"Blockchain Interoperability" is the new buzzword in the blockchain industry this year, especially among major industry players. But what is it, and why does it matter? Let's break it down. This article is organized into three parts:
What is blockchain interoperability?
Why does blockchain interoperability matter?
How can we achieve blockchain interoperability?
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!blockchain interoperability photography
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"INTER-OPERABILITY": A word that sounds as dull as it is long --- and yet, the concept of "interoperability" is the very key to the future of the blockchain industry. First, let's break down what it means for something to be "inter" + "operable".
"Interoperability" is defined by the Oxford Dictionary as "The ability of computer systems or software to exchange and make use of information." Simply put, something can work across different systems, something that can "operate" "inter"-dependently.
In the blockchain industry, "interoperability" is defined as "the ability to share information across different blockchain networks, without restrictions".
They are, unfortunately, not. The blockchain industry has grown by leaps and bounds since the launch of the Bitcoin (BTC) blockchain back in 2008. Hundreds if not thousands of blockchain and crypto projects have emerged each year, each competing with the other to become the most widely adopted blockchain or cryptocurrency. But many believe it doesn't have to be this way.
Right now, if an application or platform is built on one blockchain, then the data and utility of this application is confined to this one blockchain only. For example, applications built on the Ethereum (ETH) blockchain cannot benefit from applications built on NEO's (NEO) blockchain, even as NEO is widely regarded as the "Chinese Ethereum".
Blockchains, in their current form, exist fully independently with no knowledge of what's going on in other blockchains --- thus leading to a growingly fractured and siloed blockchain industry.
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Think of it this way. Why is the US dollar the most popular currency in the world? Because it's the most widely accepted in the world --- whether you're investing in altcoins online, buying groceries at Walmart in Alaska, buying a drink while holidaying on the beach in Bali, or grabbing a cup of coffee at Starbucks at Dubai International Airport. Want to swap it for a local currency? Find us a money changer that doesn't accept or know the value of the USD. The same, unfortunately, cannot be said about cryptocurrencies for now.
Even if Starbucks decides to start accepting crypto at its stores, it would have a tough time setting up a system to do so since every cryptocurrency is built on a separate blockchain and thus would require different payment systems. It's like having a separate cash register or credit card reader for every type of credit card, cash currency, or mobile wallet.
Anyone can go to a currency exchange and swap their US dollars for Euros or other local currency. But what happens when China launches its CBDC or if the US launches its Digital Dollar? Will each government recognize the other's digital currency? Will businesses accept them? What happens when each digital currency is built on its blockchain and users can only use them within a particular ecosystem or country? This is when having interoperable blockchain systems becomes extremely important.
While it's nice that Bitcoin (BTC), the world's most well-known and widely adopted cryptocurrency, has a market capitalization of ~US$170 billion as of early July 2020, or that the entire cryptocurrency market is worth a lovely ~US$272 billion as a whole at the time of writing, these numbers are nothing compared to the global banking industry which is worth a nifty US$125 trillion (that's trillion with a 't') as of 2018. Of course, what Bitcoin and other cryptocurrencies have done is no small feat, but if this industry wants to go further, we're going to have to work together.
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R3's Chief Technology Officer Richard Gendal Brown, the guy who helped invent Corda, one of the most widely deployed enterprise blockchains in the world, believes that there are five ingredients to achieve interoperable blockchains:
No one blockchain network will ever be able to provide all the requirements for any given transaction, and multiple inputs will always be needed --- as it is with any business transaction anywhere in the world.
According to Rebecca Liao of SKUChain, blockchain interoperability can be most directly accomplished at the data layer through the transfer of data payloads through application programming interfaces (APIs). This is because:
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This would, for example, be especially useful in the healthcare industry. The industry that many lives could be saved and resources better managed. In case healthcare facilities can obtain accurate and immediate information on a patient (especially if a patient is in a bad situation or unconscious). Future patients or patients may feel relieved by storing personal health data in decentralized databases.
Aside from APIs, other ways to achieve interoperability include cross-chains, sidechains, proxy tokens, swaps, etc. One of our favorite projects promoting blockchain interoperability is Chainlink.
Chainlink is a decentralized network that connects smart contracts with real-world data, powered by their native LINK token. It aims to help blockchain applications do more. Thanks to providing more sources of real-world inputs and more ways to share their output. They provide secure and reliable access to data feeds, APIs, and payments that are not readily available to blockchain-enabled applications.
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Cryptocurrencies mentioned in this article:
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