Blockchains That Talk Together Stay Together
Despite the protests of Bitcoin maximalists who declare Satoshi’s creation as the only cryptocurrency required, the crypto ecosystem has seen a proliferation of a wide array of diverse blockchains, each powered by its own unique cryptocurrency.
Moreover, both public and private enterprises are experimenting with private blockchain solutions for use-cases ranging from government services to supply chain transparency. Blockchains are increasingly being utilized to store financial information, user data and smart-contracts, highlighting the need for infrastructure that will allow communication across various chains. Otherwise value will remain locked in silos and potential users will be scared away by the fragmentation within the ecosystem.
The Paths To Interoperability
Blockchain developers the world over are searching for solutions that would allow users to communicate value across disparate protocols.
Attempts to solve the interoperabilty questions are currently focused on two avenues:
1) Atomic Swaps
While atomic swaps facilitate the trustless exchange of coins across different blockchains, smartbridges aim to go one step further by allowing for more sophisticated forms of communications between blockchains.
Working On An Atomic Scale
Centralized crypto exchanges have been a magnet for malicious actors and government intervention, causing users seeking a greater measure of security to withdraw their coins into more secure locations such as cold storage or hardware wallets. Should a user wish to use his bitcoin to buy into an ICO on the NEO chain or settle an Ethereum smart-contract, however, he would need to transfer it back to the exchange in order to execute the trade. As the number of coins and blockchain use-cases scales, a fragmented ecosystem with no cross-chain functionality becomes a major hurdle to greater adoption.
An atomic swap is the trustless swap between two coins on different blockchains, without the need for a third-party to facilitate the exchange. Hash-time locked contracts are used to ensure that each party keeps their end of the bargains. HTLCs work by allotting a time frame in which the transaction takes place and requiring both parties to sign a multisig transaction in order to release funds. Should the signatures not be presented in time, the transaction is voided and each party is refunded their initial contribution.
In September of 2017 crypto markets were abuzz with news that a successful atomic swap between Decred and Litecoin had been executed. Later that year, Lightening Network was used to carry out a swap between Litecoin and Bitcoin, its parent chain. Indeed, by moving transaction activity to off-chain payment channels, Lightning Network is a crucial cog in the atomic swap infrastructure. Despite showing promise, atomic swaps have thus far been limited to a small fraction of the total crypto ecosystem. Furthermore, they lack a mechanism for price discovery and order matching that would allow the trustless transfer of coins between blockchains to scale.
Bridges. We Need Bridges
The first blockchain introduced the ability to represent monetary value on a decentralized ledger. The intervening years have seen healthy growth in the use of distributed ledger technology, with information ranging from identity verification to smart contracts and title deeds currently represented on the blockchain. However, the absence of inter-blockchain communication is hampering the adoption of a decentralized ecosystem based on the fluid, trustless exchange of data. Fully unlocking the growth of cryptocurrencies will require a solution enabling users and developers to route messages from one network to another.
One project attempting the ambitious goal of cross-chain communication is AION. Billed as a third-generation blockchain, AION creates bridges that connect blockchains and external services such as databases and oracles together using a standardized communication protocol. This goes one step further than atomic swap, as it allows the state of one blockchain to be affected by events in a different chain. With a smart bridge, users can settle the result of an Augur prediction smart contract with the currency of their choice as the bridge allows the state of one blockchain to be affected by the outcome on a distinct chain. Freeing up blockchains to communicate with one another and external data sources will unlock liquidity and extend the solution space of blockchain application in a way that will accelerate mass adoption.
Interoperable Blockhains — Unite!
Interoperability remains a thorny problem in the decentralized ecosystem and as such is receiving a lion’s share of developer attention. Aside from AION, platforms such as ICON and Wanchain are also working on connecting disparate networks together. Together these 3 projects have formed the “Blockchain Interoperability Alliance” to spur the age of interconnected blockchains. The alliance’s main priority is to collaborate on research on interchain transactions and communication. In pursuit of these goals, alliance members will share research, establish common industry standards and develop protocol architecture.
Alongside the scalability, the ability to support robust inter-chain communication is the main concern facing a cryptocurrency ecosystem itching to breakout into the mainstream. As the markets move towards standard Interoperability protocols across platforms, the current fragmented state of blockchains will give way to unlocked liquidity and cross-chain value.
Written by: David Azaraf