Understanding Cross Chain Bridges; The Key to Interoperability
The Interoperability Problem of Blockchain
Interoperability in blockchain refers to the ability of various blockchain networks to exchange data and assets and process transactions seamlessly.
Interoperability permits users to move tokens and digital currencies from one blockchain to another without requiring a centralized exchange.
How Do Interoperability Problems Occur?
Problems with Interoperability arise when various blockchain systems, protocols, or platforms are not built to connect with one another or when they employ incompatible data formats, standards, or technology.
For instance, if a layer 1 blockchain is based on proof-of-work consensus and a layer 2 blockchain is based on proof-of-stake consensus, they may not be able to share data or assets or communicate. Similarly, if one blockchain employs a different data format than another, it may not be able to interpret the transactions or data of the other.
It’s also possible to encounter the problem of Interoperability when using two different layers 1 blockchain. In such a scenario, each blockchain may have its own set of rules, protocols, and standards, making it difficult for them to communicate and exchange data. This could result in compatibility issues, where one blockchain may not understand or process transactions or data from the other blockchain.
See also: Layer 1 Blockchain Explained
Solving The Blockchain Interoperability Problem
Several solutions are being proposed and developed to address the problem of blockchain interoperability. Some of the most common solutions include:
- Interledger Protocols (ILP): Interoperability between various payment networks, including blockchains, is made possible via the ILP suite of open protocols. ILP can make it easier to transfer assets between ledgers and aid with compatibility problems.
- Atomic Swaps: Atomic swaps are a form of cross-chain trading that permits the exchange of assets across two blockchains without requiring a trusted third party. This can facilitate cross-chain trading and Interoperability across blockchains that support atomic swaps.
- Blockchain Bridges: Blockchain bridges are a type of intermediary that can link different blockchains and enable communication and data exchange between them. Bridges can help to overcome compatibility issues and ensure seamless Interoperability.
- Standards and Protocols: Interoperability can be made possible by creating common standards and protocols supported by several blockchains. This includes creating standard data formats, platforms for shared smart contracts, and cross-chain communication protocols.
- Hybrid Blockchains: They take the best features of multiple blockchains and merge them into a single system. This has the potential to solve the problem of blockchains not being able to communicate with one another and enables seamless communication between blockchains.
These are some of the most common solutions being proposed and developed to address the problem of blockchain interoperability. However, the most popular solutions include Crosschains, Cross Bridges, Side Chains, and Atomic swaps.
Cross chains, Cross Bridges and Side Chains
Cross-chains refer to the integration of multiple blockchain networks, allowing for exchanging data, assets, and tokens between these networks. Cross bridges, on the other hand, are the tools and technologies that enable cross-chain communication and integration.
These solutions were created to address the problem of Interoperability and provide users with greater scalability, flexibility, and efficiency when interacting with different blockchains.
By connecting different blockchains, cross chains, and cross bridges enable users to take advantage of the unique features and benefits offered by each network, opening up new possibilities for collaboration and innovation.
Cross Chains
A cross-chain bridge facilitates the movement of data, currency, and non-fungible tokens across two blockchain networks. It permits the transfer of data and tokens between otherwise segregated data sets on various blockchains.
Without a cross-chain bridge, it is feasible to swap cryptocurrencies between blockchains, but the process is costly and time-consuming. Without a cross-chain bridge, users must first convert a cryptocurrency token into fiat cash, which is typically a fee-heavy operation. The individual then uses fiat cash to acquire the second desired cryptocurrency, incurring additional fees and effort.
Cross-chain bridges enable users to trade cryptocurrencies without converting them to fiat cash. Cross-chain bridges are not restricted to the transfer of cryptocurrency values. Effective cross-chain bridges can also permit the inter-blockchain transfer of smart contracts and non-fungible coins.
Transferring Assets Using Cross Chains
There are numerous ways to facilitate transfers using a cross-chain bridge. Utilizing a token wrapped by the platform that provides the cross-chain bridge is a common practice. Using a wrapped token, the value of one token from a certain blockchain network can be wrapped in another. Wrapped tokens typically adhere to the ERC-20 technical specification of the Ethereum network. For example, WBTC is a Bitcoin currency wrapped in an ERC-20 Ethereum smart contract.
