What are the challenges industries face in Cross-Chain interoperability?

Present Scenario of Cross-Chain Interoperability

Chiefly, the industry still struggles with interoperability between blockchain networks.

Even crypto industry outsiders are gaining clarity on the benefits of blockchain technology, which is a significant step forward for the ecosystem.

However, a challenge remains, the industry still struggles with interoperability between blockchain networks.

The full power of blockchain including true decentralization, new use cases, lower costs and, ultimately further innovation not achieved unless different chains can safely and efficiently communicate and exchange data.

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What are the main two components of interoperability?

This is all about of syntactic interoperability, which involves adopting a common data format and common data structure protocols.

It is semantic interoperability which involves the addition of metadata that links each data element to a controlled, shared vocabulary.

What is Cross-Chain?

Cross-Chain technology refers to the ability to transfer data and tokens between different blockchains.

The Web3 landscape is increasingly becoming multi-chain, with the dApp ecosystem existing across hundreds of blockchains,layer-2 networks, and app chains.

However, blockchains don’t have the native ability to communicate with external systems or APIs.

This limitation not only prevents blockchains from communicating but also with other blockchains.

Given the wide variety of blockchain ecosystems, it’s critical that these distinct on-chain environments are able to interoperate and communicate with each other.

So, cross-chain interoperability protocols are a critical piece of infrastructure for exchanging data and tokens between different blockchains.

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Introducing Cross-Chain Interoperability

The growth of numerous independent blockchain ecosystems with varying optimizations and geographical niches has resulted in an increasingly multi-chain world.

Being able to seamlessly tap into the advantages of each of these blockchains and their unique assets within a single application would drive a massive wave of new cross-chain smart contract development.

It is no different than the proliferation of DeFi, NFT, and on-chain gaming economies.

When decentralized oracle services for real-world data and secure off-chain computation were introduced. o of Cross-Chain Interoperability.

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Why Cross-Chain Interoperability is Important?

Chiefly, it is critical for a more integrated Web3 ecosystem as well as for building bridges between existing Web2 infrastructure and Web3 services.

By enabling cross-chain smart contracts,cross-chain interoperability solutions reduce fragmentation in the ecosystem. And unlock higher capital efficiency and better liquidity conditions.

Basically, this type of interoperability enables developers to build one natively cross-chain application.

where a single unified dApp can function across multiple different blockchains instead of having to deploy multiple individual versions across distinct networks.

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DeFi’s Permissionless Composability

It has given rise to increasingly complex applications that allow developers to combine distinct dApps into a structure. Which can achieve more than the sum of its parts.

However, composability is hindered by hundreds of different networks. As a smart contract is natively composed with other contracts on the same network.

If an application wants to follow the users and remain competitive in a rapidly changing multi-chain environment.

It is deployed on multiple platforms, leading to fragmented liquidity and a degraded user experience.

Furthermore, individual dApp deployments take up precious development resources that are improving the business logic of the application.

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How does Cross-Chain Technology Work?

This technology typically offers solutions that involve validating the state of the source blockchain and relaying the subsequent transaction to the destination blockchain.

Both of these functions complete most cross-chain interactions.

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Cross-Chain Bridge

One key piece of infrastructure is a cross-chain bridge that enables tokens to transfer from a source blockchain to a destination blockchain.

A cross-chain bridge typically involves looking or burning tokens on the source chain through a smart contract and unlocking or minting them through another smart contract on the destination chain.

In effect, a cross-chain bridge is a cross-chain messaging, protocol applied to a very narrow use case. By transferring tokens between different blockchains.

As such, cross-chain bridges are often application-specific services between two blockchains.

These bridges are only one simple application serving cross-application functionality.

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Programmable Token Bridges

Basically, these bridges enable complex cross-chain interactions, such as swapping, lending, staking, or depositing tokens in a smart contract in the same transaction where bridging function is executed.

While arbitrary data messaging protocols provide more generalized cross-chain functionality.

Which can support the creation of more complex dApps such as cross-chain decentralized exchanges (DEXs),cross-chain money markets, cross-chain NFTs, cross-chain games, and much more.

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Following are some of the challenges for Cross-chain Interoperability.

The challenging User experience

The main challenge is the user experience, which dictates the adoption. It is not so much the technical aspect of different protocols, bridges, or atomic swaps.

