May 24, 2022
Cross-Chain Technology: The Future of Blockchain Interoperability
From the surface, what we know about blockchain technology is that it is a decentralized ecosystem powered by distributed ledger technology. However, as the years pass by and as people are continuously diving deeper into the blockchain space, people realized it is not a cumulative ecosystem and that they wanted to do more transactions that are not only limited within one chain.
The number of blockchain projects have skyrocketed over the past few years, specifically during the pandemic, because developers are thinking outside the box as they try to maximize the technology’s capabilities. The increasing numbers are proof that problems continue to arise in the space, which is an opportunity for blockchain projects to prove their use-cases. But because blockchains exist largely in silos, they are not able to communicate with each other. It simply means that the strength of one chain cannot be shared to another chain to compensate for its limitations.
These isolations put in question the potential and value of blockchain, jeopardizing user experience and the industry’s growth. But with the rise of newer protocols with more enhanced capabilities, the future of blockchain looks bright. Cross-chain technology is one such innovation that can address the ever-growing issues of the industry and bring the required solutions.
What is cross-chain technology?
Cross-chain technology is an emerging technology and one of the most effective solutions to facilitate the transfer of value and data between two or more blockchains networks.
Key issues in the blockchain space have arisen due to the rapid increase in the number of users, especially on three (3) of the most common blockchain networks today — Bitcoin, Ethereum, and Solana. Though their tokens gave opportunities for some users to earn significant amounts of money, the underlying economical and technical limitations continue to scale up resulting in users not being able to utilize the technology’s full potential since the chains mentioned above operate separately. However, the introduction of cross-chain technology solves these problems by facilitating blockchain interoperability and enabling users to communicate and share data.
The cross-chain protocol facilitates interoperability between different blockchain networks and enables the exchange of data between several networks. Through cross-chain protocol, users can still communicate without the involvement of intermediaries. Consequently, blockchains that share similar networks can transfer value and data between each other.
This could mean financial transactions can be enabled between two completely different blockchains, which will lead to lower transaction fees and zero downtime.
Why is blockchain interoperability so important?
To achieve truly effortless transactions, both participants must be allowed to transact across blockchains. An example of this is User A sending cryptocurrency to User B. With the current setup of in-chain transactions, User B must use the same blockchain as User A if he or she wishes to receive the funds. This inconvenience and hassle will soon become a thing of the past once chains start integrating cross-chain technology.
The potential applications of this technology is not only limited to financial transactions. If developers continue thinking outside the box, we can soon witness the sharing of information through a highly secure blockchain technology. Communication between two or more parties will no longer need moderation from a central oversight or intermediaries.
Experts, including those in the tech industry, believe the addition of interoperability between blockchains will lead to the development of added capabilities between blockchains. Such a fully decentralized and secure system could be at the heart of a completely digital economy.
Multi-token wallets are also being developed, which means transactions involving the exchange of multiple tokens will become possible if 100 percent interoperability is achieved. The primary benefit will be that users will be able to transact using a single wallet for all transfers.
What are the benefits of cross-chain technology?
While cross-chain protocols significantly help in bringing blockchain interoperability, there are several underlying benefits of it. Here are some significant benefits that cross-chain technology offers:
- Two independent blockchain networks now connected
One of the best advantages of cross-chain technology is that it enables effective communication and a strong connection between two different blockchain networks. Since it is usually used to initiate asset transfer and token swaps, there is no scope for blockchain incompatibility. Additionally, it also allows the user to transfer information such as assets, transaction receipts, and virtual contracts.
- Better scalability
Cross-chain technology facilitates better scalability than current mechanisms on blockchain due to their limited interoperability. Because this technology helps the users to interact with different blockchain networks, it is now possible to leverage the speed concerning multiple blockchains that ultimately enhance scalability.
- Enhanced flow of data and transfer of tokens
The current standard procedure in blockchain today is that a user needs to send instructions from the source chain. Once the validator receives these instructions, the relayers convey the instructions to the destination chain. However, with cross-chain technology, the transaction is verified right after its completion and arrives at the destination change only once the verification is completed. This streamlines the entire process and makes the exchange and transfer of data seamless.
- Discourage monopolization by large entities
Cross-chain technology also helps in creating stability in the market by discouraging monopolization by large corporations. For instance, Bitcoin and Ethereum are the leading names in the world of cryptocurrencies that occupy more than 70% of the total market share. As a result of this dominance, there is no space left for new players in the market that can experiment with their strategies and make a spot in the existing competition.
Cross-chain technology can help in such scenarios as it builds an ecosystem where the transaction processes will concentrate on all networks equally. The focus will not be only on a few major blockchain networks but on other networks as well. Hence, cross-chain technology can create a fair scenario by facilitating a balanced approach to state how crypto players participate in the marketplace.
Future of cross-chain technology
While blockchain is just a little over a decade old, the market has evolved significantly in recent years, especially during 2020 where people are in lockdowns due to the pandemic. The industry has grown from just merely building new crypto assets for transactional purposes to now building decentralized financial services, NFT marketplaces, and crypto games. Even more interesting, the rate at which innovators are coming up with new projects has been on the rise, attracting VC (virtual currency) money from all over the world.
As an emerging mechanism, cross-chain technology has a long way to go in facilitating blockchain interoperability, and this will not be easy due to the existing challenges and constraints of the top blockchain networks. The need for interoperability through cross-chain technology should not only be limited to the safe transfer of tokens but also the safe and secure transfer of confidential data.
Cross-chain technologies play a huge role in accelerating blockchain interoperability even if they are still in the evolving phase. It will eventually emerge as a viable mechanism to encourage better interoperability solutions in the future.
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