The blockchain and crypto landscape has multiple powerful names that come with their distinct strengths, rules, and ecosystems. Without interoperability in blockchain, you can find all networks isolated from each other. The lack of communication or interaction between the blockchain networks and cryptocurrencies creates the blockchain fragmentation problem. Imagine trying to navigate the crypto world and you could only interact with users who have the same cryptocurrency as you.
The existence of different blockchain networks in a fragmented state creates the urgency to introduce interoperability, thereby calling for cross-chain solutions. Interoperability can ensure that different blockchain networks can communicate and share data with each other. Cross-chain solutions can not only solve the interoperability problem but also provide opportunities for unlocking the true potential of blockchain and Web3. Let us learn how cross-chain solutions are the next big thing in technology.
Understanding the Problem of Blockchain Fragmentation
The fragmentation in the blockchain landscape might seem like a beneficial aspect for many users who want independent networks. On the other hand, the lack of interoperability in crypto creates a lot of challenges for users as well as developers. With more than 1000 different blockchain networks operating in isolation, you could not expect broader adoption of blockchain technology.
The lack of interoperability prevents tapping into the full utility of assets and information in each blockchain protocol. On top of it, you should take note of the other issues that arise from the lack of interoperability.
The utility of blockchain networks is limited due to their isolated nature, which keeps all their assets and data locked in individual protocols. As a result, blockchain-based assets will have limited utility confined within the native network.
The fragmentation of blockchain networks also restricts the possibilities of data sharing between the networks with each protocol working by its own data formats and rules. Furthermore, the isolation of blockchain networks prevents collaboration between them due to their unique components.
The next big thing which establishes the need to resolve the interoperability problem is user experience. Most of the discussions around cross chain interoperability focus on how users are the first to suffer from blockchain fragmentation. For instance, users have to rely on multiple wallets for different blockchain protocols and switch between backup phrases and wallet apps.
Users have to manage different accounts on different blockchain networks, thereby creating challenges in managing digital assets. Most important of all, beginners have to learn new blockchain terms and interfaces which could discourage them from using new blockchain protocols.
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Limitations on Decentralized Apps
Decentralized apps provided a completely new perspective on the utility of blockchain technology. Can you think of building a dApp on the Ethereum blockchain with the security features of Bitcoin? In a fragmented blockchain landscape, it will be difficult or nearly impossible to achieve such a task.
Developers will have to rely on specific blockchain protocols for developing dApps. As a result, they will have to limit the functionality of their applications. On top of it, the dApps could only reach users of the specific blockchain on which it is built. Therefore, lack of interoperability can be a huge barrier to mass adoption of blockchain technology and cryptocurrencies.
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Resolving the Interoperability Problem with Cross-Chain Solutions
The challenge of solving the interoperability problem may be one of the toughest ones in the blockchain landscape right now. Learning the answers to “What does interoperability mean in blockchain?” can help you determine why interoperability is really important for users and developers. The lack of interoperability stems primarily from the lack of communication between blockchain protocols. Cross-chain solutions can offer the answer to this problem by establishing a bridge between different blockchain networks.
The most common cross-chain solutions that you will come across are bridges. Cross-chain bridges work by locking tokens on the source chain and minting ‘wrapped’ tokens on the destination network. For example, you can lock ETH tokens on the Ethereum blockchain and receive wrapped ETH on another blockchain like Solana. As a result, you can use your ETH tokens on the Solana blockchain.
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Interoperability Protocols
Another innovative solution to the interoperability problem points at creating blockchain protocols from scratch with interoperability among major design goals. You can find interoperability blockchain projects like Cosmos and Polkadot as the best examples to understand interoperability protocols. Cosmos blockchain leverages an Inter-Blockchain Communication Protocol or IBC to allow secure data and asset exchange between independent blockchain networks.
You will also find atomic swaps as another reliable cross-chain solution to resolve the interoperability problem. Atomic swaps facilitate direct exchange of two cryptocurrencies from their native blockchain networks without a trusted intermediary. On the contrary, atomic swaps leverage Hashed Time-locked Contracts or HTLCs to ensure trustless completion of cross-chain cryptocurrency transactions.
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How Will Solving the Interoperability Problem Help the Blockchain Space?
Many people assume that cross-chain solutions can only help in bridging the gap between different blockchain protocols and cryptocurrencies. At the same time, you must also know that improving interoperability in blockchain will have many practical implications across industries. You can understand why cross-chain solutions are the next big thing by learning about their practical use cases.
In the financial services industry, cross-chain solutions can open the doors for solutions like cross-chain lending and unified liquidity pools. On top of it, decentralized exchanges can offer cross-chain swaps with cross-chain limit orders, thereby allowing efficient price discovery across different blockchain ecosystems.
You must also understand that the value of interoperability in crypto is not limited to cryptocurrencies alone. With the help of cross-chain solutions, digital asset management can become easier than ever. For instance, cross-chain NFT bridges can support the movement of NFTs between different networks. You can also come across cross-chain collateral and token wrapping facilities that allow seamless digital asset management.
Expectations from Future of Interoperability
As the use cases of cross-chain solutions in the blockchain and crypto space continue garnering attention, it is reasonable to wonder about the future of interoperability. Where will the cross-chain revolution lead to? The primary goal of cross-chain interoperability is not all about moving tokens and assets between blockchain networks. On the contrary, cross-chain solutions aim to create a future where dApps are not limited to a single blockchain protocol.
The evolution of interoperability in the domain of blockchain and crypto would bring forward many new trends. Some of the most prominent trends that you can expect in the future of interoperability are universal messaging standards and partnerships between blockchain ecosystems. Universal messaging standards like the Cross-Chain Interoperability Protocol by Chainlink can expand cross-chain functionalities beyond bridging tokens.
Final Thoughts
The emphasis on interoperability in blockchain and cryptocurrency ecosystems is not a trend. As a matter of fact, interoperability blockchain projects have become a reality that will define the future of blockchain and web3. Without interoperability, blockchain protocols are just independent networks restricted within their walls. Cross-chain solutions can offer relief from the burden of blockchain fragmentation and resolve various issues. For instance, cross-chain solutions can enable access to more liquidity and options to capitalize on different protocol features in dApp development. The arrival of new trends like universal messaging protocols and use cases of cross-chain solutions in different industries will make interoperability stronger.