Currently, to cross-chain, you need to be a power user with a highly complex setup of wallets.

Even if it’s just MetaMask with multiple chains configuring. True interoperability only happens when the experience becomes seamlessly simple.

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The lack of standardized protocols

A key challenge that our industry still faces in terms of cross-chain interoperability, is the lack of standardized protocols and consensus.

The development of interoperable protocols like cross-chain bridges and atomic swaps is one way to address this.

Truly, efforts are in the industry, e.g. brands like Polygon Bridge.

Which transfers tokens from Ethereum to Polygon.

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The lack of efficient cross-chain markets

It severely limits the adoption of cross-chain technologies. Better markets could help the space cut away the centralized services that to this point have powered most user activity in the sector.

Interoperability itself is possible to a limited extent without breaking trust assumptions due to the diverse varieties of blockchains out there in the wild.

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The lack of Demand

I don’t believe there is much standing in the way in terms of technology. The question is what is standing in the way of demand?

Bridges are an extra step, but they are easy enough to execute if doing so adds value.

I had to say that as long as Ether gas fees remain relatively high, then demand should grow for bridging as the market gains steam and yield farmers become more aggressive.

Thereby, escalating the ex-ETH DeFi transaction volume.

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The difficulty ensuring valid proofs

Chains have trouble convincing each other their own proofs are valid.

Imagine two lawyers trying to convince a jury beyond a reasonable doubt, all while arguing in different languages.

The uncertainty grinds business to a halt, or regrettable decisions saving time.

It’s a difficult but rather familiar problem. The internet has taught us that standardized protocols promote effective communication.

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The lack of a cohesive understanding of the Ecosystem.

As a global space, the crypto ecosystem is an amalgamation of coding languages, algorithms, protocols, and, ultimately visions for what our digital future could become.

But much like the Tower of Babel, we lack a cohesive understanding that unifies all participants under a single, seamless experience.

Whether created or adopted from existing architecture, such a solution could rectify this issue.

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Complexity

It is the biggest challenge for cross-chain Web3 interoperability. Bridges and communication protocols are built on highway complex underlying technology that causing issues and disrupt regular operations.

Diversification is therefore crucial for reducing risk. A multibridge system, for example, helps to limit your project’s dependence on a single cross-chain solution.

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High Computational loads

High transaction computational load is a core challenge when it comes to cross-chain interoperability.

It happens when an increased number of transactions received from multiple networks clog one blockchain’s throughput.

To address this, techniques like sharding (as employed by Polkadot and Cosmos) divide whole blockchain storage into several smaller and unique shards to process transactions without losing scalability.

Scalability

It complicates cross-chain interoperability,. Large data transfers between chains are slow and inefficient.

Sidechains and state channels enable faster transactions and sharding and off-chain computation boost scalability. However, these solutions require collaboration and innovation to succeed.

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The Potential for hacks

These hacks happens when interoperability is achieved using wrapped tokens. The hack is carried out on the bridge between two blockchains.

Different accounting methods, as well as other variations, complicate matters.

Different chains can interoperate, but the process is cumbersome and prone to hacks. Unless the chains are design to interoperate from the very start.

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Scaling Web3 – Cross-Chain Interoperability

What is Interoperability in Web3?

This is a concept fundamental to understanding the transformative potential of the decentralized web, or web3.

Interoperability, in simple words, refers to the ability of different systems to exchange information with ease using a common framework.

It is a significant building block of the next generation of Web3 that will help unlock entirely new use cases and a user experience to meet the expectations set by the Web2 world.

Are all blockchains interoperable? Blockchain platforms that use the same consensus mechanism can be interoperable.

However, even if two platforms use the same consensus mechanism it can be difficult to synchronize data across platforms with consensus about the order of those data transactions.

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What is Blockchain Interoperability?

It is the ability of blockchain networks to communicate with each other, sending and receiving messages, data, and tokens.

Chiefly, Blockchains are decentralized computer networks that track users’ account balance and data in a digital ledger.

Instead of relying on a centralized consensus to collectively agree on proposed updates to the ledger before they are accepted.

The result is a new trust-minimizing computing paradigm for multi-party record keeping.

And process automation that’s more credibly neutral.

As well as, tamperproof, and transparent than traditional computing environments.

With the growing reality of a multi-blockchain world, blockchain interoperability protocols are critical infrastructure for exchanging data and tokens between different blockchains.

