Why Interoperability is Key to Blockchain Mass Adoption | Cryptocurrency

Interoperability allows blockchain networks and protocols to interoperate with each other, making it easier for ordinary users to interact with blockchain technology.

Every year we see new blockchain networks grow to fill certain niches in certain industries, with each blockchain having special features depending on its purpose. For example, Tier 2 scaling solutions like Polygon have ultra-low transaction fees and fast settlement times.

The increase in the number of new blockchain networks is also a result of the recognition that there is no perfect solution that can simultaneously satisfy all the needs associated with blockchain technology. Therefore, as more and more organizations become aware of this emerging technology and its capabilities, the interconnection of these unique blockchains becomes necessary.

What is interoperability?

Blockchain interoperability refers to a wide range of methods that allow many blockchains to interoperate, exchange digital assets and data, and work together more efficiently. This allows one blockchain network to share its economic activity with another. For example, interoperability allows the transfer of data and assets across different blockchain networks through decentralized bridges.

Interoperability is not something that most blockchains have as each blockchain is built using different standards and codebases. Since most blockchains are naturally incompatible, all transactions must take place on the same blockchain, no matter how many features the blockchain may have.

Marcel Harmann, founder and CEO of THORWallet DEX, a non-custodial decentralized financial (DeFi) wallet, told Cointelegraph: “Interaction can be understood as the freedom to exchange data. At present, the base layer protocols cannot communicate effectively with each other. Layer 1 protocols, such as Ethereum or Cosmos, have smart contracts built into their framework to ensure secure data exchange only within their own ecosystems. The transfer of digital assets leaving the network raises the question: how can a blockchain trust the reality of the state of another blockchain? »

Harmann continued: “The consensus mechanisms on each blockchain determine the canonical history of all confirmed transactions. This creates very large files that must be processed with each block and can only be viewed in the specific language native to the blockchain. Interoperability between two or more blockchains refers to the ability of one or both chains to understand and process the history of the other chain, allowing, for example, the exchange of assets between different layer 1 networks.

While it seems obvious that public blockchain projects should be designed with interoperability in mind from the start, this is not always the case. However, organizations increasingly require interoperability due to the benefits of information sharing and collaboration.

Why is interoperability important?

To realize the full potential of decentralization, it is beneficial

people participating in multiple blockchains must be connected through a single protocol. This reduces friction for the user as they can access various decentralized applications (DApps) without having to switch networks.

Due to the fact that blockchains operate independently of each other, it is difficult for users to enjoy the benefits provided by each network. To do this, they must store the tokens backed by each block chain in order to interact with the protocols on their network.

Interoperability can solve this problem by allowing users to use one token across multiple blockchains. In addition, by allowing blockchains to interact with each other, a user can more easily access protocols on multiple blockchains. For this reason, it is more likely that the value of the industry will continue to rise.

Fabrice Cheng, co-founder and CEO of Quadrata, the Web3 passport network, told Cointelegraph:

Interoperability is critical as it is one of the main benefits of blockchain technology. Decentralized open source technology enables interoperable products to be created on-chain, allowing more users, businesses and institutions to remain interconnected.

Cheng continued, “People using blockchain technology want to make sure people are verified, KYC verified, and have good credit behavior. DeFi users can access trading options or access real-time price channels. Interoperability is an effective way to get rid of intermediaries for users and allows companies to focus on their core values. »

When it comes to decentralized finance, giving merchants more ways to use their assets could provide additional growth and opportunities for the sector. For example, multi-chain income farming allows investors to earn multiple returns in the form of passive income on many blockchains for owning a single asset.

An investor will only need to hold Bitcoin (BTC) or a stablecoin such as USD Coin (USDC) and then distribute it across multiple protocols on different blockchains via bridges. Interoperability will also improve liquidity across multiple blockchain networks as it will be easier for users to move their funds between different chains.

Interoperability is not just about connectivity between blockchains. Protocols and smart contracts are also compatible. For example, t3rn, a smart contract hosting platform, allows smart contracts to run on multiple blockchains. This works because the smart contract is hosted on a smart contract platform and deployed and executed on different blockchain networks. Interoperable smart contracts make it easier for developers to create cross-web applications and for users to perform cross-web transfers.

Interoperable smart contracts will make it easier for users to access multiple decentralized applications, as they won’t have to switch between networks. For example, suppose a user is using a DApp on Ethereum and wants to access a lending protocol on Polkadot. If a Polkdadot-based DApp has an interoperable smart contract, they access it via Ethereum.

Oracles are another protocol that can benefit from interoperability. Oracles are objects that link real world data to the blockchain through smart contracts. Decentralized Oracle platforms such as QED can connect oracles to multiple blockchain networks, allowing real data to be exchanged between blockchains. In addition, oracles can take data from an API or sensor and send it to a smart contract to activate it when certain conditions are met.

For example, there are several organizations in a supply chain that use different blockchain networks. Once a supply chain component reaches its destination, the oracle can send data to the smart contract confirming its delivery. Once the delivery is confirmed by the oracle, the smart contract releases the payment. Because the oracle is linked to multiple blockchains, each provider can use the network of their choice.

Interoperability is also important for the exchange of digital assets between blockchain networks. One of the most common ways to achieve this is through the use of crossbridges. Simply put, blockchain bridges allow users to transfer tokens from one blockchain to another.

For example, wrapped tokens allow users to use bitcoin (BTC) on the Ethereum network as wrapped bitcoin (wBTC). This is important in the DeFi industry as users can interact with DeFi without purchasing the platform’s native token, which can be more volatile than blue-chip or stablecoins like BTC or Ether (ETH).

The ability to easily move assets between blockchain networks is a major benefit of interoperability. Anthony Georgiadis, co-founder of the Pastel Network, a non-fungible token (NFT) and Web3 infrastructure and security project, told Cointelegraph:

Interoperability is vital to the blockchain industry due to the diversity of data and assets found in the crypto ecosystem. Decentralized bridges between chains are needed to facilitate transfer between different types of tokens or assets.

The key to the success of blockchain technology will be the level of interoperability and integration between the many blockchain networks. For this reason, interoperability between blockchains is critical as it lowers the entry barrier for users who want to interact with protocols across multiple networks.

Blockchain interoperability will increase the productivity of the entire cryptocurrency industry. Users can quickly move data and assets between blockchains, increasing flexibility for all participants. Instead of being tied to a single blockchain, smart contracts can run on multiple networks and oracles will send real data across multiple platforms. Combined with the benefits of public decentralized blockchains, interoperability should form the basis for the widespread adoption and use of blockchain.

Georgiadis continued: “Thus, interoperability allows users to transfer cryptocurrency from one blockchain to another and allows users to stake tokens or NFTs as collateral for other assets. The interoperable world of Web3 is a vision that we work tirelessly to achieve. A multi-chain ecosystem supported by seamless bridges between chains will take us there and make this vision a reality.

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