While blockchains and the applications built on them are attracting more attention, they still face significant complications when it comes to operating collectively. Currently, blockchains are largely siloed ecosystems that cannot effectively communicate and share data with one another. Solving this problem might be the single most important factor in mass cyrpto adoption.
This lesson will cover the current problem with blockchains and explain the solution, chain interoperability, in practical terms. And since great solutions are often rewarded handsomely, understanding interoperability might help you spot the next successful investment within the crypto ecosystem.
Read the following lessons for more crypto knowledge:
The interoperability problem
In simple words, the lack of interoperability means Bitcoin cannot speak Ethereum’s language and vice versa. As a result, BTC holders cannot spend their tokens on the Ethereum network and ETH users cannot deploy smart contracts on the Bitcoin network. This means everyone must use one blockchain at a time for specific functions.
Even as blockchain projects strive to become faster, more secure and more decentralized than their predecessors, these improvements still only take place within individual closed systems. The more blockchains are developed, the more interoperability and connectivity are needed to harvest their full potential.
Chain interoperability and cross-chain communication
Traditionally, interoperability allows different systems to function together and exchange information without additional effort on the users’ part. For example, people can communicate with one another regardless of which internet provider, mobile phone or app they use.
Similarly, blockchain interoperability and cross-chain communication allow different blockchains to share information freely, without intermediaries like institutions, companies or centralized exchanges. Therefore, efficient interoperability would allow developers to build dApps that can perform multiple functions on multiple blockchains.
It could also enable users to transact in whichever currency they hold, send virtual ownership easily, or transfer skins, weapons, coins and other in-game items in decentralized gaming into other games. Moreover, anyone could send and receive payments and other data transfers without knowing which chains the other party uses.
High blockchain interoperability that facilitates easy movement between chains would create a ‘multi-chain’ environment where each blockchain could focus on its core competencies.
This is especially important as blockchains face the Blockchain Trilemma of decentralization, scalability and security, which requires them to make trade-offs to serve specific needs and use cases.
In addition, this prevents blockchain developers from developing an ‘everything to everyone’ solution. For instance, a global payment blockchain that must verify thousands of transactions per second requires different structural elements, compared to processing a personal smart contract between two parties.
The potential impact of blockchain interoperability
Connecting blockchains is not an easy task. There exist hundreds, if not thousands, of different blockchains with unique purposes and use cases. Blockchains can be public or private, built using various coding languages, and vary in consensus mechanisms, hashing algorithms, and semantics.
Nevertheless, solving this problem would likely transform how we see the Internet. It would let real-world use cases like decentralized payments, supply chains, web storage, streaming services, metaversos, NFT, and other solutions work together. This would in turn lead to the creation of new products, businesses, and communications solutions.
Do you want to learn more about the Huobi Global ecosystem’s functionalities, a particular token or specific crypto topics? Message us on Facebook, and we may just publish a lesson on it!