A Detailed Guide to Blockchain Interoperability

What is interoperability in blockchain?

Immutable and decentralised digital ledgers, known as blockchains, are known for overcoming key shortcomings like centralisation of operations and the lack of transparency. However, to realise their full potential, blockchain networks should be able to interact with each other instead of being isolated data centres. In other words, they should be ‘interoperable’ with each other.

Blockchain interoperability is a feature that enables the seamless transfer and exchange of data between blockchains without an intermediary. In this way, the use cases of blockchain can be significantly expanded. The earliest blockchain networks, like Bitcoin, faced this issue since they weren’t interoperable with other protocols.

Fortunately, multi-chain blockchain protocols like Polkadot are extensively working on this subject and developing solutions. One of them is ‘parachains,’ which are layer-1 interconnected blockchains that facilitate seamless data transfers.

But how does blockchain interoperability work? Lets delve into that before knowing about more interoperability solutions.

How does blockchain interoperability work?

A cross-chain messaging protocol can help implement blockchain interoperability. This concept allows the transfer of messages and data from one blockchain to another through direct user-to-user communication. It also involves interactions between smart contracts of different blockchains to carry out seamless interoperability. It happens through cross-chain decentralised applications (dApps), which enable users to utilise services of non-native networks.

A popular example of this is the Chainlink protocol. It is an interoperability protocol that helps in cross-chain token and message transfers, and in building dApps for this function. In April 2024, Chainlink also launched a cross-chain messaging application for secure cross-chain crypto transfers, known as Transporter.

Here, it is crucial to note the difference between cross-chain dApps and multi-chain dApps. A multi-chain dApp may deploy similar programs in various distinct blockchains, but each program holds smart contracts that are not interlinked. Thus, they are isolated without any connection to other blockchains.

On the other hand, cross-chain dApps can function across multiple blockchains with a single deployment of smart contracts, via cross-chain bridges. Developers don’t need to deploy individual versions of smart contracts in each different blockchain in this case. This way, cross-chain dApps increase the potential for building cross-chain blockchain-based products and services.

Interoperability solutions in blockchain

Here are some of the blockchain interoperability solutions that are popular right now:

Token bridges: One of the methods of how token bridges work is that while a smart contract in a source network burns or locks tokens, a destination chain’s smart contract unlocks or mints the tokens. This enables the transfer of tokens from one blockchain to another.

Token swaps: It is one of the most effective blockchain interoperability solutions. Token swapping is done by an instant and direct exchange of tokens of different blockchains without needing to convert to fiat currencies.

Native payments: Two blockchains can establish interoperability if one triggers a payment on the other through its native tokens, which is known as a native payment.

Programmable token bridges: Token bridges and arbitrary messaging can be used in a combination for functionalities such as swapping or staking tokens in destination blockchains, and this solution is referred to as a programmable token bridge.

Contract calls: These are communication calls between smart contracts on different blockchains, with data from the source chain. Contract calls can also result in cross-chain actions, resulting in interoperability.

These blockchain interoperability solutions are further validated by some cross-chain validation methods listed below:

Native validation: In this method, destination chains run follow-up transactions on its own chain after verifying the source blockchain’s status.

Local validation: They are ensured when both networks in cross-chain transactions check the state of the other. Atomic swaps, or swaps between different blockchains, are validated by local validation.

Web2 validation: This validation method is named so because of the use of a web2 service in it. For instance, swaps using centralised exchanges are validated by this process.

External validation: Validator nodes that are not a part of either the source chain or destination chain are responsible for external validation. Usually, the assumption of the majority of the validator nodes is taken to maintain the integrity in the external validation.

Importance of interoperability in blockchain

Interoperability ensures there are no barriers between different blockchains, which is needed for large-scale use cases. From financial services and healthcare to even supply chains, blockchains have the capacity to transform industries. Blockchain interoperability is also necessary for widespread adoption. Let's take the example of USDT. The Tether stablecoin is minted originally on the Ethereum network as an ERC-20 token. However, there could be applications on the TRON network that need to accept USDT payments or transfers, for reasons as simple as gas savings. Hence, it is essential for USDT to also be transferable on the TRON network. This is one of the many instances where blockchain interoperability could come in handy.

Interoperability solutions in blockchain: how it could lead to wider adoption

Since some protocols have already built blockchain interoperability solutions, as this blog mentioned, the future looks promising. As these solutions go through extensive adoption, an interoperable blockchain ecosystem is likely to emerge in the future. With seamless data and information transfers, blockchains could create possibilities for more cross-chain applications that are user-friendly and functional for regular use.

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