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The Importance of Blockchain Interoperability.

The current Web3 landscape is becoming increasingly multi-chain and multi-layered.

There are already more than 100 layer-1 blockchains (i.e.base layers) and an increasing number of layer-2 and eventually layer-3 networks that exist on top of the base-layer blockchains.

Layer-2 and layer-3 networks are essentially separate blockchains that anchor part of their security to a base layer (e.g. rollups)

Some blockchains focus more on decentralization and censorship resistance than throughput and composability at the base layer.

While other blockchains opt to build in native privacy functionality at the expense of new security assumptions in trusted hardware.

Whatever economic activity takes place on one blockchain can be represented on another blockchain with the right interoperability solution.

This implies that the potential of the economic activity from one chain can spread to another chain.

Which is one of the main features of blockchain interoperability solutions.

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Atomic Swaps

The concept of a trustless cryptocurrency exchange is achieved in the form of atomic cross-chain swaps, also known as atomic swaps.

It is one of the earliest contributions to the field of blockchain interoperability. Using atomic swaps, users of various cryptocurrencies can exchange their assets in a trustless and atomic way.

However, atomic swaps do not permit the transfer of a token from one blockchain to another.

In the sense that a specific amount of asset, is destroyed on the source blockchain, and the same amount is recreated on the destination blockchain.

These Atomic swaps, as its name suggests allow for token exchanges across blockchain boundaries rather than transfers.

This implies that atomic swaps always require a counterparty ready to trade tokens.

Online markets provide a back door for exchanging tokens.

To date, however, this has required the existence of a reliable, centralized body, which runs opposite to blockchains’ decentralized nature.

As a result, cross-chain technology is rapidly being discussed as the best way to improve interoperability between blockchains.

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How is Blockchain Interoperability achieved?

Most layer-1 blockchains lack internal capabilities that facilitate cross-chain interoperability.

Sidechains are a method by which two active blockchains communicate with one another.

The mainchain and sidechain are two different blockchains in sidechains. A cross-communication protocol links the mainchain and sidechain, each keeping an inventory of assets.

With a mechanism for transferring assets, between the main chain and sidechain, sidechains function as a two-way peg.

Mimblewimble, BTC Relay, Poa network, and RSK are examples of blockchain interoperability.

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What are Cross-Chain Interoperability Protocols?

Solutions for Cross-chain Interoperability

The Cross-Chain Interoperability Protocol (CCIP)

This is a blockchain-agnostic protocol, an open-source standard for cross-chain communication involving arbitrary messaging and token transfers.

CCIP aims to accommodate the growing demand for complex cross-chain interactions by establishing a universal connection between blockchain networks via a single interface.

It is being built to be highly composable so it can integrate with a variety of other Oracle services within a programmable token bridge framework.

Essentially, to support highly sophisticated cross-chain interactions and cross-chain applications.

Wormhole

This is a generic interoperability protocol that allows for the transfer of tokens and messages between different blockchain networks.

Messages on a source chain are observed by a network of guardians who verify and facilitate transfers to target chains.

Developers using Wormhole can build cross-chain decentralized applications called xDapps.

Layer Zero

It is an omnichain interoperability protocol for lightweight message passing between blockchains. Providing secure and reliable message delivery with configurable trustlessness.

Layer Zero’s ultra nodes are smart contracts that provide block headers of other bridged chains to improve efficiency.

The ULN is only triggered on-demand and the smart contract communicates with an oracle and a relayer through the Layer Zero endpoint.

This design allows for lightweight and efficient cross-chain communication.

Hyperlane

It is a delegated proof-of-stake chain protocol that validates and secures cross-chain communication via configurable consensus methods.

In Hyperplane’s network, each validator is responsible for validating every chain that Hyperlane is connected to ensuring that cross-chain communication is secure and accurate.

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Conclusion

Cross-chain solutions will be key to accelerating the rate of Web3 adoption by allowing developers to create sophisticated dApps that are accessible through a more traditional user experience.

And help empower enterprises, institutions, and governments to securely access any on-chain environment.

At this point, some question who is leveraging cross-chain technology. An example of a blockchain project attempting to investigate cross-chain transactions is Ripple.

As Ripple assists banks worldwide in selling cross-border payments using fiat currencies and cryptos.

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