As blockchain technologies grow more popular and accessible, companies are looking to incorporate them into their businesses as part of the next generation of technology. As a result, companies are excited about cross-chain interoperability, which describes how different blockchains can communicate to make transactions more straightforward to handle. But what exactly does this concept mean? What are the benefits of cross-chain interoperability? And how can it be utilized in the future?
Meaning of The Concept “Cross-chain”
Cross-chain is pretty much as it sounds; crossing from one blockchain to another. In blockchain terminology, cross-chain refers to any unhinged communication between different blockchains. For example, they allow you to exchange coins on Bitcoin’s blockchain for coins on Ethereum’s blockchain without going through a third party’s route that requires custodianship of your funds. This is an essential concept because it means we can have interoperable blockchains that don’t just talk to each other but also trade with each other. They are needed so that we can move assets freely across multiple networks while retaining control over our assets at all times.
Cross-chain interoperability allows transactions across different blockchains without incurring cumbersome processes or expenses. Interoperable blockchains interact with no centralized exchanges or intermediaries; transactions are made directly between two users, one of whom will act as an intermediary. Once in possession of these tokens, they can then be transferred to a different chain using a process known as atomic swaps. Although each cross-chain transaction requires some work to execute—like putting up deposits and signing smart contracts, they remain more efficient than traditional exchanges. They also have lower fees because there’s no need to convert currencies into fiat money. In addition, most cross-chain transactions only require gas to complete. Finally, by removing third parties from every step of a transaction, blockchain technology makes it possible for any cryptocurrency to serve as a medium of exchange across chains. As a result, we may see cryptocurrencies initially designed for niche use cases become viable payment methods across many different platforms and services.
The history of the concept
When Satoshi Nakamoto invented Bitcoin back in 2008, he laid out a vision for how to create a genuinely peer-to-peer currency system. Consequently, other blockchains were created, each solving different problems. As a result, blockchain technology was heavily criticized by naysayers who claimed that blockchain and cryptocurrency could not sufficiently revolutionize our world if each blockchain works independently.
In truth, the criticisms were spot on. For example, our traditional financial system would be grossly inefficient if Bank A could only initiate internal transactions quickly. Assuming our conventional financial system required cumbersome processes and expensive fees for inter-bank transfers with another bank, say Bank B, then using the bank would be stressful and inconvenient. Similarly, interoperability is a vital requirement for the blockchain to achieve massive global adoption.
The blockchain is increasingly adopted, and the Web 3.0 dream is slowly becoming a reality; hence, several blockchain projects are looking to solve the interoperability problems to fulfill Satoshi’s vision of making the blockchain easily accessible for all. Some popular ones include Polkadot, Aurora, Cosmos, Harmony, etc.
However, some of these existing solutions negate the decentralization of the blockchain. One of blockchain’s fundamental properties has always been its decentralized, peer-to-peer nature, allowing users to conduct transactions safely without trusting an intermediary.
Some of the existing solutions compromise decentralization by facilitating interoperable transactions through gateways. However, the challenge with these gateways is that they either require users to deposit funds onto a centralized server or only work as a one-way path (semi-interoperability); hence, the technology is mainly inefficient. Nevertheless, the consolation for blockchain enthusiasts is that the technology is still in its infancy, so developers are working on more ways to facilitate cross-chain communication in ways that do not disrupt decentralization or security.
Cross-chain Interoperability: How does it apply to blockchain today?
Currently, many blockchains exist, each with different purposes. While these individual chains offer unique benefits to their respective participants, it makes sense to be able to share information between them when appropriate.
However, all these blockchains have different governance protocols, each with a native token that governs activities on the blockchain. Hence, developers must create dApps that are compatible with each blockchain. Although most developers have tried to maintain EVM compatibility, this is pretty limited. It would be much more efficient if developers could create dApps on different chains that can easily communicate with one another, despite different backgrounds.
Also, going through bridges, gateways, and channels to intercommunicate among blockchains leads to slower and more expensive transactions. However, creating interoperability in blockchain technology will facilitate scalability in cross-chain communications.
As a result, participants can utilize blockchain applications on all chains while paying transaction fees just once. This increases liquidity across all public chains while reducing risk exposure for users on a single chain. In addition, it allows them to easily move funds among all applications at no cost and with little effort.
How will we use it in the future?
The metaverse, a virtual representation of the real world, must be interoperable. It would be weird if someone in Texas is limited to the Texas world only and cannot communicate with Chicago or any other state.
Our world is an interoperable one, and for the metaverse to be a success, interoperability must be at its peak. It is essential for different metaverses built on different chains to be interoperable. Also, digital assets (NFTs) on one chain should be easily transferable to other chains without having to go through cumbersome processes or pay hefty fees.
Hence, one can say that interoperability is one primary requirement that has stalled the massive adoption of blockchain/crypto in our world today. Nevertheless, Rome wasn’t built in a day, blockchain experts and developers are developing more solutions, and the blockchain-based internet (Web 3.0) that seems like fantasy will become a reality.
Final Takeaway
The future of blockchain technology looks bright, with innovations on a seemingly daily basis, and cross-chain interoperability will be a significant part of the future. Thanks to growing interest in blockchain, scientists and researchers are hard at work discovering new ways to implement interoperability. However, because each separate blockchain is like its own isolated digital system, data can’t easily pass between them—unless they become interoperable.
Thankfully, many projects are dedicated to making cross-chain communication as easy as possible for developers. As these platforms continue to improve, we’ll start seeing more applications that utilize multiple blockchains without any trouble. And once we do, blockchain tech will genuinely begin to flourish.
In Conclusion
We hope that we have provided vital insights into interoperability and the Cross-chain concept. Ensure to visit the CCTIP Blog daily for articles that will educate you on critical cryptocurrency and blockchain concepts. Join us on telegram for more information.
