Interoperable Blockchain Solutions

2017 was the year that crypto assets leapt from the dark corners of the internet to capture the imagination and attention of the media, institutions and retail markets. All of a sudden everyone needed an opinion on crypto assets, including Politicians, Government Regulators, CEO’s of Global Financial Institutions and Uber Drivers.  

This newfound attention has lead to mass innovation and advancements in blockchain technology over the last year. The ‘second generation’ of chains have been launched that have; advanced scaling solutions; greater energy efficiency and additional inbuilt functionality. Each of these chains has their own unique value propositions and are exceptional in their own merits (e.g. Ethereum, EOS, Lisk, QTUM, Ziliqua, Cardano, and NEO to name a few). However, they are not great at sharing information or transacting with each other. This is where interoperability becomes a major problem to solve. It is not until these chains can transact data seamlessly between one another that we will witness the true strength of blockchain and the super applications that build complex capabilities spanning blockchains and aggregate data from the ‘best of the best’ applications.

By design, blockchains have different characteristics which make them unique; some may be fast, and some may be able to carry more data. In practice, it’s near impossible to create one chain to ‘rule them all’. In a real-world example;

  • Identification data can be used to apply for a loan at a bank, and this identification data will contain everything the bank needs to approve/decline a loan. The data is requested from a trusted decentralised/centralised source that cryptographically signs your details, along with your payment address. Your data and your loan payment may not live on the same chain, but will need to share information to automate the loan process through a smart contract. Once the banks criteria is met, the payments can be automatically issued to the destination address for the requested loan amount. No people, no approval times, no transaction costs, no loan bias. The process is transparent, easy, fast and automated.

Currently, the main workaround that allows for tokens to be transferred across chains is centralised exchanges or OTC brokers. These exchanges are hard to scale, selective in the crypto assets they provide services for, have proven to have weak points in security and most importantly, only provide token swap services. The capability to transact information across chains has not yet been developed.

One solution being developed is cross chain atomic swaps. This is the exchange of one crypto asset for another that is on a separate blockchain without the need for a trusted third party. Atomic swaps utilise time locked contracts that escrow assets before releasing them to be? transacted, in order to ensure fulfilment on both sides of the exchange. Again, this solution only solves the transfer of tokens across chains and not information. Atomic swaps have requirements that are not yet complete or deployed across blockchains. One requirement is the deployment of a similar payment channel, like the Lightning Network (discussed previously).

Another solution is protocols whose unique purpose is to build interoperability across existing public and private blockchains. These protocols would build connectivity into each of the existing blockchains and act as the central marketplace for data and token transfer. One group aiming to solve this project is the ‘Blockchain Interoperability Alliance'. The group consists of 3 top 75 crypto assets, ICON, Wanchain and AION. All three projects have the common goal of achieving interoperability between blockchains. Each project has its own unique value propositions that doesn’t make them direct competitors but allows them to collaborate on developing common industry standards, sharing researching, and protocol architecture.

 

Magnet's Take

We have always discussed the need for interoperability in order for crypto assets to reach mass adoption. Without this, the crypto assets market will operate in silos and wealth will be unable to reach the more niche yet critical applications. Imagine having to allocate your wealth so that when you went shopping you had your bread coin to buy bread, your apple coin to buy apples, your soda coin to buy Coca-Cola etc.

Interoperability facilitates the infrastructure stage of blockchain development. We have previously discussed the significance that blockchain platforms play and this is a significant piece that provides the ability to trade data instantly between assets, projects and protocols.

For us, the interoperable blockchains are the best solution being developed. They provide a much needed and feasible mechanism for the transfer of crypto assets and data. This will allow for the seamless integration of applications across chains and applications that pull data and information from numerous blockchains to solve complex issues. The primary hurdle for these chains is how they will efficiently transact across chains with different block times (thus different settlement times) and how they will scale to interact with off-chain transactions to name a few.

Egor Sidelska