Interoperability for Newbies: The Next Evolution of Blockchain

February 6, 2020

The first blockchain network, Bitcoin, was introduced to the world just over a decade ago amid a mixed reaction filled with fanfare and suspicion. Several blockchains have sprouted over the years, each claiming to be better than all the others. But the advancements made over the last couple of years do not mean much if there is no focus on interoperability.

We have come a long way since Satoshi Nakamoto’s whitepaper. The technology has moved from a past-bedtime experiment for computer science nerds to mainstream use where even governments are openly exploring the benefits of integrating blockchain technology in their systems.

However, the industry itself is disjointed. Each new blockchain is focused on becoming better than its next competitor. The distributed ledger networks are marketed as the most scalable, secure, and overall better product.

These claims, some of them far-fetched from reality because of the current shortcomings of the architecture, somewhat fail to address that they represent disjointed and unconnected blockchains. As the race to create the best consensus algorithms and ecosystems intensifies, the core concept of blockchain – decentralization – has been buried under the banner of competition.

Blockchain balkanization

ConsenSys, a blockchain company founded by Ethereum co-creator Joseph Lubin, has coined a term known as “balkanization” of the crypto industry. This simply refers to unconnected blockchain systems as a result of the competitive nature of the industry. There are over 9,000 blockchain projects on Github.

What is interoperability?

Interoperability refers to the ability of different blockchains to communicate and share data with each other. At the present moment, the data residing on the Bitcoin network cannot be shared across the Ethereum network as there are no protocols to bridge the gap between the two. This extends to all the blockchains.

Some would argue that there is no need to make blockchains interoperable if they are in competition with each other.

This is not true. Bitcoin, the first blockchain protocol, can only do 7 transactions per second (TPS). Several blockchains have been created to address these challenges and become more scalable. However, this does not mean much if the blockchains are not interoperable. This could benefit one blockchain over others but hurt the whole blockchain ecosystem in the long run.

When we look at payment systems, Bitcoin is currently too heavy to support the amount of payments needed for the world. The Visa network can support up to 24,000 TPS although it currently does 1,700 TPS. However, this number can scale on a need-to basis.

It is a no-brainer that corporations who do a high volume of individual transactions would prefer to work with Visa over blockchain networks. In the traditional world, financial heavyweights such as Visa, Mastercard, and American Express among others are interoperable across the ATMs in use worldwide.

The same goes for the internet, which is interoperable through application programming interfaces (APIs). The internet would not have grown to what it is today if it lacked interoperability. The same goes for blockchains if they want to have a mainstream appeal. Blockchains have to demonstrate that they are ready to work together if they want to attract users.

Hypothetical importance of blockchain interoperability

Cointelegraph created a scenario with an imaginary world where blockchain has gained mass adoption and the majority of companies use blockchain protocols for data storage. Let’s assume that a person is injured and is in an ambulance en-route to a hospital.

The hospital the patient is being transported to will request the patient’s information from his/her regular clinic in order to find the best possible treatment options.

It may turn out that the clinic uses a different blockchain and is not compatible with the hospital’s ledger. The hospital will have no access to the patient’s healthcare data. This will not be good for the patient especially if it is a serious situation.

Achieving blockchain interoperability

There are several methods to achieve interoperability amongst blockchains.

Sidechains

Sidechains can be thought of as small blockchains working jointly with the main protocol. These sidechains include independent tokens, independent mechanisms or miners and they are all connected via the main protocol.

Notary schemes

Notary schemes use sidechains to achieve cross-chain communication that allows data transfer. It is regarded as one of the simplest ways of obtaining interoperability.

Relays

They are used to verify transactions that happen in other blockchains.

Are we there yet?

Currently, we have not yet achieved interoperability. Cryptocurrency exchanges are currently the viable mediums for interoperability in the space. It is easy for someone to swap Ether tokens for XRP using a centralized exchange. While this is good, there are major disadvantages such as the private keys being owned by the exchange and cryptocurrency exchanges are prone to hacks and mismanagement of funds.

Apart from exchanges, a number of projects – Chainlink, Wanchain, Quant, Polkadot, and Cosmos – are working on interoperability solutions but the main networks are still disconnected from each other.


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