Polkadot, Blocknet, Cosmos, and Wanchain are spearheading cross-chain initiatives with an emphasis on distinct areas of Interoperability. Polkadot, for example, intends to simplify the transfer of smart contract data across distributed platforms, whereas Blocknet focuses on a decentralized exchange (DEX) working across blockchains.
Cross-chain technology helps users to avoid frequent trade-offs between distributed platforms and exploit the benefits of varied consensus processes, allowing them to gain the best of all possible worlds.
Cross Bridges
A cross-bridge is a technology that permits the Interoperability of multiple blockchain networks. It establishes a link or bridge between two or more blockchains, enabling them to communicate and trade assets, information, or other data.
Here’s how a cross-bridge works:
- The cross-bridge is deployed on both the source blockchain and the target blockchain.
- An asset or piece of data is locked on the source blockchain, and on the target blockchain, a copy of that asset is made.
- The cross-bridge maintains a synchronized representation of the locked asset on both blockchains.
- When a user wants to move the asset from the source blockchain to the target blockchain, the cross-bridge facilitates the transfer by updating the representation of the asset on both blockchains.
The key difference between cross-bridges and cross-chains is that cross-bridges are a specific technology that enables Interoperability between different blockchains. In contrast, cross-chains refer to the broader concept of Interoperability.
While cross-chains cover a wider range of options, including cross-bridges, atomic swaps, and other strategies, cross-bridges provide a more specific answer to the problem of blockchain interoperability.
Side Chains
A side chain is an additional blockchain that operates alongside the primary blockchain. A side chain’s goal is to provide extra functionality and flexibility that the main blockchain might not be able to provide.
Here’s how a side chain works:
- Assets are locked on the main blockchain, and an equivalent representation of those assets is created on the side chain.
- The side chain operates independently of the main blockchain but is anchored to it. This means that transactions on the side chain are verified and secured through the consensus mechanism of the main blockchain.
- The side chain can have unique rules and functions, allowing additional functionality and flexibility. For example, a side chain could have faster transaction times, lower fees or different consensus algorithms than the main blockchain.
- When a user wants to move assets from the main blockchain to the side chain, or vice versa, the process is facilitated by the anchor points between the two chains. This process is commonly referred to as a two-way peg.
Atomic Swaps
An atomic swap is a cryptocurrency exchange in which users can transfer cryptocurrencies without a centralized exchange. The term “atomic” means that the exchange is either done completely or not at all — there is no possibility of one side losing funds during the exchange process.
Here’s how an atomic swap works:
- The two users agree on the terms of the trade and the cryptocurrencies they want to exchange.
- The first user uses a smart contract to secure their cryptocurrency on the blockchain.
- The second user then uses a matched smart contract to secure their cryptocurrency on the blockchain.
- The two smart contracts automatically check to see if both parties have fulfilled their obligations.
- If both parties have met their requirements, the smart contracts will immediately release the locked funds to the appropriate recipient.
In this way, atomic swaps allow for peer-to-peer cryptocurrency trading without needing a centralized exchange to hold and manage funds. This can lead to lower fees, faster transaction times, and greater privacy and security compared to traditional centralized exchanges.
See also: Layer 2 Blockchain Explained
Examples of Blockchains Solving the Interoperability Problem
Several blockchain projects are currently working on solving the problem of Interoperability. Some of them include the following:
- Cosmos: This blockchain initiative aims to create a distributed system of blockchains that are fully autonomous yet can easily communicate with one another and grow in size and functionality. To facilitate the transfer of assets and the interchange of data between blockchains, Cosmos employs a technology known as Tendermint.
- Polkadot: Polkadot provides access to a distributed ledger system in which individual blockchains can interact with one another and share information. This initiative facilitates cross-chain transactions, allowing tokens and digital currencies from several blockchains to be sent and received.
- Aion: Aion is a blockchain platform that facilitates the development of a decentralized and interoperable blockchain network. It enables the transfer of data, assets, and currencies between networks by facilitating communication between multiple blockchains.
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