What Is Cross-Chain Interoperability?

What is Interoperability in Blockchain?

Interoperability in blockchain refers to the ability of different blockchains to freely exchange data. Cross-chain interoperability means that smart contracts on different platforms can communicate with each other without the need to actually send tokens. For example, assets, services, and transaction information are all recorded on the blockchain. Through appropriate interoperability solutions, activities conducted on one blockchain can be reflected on another. This means that regardless of which blockchain assets and services reside on, they can be managed and operated through applications.

Why is Interoperability Important?

The current blockchain environment resembles the early internet: it consists of many isolated ecosystems that cannot effectively exchange information. Due to a lack of interoperability and connectivity, blockchain technology has not achieved broader adoption, as data and value cannot flow freely between different networks.

For developers, each deployment forms an independent entity, leading to a lack of connection between backend contracts, which remain unaware of each other. For instance, a decentralized exchange might need to deploy different versions of its application across multiple blockchains (such as Ethereum, BNB Chain, and Polygon), resulting in each version being isolated from the others.

Users often face difficulties when using this multi-deployment approach. They cannot seamlessly transfer tokens from one blockchain to another. Typically, funds are destroyed on the source blockchain and then re-minted on the target blockchain through a third-party bridge. This process is not only time-consuming but also confusing, creating data silos and affecting user experience. Additionally, holding assets across multiple blockchains introduces higher security risks, making them more susceptible to hacking and potential loss of funds.

Cross-Chain Interoperability Solutions

To improve cross-chain connectivity, developers have built various solutions that simplify the transmission of data and value across different networks. This opens up new possibilities for developing more user-friendly interconnected blockchains.

There are many ways to enhance cross-chain interoperability; here are some examples of solutions:

• Chainlink

Chainlink is developing the Cross-Chain Interoperability Protocol (CCIP), an open-source standard that supports cross-chain communication, including information and token transfers. The goal of CCIP is to achieve universal connectivity among hundreds of blockchain networks by standardizing interfaces, thereby reducing the complexity of building cross-chain applications and services.

• Wormhole

The Wormhole protocol is a universal interoperability protocol that enables the transfer of tokens and messages across different blockchain networks. Network guardians monitor and verify information on the source chain to facilitate its transfer to the target chain. Through Wormhole, developers can create cross-chain decentralized applications known as XDApps.

• LayerZero

LayerZero is a full-chain interoperability protocol focused on lightweight information transfer between blockchains, providing a secure, reliable, and trustless messaging solution. LayerZero’s Ultra-Light Node (ULN) is a smart contract designed to enhance efficiency by providing the block headers of other bridged chains. The ULN is triggered only on demand, allowing smart contracts to communicate with oracles and relayers through LayerZero endpoints, thus enabling efficient cross-chain communication.

• Hyperlane

Hyperlane is a Delegated Proof of Stake (DPoS) chain protocol designed to verify and secure cross-chain communication through a configurable consensus mechanism. In the Hyperlane network, each validator is responsible for ensuring the security and accuracy of each connected chain, thereby facilitating the effective transmission of cross-chain information.

Cross-Chain Information Transmission

The Inter-Blockchain Communication (IBC) protocol is a standard protocol within the Cosmos network aimed at promoting interoperability between different blockchains. IBC defines a minimal set of functionalities that outline how blockchains can communicate and exchange data with each other. These functionalities are integrated into the Cross-Chain Standard (ICS).

For example, Osmosis is a decentralized exchange (DEX) that allows users to perform cross-chain token swaps. Osmosis utilizes the IBC protocol to enable seamless cross-chain token exchanges, allowing token holders to directly benefit from the interoperability provided by the protocol.

Avalanche Warp Messaging

Avalanche Warp Messaging (AWM) offers greater flexibility by allowing developers to create custom messaging specifications to support cross-chain communication. The AWM specification requires a byte array, an index for participating in BLS multi-signatures, and the BLS multi-signature itself, making it easier for developers to build robust decentralized applications (DApps) on the Avalanche network.

BTC Relay

BTC Relay is an on-chain relay station that can submit Bitcoin block headers to the Ethereum network in real time. By doing so, it verifies the validity of Bitcoin transactions submitted to the Ethereum blockchain, establishing a trustless bridge between the two networks.

Cross-Consensus Messaging Format

The Cross-Consensus Messaging Format (XCM) enables communication between different consensus systems on Polkadot. With the merger of XCM V3, developers can create applications that support bridging, cross-chain locking, exchanging, NFTs, conditions, and contextual tracking. For instance, Moonbeam’s XCM SDK focuses on XCM token transfers, allowing developers to interact with the Polkadot network.

Axelar

Axelar provides a solution for cross-chain communication through a universal messaging protocol, enabling developers to build decentralized applications that operate across multiple blockchains. It also offers secure inter-chain communication for users of bridged tokens through Delegated Proof of Stake (DPoS). For example, Axelar’s bridging application, Satellite, connects Ethereum-based BUSD with Cosmos, facilitating interoperability between the two ecosystems.

Benefits and Limitations of Interoperability

The advantages of blockchain interoperability are evident. Users can conduct transactions between different blockchain networks without intermediaries, reducing fragmentation and enhancing overall ecosystem interoperability, thereby broadening business boundaries and opening up new business models.

However, these solutions also have limitations. Different blockchains may employ various security mechanisms, consensus algorithms, and programming languages, increasing technical complexity. Additionally, these solutions may expose blockchains to greater risks of attacks and introduce new governance challenges across different networks.

Conclusion

Cross-chain interoperability solutions have the potential to significantly enhance the efficiency and functionality of blockchain networks by enabling communication, data, and value transfer between different networks. Future developments in cross-chain interoperability will promote innovation across various blockchain networks and create new application possibilities, thereby building a more connected and user-friendly blockchain ecosystem.

However, for widespread adoption, various cross-chain interoperability solutions need to be more stable and secure. Determining which solution can offer the highest efficiency, stability, and security remains to be further evaluated.