Blockchain Interoperability & Cross-Chain Communication Series

Thank you for joining us for the first post in our Blockchain Interoperability and Cross-Chain Communication Series.

In this series, we’ll explore the need for interoperability, the predominant methods of cross-chain communication, and the innovations at the forefront of cross-chain architecture.

The Importance of Interoperability

To function effectively, blockchains must make trade-offs between their security, efficiency, feature set, and amount of decentralization. The nature of these trade-offs necessitates purpose-built blockchains with specific strengths, limitations, and use-cases in mind. For instance, a chain may sacrifice some degree of decentralization or security to achieve a higher transaction throughput. Another may sacrifice speed or features in exchange for a higher level of decentralization and security.

The result is an ecosystem comprised of many chains, where new blockchains are developed to meet the needs of emerging use cases. As the industry grows, so too will the number of blockchains — as demonstrated by a large number of well-capitalized chains scheduled to launch over the coming years. Where the trade-off landscape is unlikely to change substantially, we should anticipate working with multiple chains for the foreseeable future.

Unfortunately, blockchains exist largely in vitro, unable to communicate with or verify information on other chains. These silos fragment the users, features, and value of the industry. As an increasing number of chains launch, this will significantly worsen, further eroding user experience, and hindering industry growth.

At Summa, our focus is on the development of cross-chain architecture and interoperability as a service solutions. We believe that effective communication between chains will reduce the impact of fragmentation, allowing users, features, and value to flow more freely throughout the ecosystem.

Strong interoperability could shield users from the trade-offs that blockchains make and allow them to interchangeably leverage the optimizations of different consensus mechanisms and virtual machines, in many cases off-loading tasks that are better accomplished on other chains and letting each focus on its core competencies. If we end up in a world of many blockchains, interoperability can make them more useful, user-friendly, efficient and scalable.

— Aleks Larsen, Blockchain Capital

Approaches to Cross-Chain Communication

Cross-chain communication mechanisms allow blockchains to verify information and transactions across multiple chains, enabling data and assets to move between them directly without the need for trusted third parties or centralized solutions.

Broadly, we accomplish this through one or more of five major approaches:

1. Atomic Swaps — allow users to trade one cryptocurrency for another directly in a peer-to-peer transaction Hashed TimeLock Contracts (HTLCs). Atomic swaps are not a true form of cross-chain communication (as the two chains do not communicate), but a mechanism that allows two parties to coordinate transactions across chains. Atomic swaps can be effective if used correctly and are the mechanism that enables the Lightning Network.
2. Stateless SPVs — allow any sufficiently advanced smart contract to verify a subset of Proof of Work history (unlike NiPoPow-based constructions which track the entirety of the state). Stateless SPVs are relatively inexpensive and can be adapted to a wide variety of use cases. They were first conceived of by our team at Summa.
3. Relays — allow a contract to verify block headers and events on another chain. Several approaches to relays exist, ranging from verifying the entire history of a chain to verifying specific headers on-demand. Each method has trade-offs between the cost of operation and the security of the relay. Relays are often quite expensive to operate, as we saw first-hand with BTCRelay.
4. Merged Consensus — allow for two-way interoperability between chains through the use of a relay chain. Merged consensus can be quite powerful, but generally must be built into the chain from the ground up. Projects like Cosmos and ETH2.0 use merged consensus.
5. Federations — allow a selected group of trusted parties to confirm the events of one chain on another. While federations are powerful, their obvious limitation lies in the requirement to trust a third party. Blockstream’s Liquid uses a federation to enable the use of synthetic Bitcoin.

The approaches we take to enable cross-chain communication are primarily determined by the features and limitations of the chains involved. We’ll look at the strengths, limitations, and applications of each mechanism, in addition to the ways that they can be combined over the next several posts in the series.

Conclusion

Blockchains are silos that fragment the users, features, and values of the ecosystem. Today, moving between chains and cryptocurrencies is cumbersome and time-consuming, hindering user experience and eroding adoption.

As fragmentation is likely to worsen over time, the long-term success of projects in the industry will hinge on their ability to effectively implement cross-chain solutions — allowing for expanded their feature sets, access to new cross-chain liquidity, and larger user bases.

To accomplish interoperability at scale, we believe that the community must come together to collaborate and standardize approaches. This belief was the driving force behind the creation of Cross-Chain Group. If you’re working on interoperability solutions, we encourage you to get involved at https://crosschain.group/

In our next post, we’ll take a deep dive into the first of the five major cross-chain communication methods, Atomic Swaps.

Summa is a provider of cross-chain architecture and interoperability as a service solutions. The company is led by a team of blockchain experts who have founded, contributed to, and advised on many of the most prominent projects in the space. Summa has provided cross-chain development for Ethereum (EIP-152), Keep, The Electric Coin Company (ZIP-221), and the Zcash Foundation. Summa’s investors include Polychain Capital, INBlockchain, and Kilowatt Capital.

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