchains. To do this, smart contracts are hosted on a smart contract platform and deployed and executed on various blockchain networks. Interoperable smart contracts make it easier for developers to build cross-chain applications and for users to execute cross-chain transfers.
Interoperable smart contracts will make it easier for users to access multiple decentralized applications, as they won’t need to switch networks. For example, suppose a user is using a dApp on Ethereum and wants to use a lending protocol on Polkadot. If a Polkadot-based dApp has an interoperable smart contract, it accesses it on Ethereum.
Oracles is another protocol that can benefit from interoperability. Oracles are entities that connect real-world data to the blockchain via smart contracts. Decentralized oracle platforms such as QED can connect oracles to multiple blockchain networks, allowing real-world data to be shared across blockchains.Additionally, Oracle can take data from an API or sensor and send it to a smart contract to activate once certain conditions are met.
For example, a supply chain consists of many organizations that use different blockchain networks. Once a supply chain component reaches its destination, Oracle can send data to a smart contract that confirms its delivery. Once the delivery is confirmed by the oracle, the smart contract issues the payment. Since Oracle is connected to several blockchains, each supplier can use the network of their choice.
Interoperability is also important for the exchange of digital assets between blockchain networks. One of the most common ways to do this is with a chain bridge.Simply put, cross-chain bridges allow users to transfer tokens from one blockchain to another.
Wrapped tokens, for example, allow users to spend bitcoin (BTC) in the same way as wrapped bitcoin (WBTC) on the Ethereum network. This is important in the DeFi space, as users can participate in DeFi without having to purchase the platform’s native token, which can be more volatile than stablecoins or top-tier coins such as BTC or Ether ( ETH).
Being able to easily move assets between blockchain networks is one of the main benefits of interoperability. Anthony Georgiades, co-founder of Pestel Networks, a non-fungible token (NFT) and Web3 infrastructure and security project, told Cointelegraph:
“Interoperability is of paramount importance to the blockchain industry due to the diversity of data and assets found in the cryptocurrency ecosystem. Decentralized cross-chain bridges are essential to facilitate the transfer between different types of tokens or assets.
Key to the success of blockchain technology will be the level of interaction and integration between multiple blockchain networks. So, Interoperability between blockchains is important because it lowers the barrier of entry for users who want to participate in multi-network protocols.
Interoperability between blockchains will improve productivity in the cryptocurrency industry. Users can quickly move data and assets between blockchains, increasing flexibility for everyone involved, Instead of being tied to a single blockchain, smart contracts can work across multiple networks, and oracles will present real-world data across different platforms. When combined with the benefits of decentralized public blockchains, interoperability should provide the foundation for widespread blockchain adoption and usage.
Georgiades continued, “Therefore, interoperability allows users to pass cryptocurrencies from one blockchain to another and allows users to post tokens or NFTs as collateral for other assets. An interoperable world on Web3 is a vision we are working tirelessly on. A multi-chain ecosystem facilitated by transparent cross-bridges will get us there and make this vision a reality.
the explanation: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information provided here should not be construed as financial advice or investment recommendations. All investment and trading activities involve risk and it is the responsibility of each individual to do the necessary research before making an investment decision.
