What is Interoperability?

Interoperability refers to the ability of a system to interact and share data with another system. You've probably seen this happen without realizing it in your everyday interactions with different software. Consider how you can create an account on a new platform using your existing Google, Facebook, or Apple accounts — that's interoperability.

Outside of web and software engineering, interoperability exists in other technical and non-technical domains, notably healthcare, transportation, and even the military. Interoperability in the military, for example, is the ability of different groups or sectors of allies to act cooperatively and effectively to accomplish tactical and strategic goals.

In this article, however, we’ll focus on interoperability between blockchains — what it means, why it’s vital for the development of the blockchain ecosystem, and what it looks like currently.

Interoperability between Blockchains

A blockchain is a decentralized ledger system running on a network of connected computers that share information between each other. Interoperability in the context of blockchain technology refers to the ability of blockchain A (for example, the Ethereum blockchain) to communicate and share information with blockchain B. (e.g., the Bitcoin blockchain).

While this level of interoperability isn’t explicitly possible just yet (as we’ll see in a later section), this is what “interoperability between blockchains” refers to. That’s because, until recently, blockchains were very non-interoperable, with different blockchains functioning independently.

Why Does it Matter?

The importance of interoperability between blockchains has grown as networks have become more complex. The blockchain industry is growing increasingly diverse — some sectors concentrate on computing, some explicitly on storage, and some focus on encryption. But building blockchain applications requires access to all those elements, which is why interoperability between them is essential.

Here are some other reasons why interoperability is so important:

• Ease of use - We interact with different blockchains daily and store our assets on various networks. With improved interoperability, it will become easier to interact with all of these assets, most likely through a solitary medium. Interoperability will also reduce killer transaction fees, leading to wider adoption.
• Scalability - Blockchain interoperability allows for greater scalability than the current state of blockchain design can support. Because this technology allows users to interact with multiple blockchain networks through one platform or app, they can use the collective functionality of all those protocols at once, allowing for split computational loads and enabling access to the transactional capabilities of multiple blockchains at once.

Interoperability is essential because it allows users to seamlessly transition from one system to another without having to learn how each system works. This level of cooperation between protocols also allows developers to quickly create new products and services by reusing components from existing systems.

The Current State of Interoperability

Blockchain interoperability is still in its early stages of development, and various projects and initiatives are exploring different approaches to cross-chain communication and asset transfer. However, some exciting recent innovations are bringing interoperability to a higher level — most notably wrapped tokens and cross-chain bridges.

Wrapped Tokens

A wrapped token is an asset (for example, Bitcoin or an NFT) engineered to be utilized on a non-native blockchain. For example, Bitcoin does not support smart contracts, but Ethereum does; thus, you can create a wrapped Bitcoin that can interact with smart contracts on the Ethereum network.

It's also worth mentioning that wrapped tokens have the same price and total supply as the original token.

The logic of how wrapped tokens work is relatively straightforward. You deposit your original asset with a custodian, generally via a cross-chain bridge, a smart contract, or a DAO. Your original asset is locked, and then a wrapped token of the same value is minted and credited to you. You may then utilize the newly-created asset to conduct any transaction on the new chain/network. If you need to convert your wrapped asset back to its original, non-wrapped state, you'll reverse the same processes, and the custodian will give the original locked asset back to you while the wrapped token is burnt (destroyed).

Wrapped tokens offer several benefits, the foremost of which is improved transactions. The Ethereum blockchain, for example, has a slower block processing speed and higher transaction fees when compared to the layer 2 Polygon blockchain. Using wrapped token technology, we can convert our existing ETH to a wrapped version (wETH) and use it to execute various transactions on the Polygon blockchain, enabling users to engage in DeFi, leverage trading, and more.

Cross-Chain Bridges

Cross-chain bridges, as described in the last section, are one medium through which we can mint wrapped assets — but they also enhance interoperability in several additional ways.

A cross-chain bridge is a link that allows blockchains and networks to transfer assets and arbitrary block data to each other. With a cross-chain bridge, two independent blockchains can communicate and interact.

Cross-chain technology is poised to transform how blockchains communicate and share data with one another in the future, and we've already seen some exciting projects emerge along the way. Polkadot and the Cosmos blockchain are two famous examples.

Current Limitations

For many years, interoperability has been a significant focus of blockchain research. However, little progress has been made in terms of practical implementation because there are still many technical obstacles to overcome before it can become a reality. Current limitations to blockchain interoperability solutions include:

• Centralization — Some cross-chain projects are still centralized, and you’ll need to have trust to operate within these types of projects. Additionally, centralization opens the door to censorship, and the foundational ideology of blockchain technology is to resist this type of limitation. The solution is to create more decentralization-focused products.
• Security — Interoperable blockchain solutions need to prioritize security even more than they already are, as they’re currently falling short in this respect. One of the most significant exploits in DeFi history, which led to over $320 million in losses, was a bridge hack that exploited Wormhole, one of the most popular bridges on the Ethereum blockchain. Various claims have also been made that contemporary cross-chain bridges are vulnerable to 51% attacks by design. The most notable example is a scenario described on Reddit by Vitalik Buterin (Co-Founder of Ethereum). He explains how a modern blockchain could handle a 51% attack and how it could be costly for cross-chain bridges.

Additionally, 100% interoperability does not actually even exist yet. Currently, for cross-chain functionality to be possible between two blockchains, their protocols must be similar. For example, interoperability between the Optimism and the Polygon networks may be possible because they’re both layer 2 networks on the Ethereum blockchain, but direct interoperability between networks like Ethereum and another layer 1 chain such as Solana is not yet possible.

Building Interoperable Blockchain Solutions

In Web2, the most common technique for creating interoperability between different applications is to use APIs (application programming interfaces). An API allows you to integrate one piece of software with another without rewriting the source code of each application. However, the case is quite different for blockchains — most of them are totally isolated from outside networks by design and don’t even include standard API provisions for security concerns.

Nevertheless, we’ve seen some advancements in this regard, such as Polkadot and Cosmos’ Software Development Kits (SDKs) that let you build interoperable applications across different platforms. Polkadot's Substrate framework also allows you to create your own blockchain that can interact with other blockchains on different networks.

InfStones’ suite of blockchain development tools is another great starting point for interoperable blockchain solutions. We provide access to over 80 blockchain protocols on which you can run a node or optionally use API services to quickly create a dApp. Scalability is essential, and we carry a large value for it. We include scalability features to ensure the maximum uptime of your blockchain services, and our advanced monitoring tool is also a worthy mention. InfStones has everything you need to get started developing interoperable blockchain solutions.

Conclusion

Interoperability is the ability of two or more systems, applications, or processes to communicate with one another. It is a vital component of any information system that aims to provide interactive services to users. In this post, we've discussed the current status of interoperability between blockchains, including its limitations.

To achieve widespread blockchain interoperability, a standardized service or framework between different blockchain networks may be needed, similar to how Google Login provides a standardized service for authentication across different websites. The final stage of blockchain interoperability will be a highly connected ecosystem in which different blockchain networks can communicate and exchange data seamlessly. While the state of blockchain technology is still a long way off from that future, we’re likely to see acceleration toward this goal as interoperability continues to become a primary focus of research and development in the industry.