The Future of Blockchain Networks: Interoperability and Beyond

Blockchain technology is actually older than it may seem, but the blockchain platforms based on it are relatively young. Like any such phenomenon, it emerges suddenly and evolves independently.

Blockchain technology has been around for longer than you might think, but the blockchain platforms based on it are relatively young. Like any such phenomenon, it emerges suddenly and evolves independently.

This has created several related issues, namely the isolation of these platforms where each was developed with its vision, approach, and standards. Blockchain developers successfully work on filling this gap, but a lot of work is still ahead and there are several different approaches to blockchain network integration.

Today we will look at what are the key challenges in achieving interoperability in blockchain technology. What are the advantages of blockchain interoperability? And what are the interoperable blockchain platforms that exist today?

Challenges for Cross-Chain Communication

As we mentioned earlier, because blockchain is an open technology, its implementation has been approached very differently without regard to the future popularity of other blockchain platforms and interoperability with them. This created many isolated blockchains that could not communicate with each other and made it difficult for Web3 to evolve in a coherent and uniform manner.

Lack of Standardization

The lack of an initial and unified standard or even established best practices for blockchain platform development and interoperability has created a problem of blockchain isolation. Everyone has developed their own vision, approaches, and standards making blockchain network integration technically impossible.

Liquidity Fragmentation

In turn, this also created the problem that the native tokens of each blockchain could not be natively integrated into the other. The lack of ability to seamlessly flow capital as a very basic problem severely stalled the development of Web3 as an industry.

Scalability Constraints

Also, isolated blockchains can experience network overload and the inability to delegate processing. It can create many challenges such as network slowdowns, rising costs, and security issues that ultimately negatively impact scalability.

Security Risks

Of course, blockchain security has also suffered from isolation. Finding a vulnerability in the protocol could result in all its assets risking being stolen or frozen without the ability to move them to another secure blockchain until the problem is resolved.

Achieving Blockchain Interoperability

When the development of this became inevitable, and the capital invested in it became impossible to ignore – it became obvious that each individual platform, as well as the whole Web3 industry, required solutions that could bring blockchain interoperability benefits. And to solve this there were several views, each with its features.

Blockchain Bridges

Centralized and decentralized blockchain bridges are separate, complementary solutions that work in conjunction with the main blockchains and help enable data exchange between them. Examples include Wrapped Bitcoin (WBTC), which allows Bitcoin to be used in the Ethereum ecosystem by locking it to a centralized custodian and issuing the equivalent amount of WBTC on the Ethereum network as an ERC-20 token. It is also an Avalanche Bridge (AB), which allows the transfer of Avalanche and Ethereum tokens using trusted relayers, while significantly increasing speed and reducing cost.

The problem with centralized bridges is their vulnerability, namely a potential single point of failure, which in turn has given rise to decentralized bridges. The most prominent example is Wormhole, a decentralized blockchain bridge that connects Ethereum, Solana, and BNB Chain. But it doesn’t guarantee security either, and in particular, it was hacked in 2022.

Layer Zero & Interoperability Protocols

There is also a more fundamental approach to solving the problem, namely seeking to provide a means not for interoperability between specific blockchains, but a foundation for interoperability between all. Of course, here there are several visions of how to approach and implement this too. Some have focused on developing a so-called Layer 0 blockchain as the underlying infrastructure for Layer 1 blockchains like Bitcoin, Ethereum, etc. Others instead of Layer 0 focused on developing decentralized middleware and interoperability protocol as such.

IBC (Inter-Blockchain Communication)

IBC is a cross-chain interoperability protocol that runs on top of Cosmos’ Layer 0 infrastructure and uses light clients and Merkle proofs to verify the state of the chains to ensure safe and reliable data transfer between independent blockchains. In turn, Tendermint’s consensus mechanism ensures transaction completeness within individual Cosmos chains, which connect into Cosmos Hub and implement their proprietary Hub-and-Spoke Model. This is a decentralized security model where each chain is responsible for its security while maintaining interoperability with each other. IBC can use this Layer 0 infrastructure for more efficient functioning, but it also supports direct interoperability between blockchains without Tendermint and Cosmos Hub.

Cross-Consensus Messaging (XCM)

XCM is another cross-chain interoperability protocol, but now from Polkadot, that communicates between parachains within Polkadot Layer 0 called Relay Chain, the general architecture of which we have described here.

Although XCM can exchange data directly between parachains, full functionality is achieved through the Relay Chain which coordinates interactions and also implements shared security for the entire Polkadot ecosystem using Polkadot Validators and nominated Proof-of-Stake (NPoS) consensus. As you may have noticed this is different from the decentralized security approach of Cosmos, which has its