The Power Surge of Cross-Chain Interoperability in Blockchain's Future

The old question 'Is it in the database?' will be replaced by 'Is it on the blockchain?'

According to Gartner's projections the business value contributed by blockchain is anticipated to surge.to over $176 billion by 2025 and to over $3.1 trillion by 2030. Trends suggest that blockchain is poised to usher in a substantial revolution in the decades to come.

But blockchains face a significant challenge – they operate in isolated silos. If you're using Ethereum, interacting with its decentralised apps is smooth. But connecting with other blockchains like Polkadot or Avalanche is a challenge. Users end up spreading resources across different chains, and developers invest time and resources on multiple platforms.

Here's where cross-chain interoperability comes in. It's a superhero solution that allows users and developers to freely choose how they interact with decentralised finance (DeFi). This interoperability is crucial for making decentralised apps (dApps) work seamlessly across different chains. This makes blockchain more user-friendly and efficient. Simply put, cross-chain interoperability is the holy grail for wider blockchain adoption. Let’s unpack this.

What is cross-chain interoperability?

Blockchain interoperability refers to the ability of different blockchains to communicate with each other.

The Web3 landscape is evolving into a complex ecosystem with over 100 layer-1 blockchains and a growing number of layer-2 and layer-3 networks built on top of these base layers.

However, this increasing diversity in blockchains and layers creates a challenge for broader blockchain adoption. These blockchains do not inherently communicate with each other. The lack of interoperability and connectivity hinders the smooth exchange of data and value between different networks. From a developer's viewpoint, each deployment becomes an isolated instance since backend contracts exist independently and without awareness of each other. For instance, a decentralised exchange (DEX) DApp might need separate deployments on Ethereum, BNB Chain, and Polygon networks, leading to isolated versions of the DApp.

For users, this multi-deployment approach presents several difficulties. It hinders transferring tokens seamlessly between blockchains. When transferring assets, these assets are destroyed on the source blockchain and minted again on the destination blockchain using a third-party bridge. This process is time-consuming resulting in a suboptimal user experience. Moreover, holding assets across multiple blockchains introduces security risks, creating vulnerabilities for potential hacks and the loss of funds.

For broader adoption, blockchains must communicate with each other and cross-chain interoperability is what makes it possible.

How does interoperability work?

Interoperability is achieved through cross-chain messaging protocols, allowing blockchains to read and write data across various blockchain networks.

DApps developed on these protocols can operate seamlessly across multiple smart contracts deployed on different blockchains. However, it's important to note that cross-chain dApps are distinct from multi-chain dApps. The former involves interconnected smart contracts across blockchains, while the latter deploys the same application independently on multiple blockchains.

Some cross-chain dApps, like token bridges, focus on specific functions such as transferring tokens between blockchains. Others leverage arbitrary data messaging protocols for cross-chain decentralised exchanges (DEXs), decentralised money markets, NFT platforms, decentralised autonomous organisations (DAOs), and various modularised applications.

Solutions facilitating Cross-Chain Interoperability

Developers are actively enhancing cross-chain connectivity, creating solutions that facilitate seamless data and value transfer across diverse blockchain networks. These advancements help develop user-friendly and interconnected blockchain applications.

Various approaches are being employed to enhance cross-chain interoperability. Let’s understand some with examples.

Scallop Chain

Scallop Chain has developed a pioneering biometrics-secured cross-chain bridge, enabling secure asset transfers from chains like Polygon, Ethereum, and Binance Smart Chain to Scallop Chain. The bridge employs user biometrics and KYC data checks for enhanced security and regulatory compliance. This innovative approach integrates biometrics, KYC, and cross-chain functionality, contributing to a highly secure environment for asset transfers and fostering trust in the blockchain space. Ongoing security measures, audits, and collaboration with regulatory bodies will be crucial for sustained success.

Chainlink

Chainlink is actively working on the development of the Cross-Chain Interoperability Protocol (CCIP). It is an open-source standard designed to facilitate cross-chain communication, encompassing messaging and token transfers. CCIP aims to establish a universal link between numerous blockchain networks through a standardised interface. This has the potential to simplify the process of creating cross-chain applications and services, reducing overall complexity.

Wormhole

The Wormhole protocol enables seamless transfer of tokens and messages across various blockchain networks. Messages originating from a source chain undergo observation by a network of guardians. These are responsible for verifying and facilitating transfers to target chains. Developers can use Wormhole to construct cross-chain decentralised applications, or xDapps.

Inter-Blockchain Communication (IBC)

Inter-Blockchain Communication (IBC) serves as the established protocol for facilitating blockchain interactions within the Cosmos Network. Its primary objective is to promote interoperability between various blockchains. Notably, Scallop Chain is also built on the Cosmos Network.

Challenges facing cross-chain interoperability

Cross-chain interoperability has made strides in facilitating value transfer between different blockchains, but certain risks persist. One challenge is the complexity of bridging mechanisms, which navigate the distinct ecosystems of two blockchains constructed with different programming languages. This intricate process opens avenues for potential hacks and exploits, a concern emphasised by Vitalik Buterin due to its security limitations.

Moreover, the bridging process introduces another vulnerability by consolidating large asset pools within a single contract on one chain. This aggregation creates a centralised point of failure that could be targeted by hackers.

Future of blockchain interoperability

The global blockchain interoperability market is set to grow significantly, with a projected increase from $0.3 billion in 2023 to $1 billion by 2028, according to a recent report. Several factors drive this growth, including the need for seamless communication and data exchange between diverse blockchain networks, the rising use of decentralised applications (dApps) in various industries, a growing demand for cross-chain asset transfers, and an increased emphasis on regulatory compliance and standardised practices within the blockchain ecosystem.

The rapid proliferation of dApps in sectors such as finance, supply chain management, and healthcare plays a pivotal role in propelling the blockchain interoperability market forward. Companies like VeChain and Waltonchain leverage blockchain interoperability to enhance transparency and efficiency in supply chain management. Similarly, projects like Polkadot and Cosmos are at the forefront of developing cross-chain interoperability solutions in the financial sector, enabling dApps to access a wide range of functionalities and facilitate the exchange of assets.

The future of blockchain technology and its applications, particularly in cryptocurrencies, depends on how effective, efficient, and user-friendly interoperability solutions are. Achieving widespread adoption requires enhanced stability in commercial systems such as Cosmos and Polkadot. Additionally, support from regulatory frameworks is crucial for the future applications of interchain interoperability.