This article is a community contribution. The article is contributed by Derek Yoo, CEO of PureStake, a development team for the Moonbeam platform for connected cross-chain applications.

The opinions in this article are those of the contributor/author and do not necessarily reflect the views of Binance Academy.

SUMMARY

Cross-chain interoperability allows applications to communicate and interact with each other across multiple blockchain networks. This enables the transfer of data and value between disparate systems, providing greater connectivity and seamless integration.

What does interoperability mean in blockchain?

In the context of blockchains, interoperability refers to the ability of a blockchain to exchange data with other chains freely. Cross-chain interoperability allows smart contracts on different chains to communicate with each other without having to send tokens between chains.

For example, assets, services, and transactions can be recorded on a blockchain as documentation. Any activity carried out on one blockchain can be represented on another blockchain with the right interoperability solution. This means that applications work with any asset or service regardless of which blockchain they are on.

Why is interoperability important?

Today blockchains are in a situation similar to that of the early days of the Internet: there are many isolated ecosystems that cannot exchange information.

This lack of interoperability and connectivity creates a significant obstacle to the widespread adoption of blockchain technology, as it prevents the fluid flow of data and value between different networks.

From a developer's perspective, each deployment is an isolated, independent instance, resulting in backend contracts that are not connected or recognized by each other. For example, a decentralized exchange (DEX) dApp may need to be deployed on the Ethereum, BNB Chain, and Polygon networks individually. This leads to each version of the dApp being isolated.

As a user, the multiple deployments approach can present several challenges. For example, it does not allow for the seamless transfer of tokens from one blockchain to another. This is usually done through a process where assets are destroyed on the source blockchain and minted again on the destination blockchain with the use of an external bridge. This process can be time-consuming, confusing, and can lead to islands of fragmented data and a poor user experience. The security risks associated with holding assets on multiple blockchains can also be considerable, leading to hacks and potential loss of funds.

Cross-chain interoperability solutions

Cross-chain connectivity is improving as developers create solutions that make it easier to connect and transfer data and value between diverse networks. This can unlock new possibilities for more user-friendly and interconnected blockchain applications.

There are different approaches to improving cross-chain interoperability. Below we list some examples to expose a wide variety of solutions.

Chainlink is developing the Cross-Chain Interoperability Protocol (CCIP), which is an open source standard to enable cross-chain communication, including message transmission and token transfers. The goal of the CCIP is to enable universal connection between hundreds of blockchain networks through the use of a standardized interface. It has the potential to reduce complexity when designing cross-chain applications and services.

Wormhole

Wormhole is a generic interoperability protocol that allows the transfer of tokens and messages between different blockchain networks. Messages on a source chain are watched by a network of Gatekeepers (validators) that verify and facilitate transfers to destination chains. Developers using Wormhole can design decentralized applications called xDapps (cross-chain decentralized applications).

LayerZero

LayerZero is an omnichain (cross-chain) interoperability protocol for lightweight message transmission between blockchains, providing secure and reliable message delivery with configurable trust removal options.

LayerZero Ultra-Light Nodes (ULNs) are smart contracts that deliver block headers from other connected chains to improve efficiency. A ULN smart contract is activated only on demand and communicates with an oracle and relay through the LayerZero endpoint. This design allows for lightweight and efficient cross-chain communication.

Hyperlane

Hyperlane is a Delegated Proof of Stake (DPoS) blockchain protocol that validates and secures cross-chain communication through configurable consensus methods. In the Hyperlane network, each validator is responsible for validating each chain to which the network connects and ensuring that cross-chain communication is secure and accurate.

Inter-Blockchain Communication

Inter-Blockchain Communication (IBC) is the standard protocol for blockchain interaction on the Cosmos Network, which is designed to enable interoperability between various blockchains. IBC defines a minimum set of functions specified in the Interchain Standards (ICS), which establish how blockchains can communicate and exchange data with each other.

An example is Osmosis, a DEX that allows users to swap tokens between different blockchains. Osmosis uses the IBC protocol to enable seamless token swaps from different chains, allowing token holders to benefit from the interoperability that IBC offers.

Avalanche Warp Messaging

Avalanche Warp Messaging (AWM) is designed to be flexible and allow developers to create their own messaging specifications to boost communications. The AWM specification itself requires a byte array, an index of who participated in BLS multisignature. AMW makes it easier for developers to build powerful dApps on the Avalanche network.

BTC Relay

BTC Relay is a chain relay that is deployed in a live environment. Allows sending block headers from Bitcoin to Ethereum. By doing this, it provides a way to verify the inclusion of Bitcoin transactions on the Ethereum blockchain, thereby creating a trustless bridge between the two networks.

Formato Cross-Consensus Message

The Cross-Consensus Message (XCM) format allows different consensus systems to communicate with each other on Polkadot. With the successful merger of XCM version 3, developers can design applications that enable bridging, cross-chain locks, exchanges, NFTs, conditionals, context traces, and more.

For example, Moonbeam's XCM SDK primarily supports token transfers over XCM, allowing developers to interact with the Polkadot network using XCM.

Shoulders

Axelar offers a solution for cross-chain communication through the use of the General Message Passing protocol (GMP), this allows developers to create decentralized applications that can operate on multiple blockchain networks. Axelar also offers secure cross-chain communication via Delegated PoS (DPoS) for users transferring tokens.

For example, Axelar's bridge application, Satellite, connects Ethereum-based BUSD tokens to Cosmos, enabling interoperability between the two ecosystems.

Benefits and limitations of interoperability

The benefits of interoperability between blockchains are clear. Users can potentially transact across different blockchain networks without hassles or the need to resort to centralized intermediaries. This also reduces fragmentation, improves interoperability within the broader blockchain ecosystem, and opens up new frontiers and business models.

However, there are some limitations to these solutions. Different blockchains may have different security solutions, consensus algorithms, and programming languages, which can add technical complexity. These solutions can potentially increase the likelihood of attacks and present new governance challenges between various blockchain networks.

Conclusions

Cross-chain interoperability solutions have the potential to significantly improve the efficiency and functionality of blockchain networks by enabling communication and transfers of data and value between different networks.

The future development of cross-chain interoperability is expected to drive further innovations between various blockchain networks and new possibilities for blockchain-based applications. These can lead to a more connected and user-friendly blockchain ecosystem.

However, to achieve widespread use, various cross-chain interoperability solutions need to achieve more stability and security. It remains to be clarified which solution will provide the most efficient, stable and secure tools.

Further reading:

  • What is a blockchain bridge?

  • What is Layer 0 in blockchain?

  • What is Layer 1 in blockchain?

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