Every year, we witness the creation of brand-new blockchain networks to address specialized markets within particular industries. Each blockchain has unique functions based on its intended use. Layer-2 scaling systems, such as Polygon, are designed to have extremely cheap transaction fees and quick settlement times.

The realization that there isn’t a single ideal solution that can fully address all of the demands related to blockchain technology is another factor contributing to the rise in the number of new blockchain networks. The integration of these distinct blockchains is thus becoming vital as more firms become aware of this developing technology and its advantages.

Interoperability: What is it?

Blockchain interoperability is a wide range of techniques that let numerous blockchains connect, exchange data and digital assets, and collaborate more efficiently. Interoperability, for instance, enables the transmission of data and assets via decentralized cross-chain bridges between various blockchain networks. As a result, the economic activity of one blockchain network can be shared with another.

Most blockchains lack interoperability because they were all created using unique standards and code bases. All transactions must be completed within a single blockchain, regardless of how many features the blockchain may have, as most blockchains are inherently incompatible.

THORWallet DEX is a non-custodial decentralized finance (DeFi) wallet, and its founder and CEO, Marcel Harmann, told that interoperability might be considered freedom in data interchange. Smart contracts, which only allow secure data exchange within their respective ecosystems, are a feature of layer-1 protocols like Ethereum or Cosmos. Base layer protocols can’t efficiently communicate with one another at the moment. Transfers of digital assets outside the network raise the question of how one blockchain can rely on another’s blockchain’s state validity.

According to Harmann, consensus procedures on each blockchain determine the canonical history of all approved transactions. As a result, enormously massive files are created, which can only be viewed in the language used by the blockchain and must be digested with each block. One or both chains must be able to comprehend and analyze the other chain’s history for interoperability between two or more blockchains. This allows, for instance, the exchange of assets between several layer-1 networks.

Contrary to appearances, not all public blockchain projects are created with interoperability in mind from the beginning. However, because of the advantages of information exchange and collaboration, corporations are increasingly clamoring for interoperability.

What makes interoperability crucial?

People involved in several blockchains should be connected via a common protocol to fully exploit the benefits of decentralization. The user experiences less friction because they can access several decentralized applications (DApps) without switching networks.

Users find it challenging to profit from the advantages offered by each network because blockchains run independently of one another. They must possess tokens supported by each blockchain to interact with the protocols running on their network.

This issue can be resolved by interoperability by allowing users to utilize a single token across several blockchains. Additionally, allowing communication between blockchains allows a user to access protocols on other blockchains more easily. This increases the likelihood that the industry’s worth will increase.

Web3 passport network Quadrata’s co-founder and CEO, Fabrice Cheng, told:

Since interoperability is one of the main advantages of blockchain technology, it is essential. Decentralized open-source technology enables the development of compatible products across chains, facilitating the connectivity of additional users, organizations, and institutions.

Cheng stated that people who employ blockchain technology want to ensure applicants are screened, KYC-verified, and have good credit behavior. Users of DeFi have access to real-time pricing feeds and trading options. Businesses may concentrate on their fundamental principles thanks to interoperability, which is an effective approach to cutting out intermediaries for users.

Giving traders greater options for using their assets can increase the sector’s growth and potential in decentralized finance. For example, multichain yield farming allows investors to earn multiple returns as passive income on numerous blockchains while only owning a single asset.

Simply holding Bitcoin (BTC) or a stablecoin like USD Coin (USDC) and distributing it over numerous protocols on various blockchains using bridges would be sufficient for the investor. Since users find it simpler to transfer funds between chains, interoperability will help increase liquidity across various blockchain networks.

There are more aspects of interoperability besides only connectivity across blockchains. Additionally compatible are protocols and smart contracts. For instance, the smart contract hosting platform t3rn allows smart contracts to function across various blockchains. This operates by deploying and executing the smart contract across several blockchain networks after it has been hosted on the smart contract platform. It is simpler for programmers to build cross-chain applications and for users to conduct cross-chain transfers when smart contracts are interoperable.

Consider a scenario where a user of an Ethereum DApp wants to access a Polkadot lending protocol. The Polkadot-based DApp uses the Ethereum platform to access any compatible smart contracts. Since users won’t have to switch networks, interoperable smart contracts will simplify access to numerous decentralized applications.

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Another protocol that could profit from interoperability is oracles. Oracles are organizations that use smart contracts to link real-world data to the blockchain. Real-world data can be transferred between blockchains thanks to decentralized oracle platforms like QED that can link oracles to various blockchain networks. Additionally, oracles can use data from a sensor or API to send it to a smart contract, which will then be activated if certain requirements have been completed.

As an illustration, a supply chain consists of numerous companies that utilize various blockchain networks. Each supplier is free to use the network of their choice because the oracle is connected to numerous blockchains. The oracle can provide data to the smart contract verifying the delivery of a supply chain component once it arrives at its destination. The smart contract releases a payment once the oracle confirms delivery.

The trading of digital assets between blockchain networks also depends on interoperability. Utilizing cross-chain bridges is one of the most popular techniques to accomplish this. Simply put, cross-chain bridges enable users to move tokens between blockchains.

For instance, wrapped tokens enable users to use wrapped bitcoin (wrapped bitcoin) on the Ethereum network (wBTC). This is crucial for the DeFi sector because it allows users to interact with DeFi without purchasing a platform’s native token, which could be more volatile than stablecoins or established cryptocurrencies like Bitcoin or Ether (ETH).

Also, read – Web3: The road to mass adoption

One key advantage of interoperability is the simplicity with which assets may be transferred between blockchain networks. Co-founder of the nonfungible coin (NFT) and Web3 infrastructure and security project Pastel Network, Anthony Georgiades, told:

“Due to the variety of data and assets in the crypto ecosystem, interoperability is crucial for the blockchain sector. Decentralized cross-chain bridges must make transfers between various token or asset types possible.

The degree of connection and integration between the many blockchain networks will be essential to the success of blockchain technology. Because it lowers the entrance barrier for consumers who wish to engage with protocols across numerous networks, interoperability between blockchains is essential.

The whole cryptocurrency industry will experience increased efficiency because of interoperability between blockchains. Users may instantly transfer assets and data between blockchains, giving everyone more flexibility. Smart contracts can operate on several networks rather than being bound to a single blockchain, and oracles will provide real-world data across various platforms. Interoperability should be the foundation for broad blockchain acceptance and usage when combined with the benefits of open, decentralized blockchains.

Georgiades stated, “Accordingly, interoperability enables users to post tokens or NFTs as collateral for other assets and lets users transport cryptocurrency from one blockchain to another. We are working nonstop to realize the vision of an interoperable Web3 world. We’ll get there and realize that goal with the help of a multichain ecosystem supported by seamless cross-chain links.