In Part 1 of this series, we talked about the “Blockchain Trilemma” and how different projects are trying to solve this problem. These projects use different technologies and, hence, can not communicate with each other. It is difficult for the users to move between blockchains. In this article, we will look at different approaches to solve this problem.
Table of Contents
Different Interoperability Approaches
Oracles was one of the first interoperability features incorporated in a blockchain. They help a blockchain connect with off-chain data and use that information to make on-chain decisions. For example, a synthetic asset, pegged to the price of TESLA stock, will always need a live price feed of TESLA stock from the traditional market. Multiple blockchains offering similar products need this data. A top oracle project is Chainlink.
- Sidechains: A sidechain is a blockchain that connects to the main chain and uses its ledger. As a result, the sidechain remains light and can add additional features and functionalities. As the sidechain uses the core ledger of the mainchain, it needs to remain interoperable through cross-chain communications (atomic swaps). An example would be RSK to Bitcoin.
- Notary Scheme: A third-party trusted server validates the cross-chain transfers. They are also the simplest form of interoperability. A typical example is a centralized exchange like Binance. You can send BTC to a centralized exchange and convert it to Ethereum.
- Hash Locking: The Hash Locking technique applies a timelock to a transaction. It is a derivative of an Atomic Swap. In case A wants to send some details to B, he cryptographically creates a Hash and sends the Hash Value to B. Both A and B lock their assets in a smart contract. Subsequently, B can only open the contract using a secret code supplied by A. This needs to happen within a time period. Once all these criteria are completed, the transaction completes. This is relevant in private and federated blockchains like R3.
A bridge acts as a connector between two blockchains and enables cross-blockchain communications.
- Trusted Relay: Trusted relays are smart contract-based bridges that connect different blockchains. They verify transactions and inform the recipient blockchain about the status change in the source blockchain and act accordingly. Hyperledger Cactus is an example of a trusted relay.
- Blockchain Engine: Blockchain engines are becoming quite popular. They are blockchains built on the same codebase. Moreover, they attach to a core relay chain. The relay chain handles the governance, and the feeding chains focus on security and scalability. They can also interact with each other seamlessly, as they are built on the same blockchain code. Polkadot and Cosmos are good examples. Wanchain is building an infrastructure to connect heterogeneous blockchains and provides cross-chain connections. Storeman Nodes run the Wanchain Network. When the source chain triggers a transaction, the nodes lock the assets and instruct the destination chain to mint new assets.
Read our full interview with the Wanchain Team
Blockchain of Blockchains:
DApps do not have interoperability features. However, it is essential that they have minimum structural interoperability to communicate with other dApps. A Blockchain of Blockchains has a core mainchain. Other chains (subchains) can integrate with this mainchain. Even if the architecture looks like a side chain, it is actually not. Sidechain interoperability works on atomic swap and the chains are homogeneous. However, the subchains in Blockchain of Blockchains can be heterogeneous. Example: Hyperledger Fabric.
Source: Exploring Blockchains Interoperability, Gang Wang, University of Connecticut
Cross-chain bridges have been essential to driving blockchain adoption. However, they have some inherent risks.
- The bridges lock the assets in the source chain. This results in a huge amount of tokens locked in a smart contract. This is susceptible to hacks.
- Cross-chain transactions are not always decentralized. There are centralized components in them and, hence, more failure points.
Read our detailed analysis of the Wormhole Hack
There are various types of cross-chain solutions currently available. The individual blockchains are moving towards a homogenous interoperability structure (Cosmos, Polkadot). The heterogeneous blockchain will still need to connect, and hence, solutions like Wanchain and Celer will be prevalent. Therefore, we suggest you use popular and time-tested bridges to minimize smart contract vulnerabilities as much as possible. In the case of large transactions, you can use reputed notary schemes, big exchanges (for example, Binance) to process your requests. We are still in the early stages, and the future of blockchain interoperability is exciting!
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The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. This article has been sponsored by Wanchain. Copyright Altcoin Buzz Pte Ltd.