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Each year new blockchain networks are developed to address specific niches within specific industries, and each blockchain has specialized capabilities based on its purpose. For example, Layer 2 scaling solutions like Polygon are built for ultra-low transaction fees and fast settlement times.
The growing number of new blockchain networks is also a result of the realization that there is no perfect solution that can meet all needs related to blockchain technology at once. Therefore, as more organizations become aware of this emerging technology and its capabilities, there is a growing need for these proprietary blockchain interconnections.
Blockchain interoperability refers to the different ways in which many blockchains can communicate, share digital assets and data, and work together more effectively. This allows one blockchain network to share its economic activity with another network. For example, interoperability allows data and assets to be transmitted between different blockchain networks through decentralized cross-chain bridges.
Interoperability is not inherent in most blockchains, as each blockchain is built with different standards and codebases. Most blockchains are inherently incompatible, so all transactions must be performed within a single blockchain, no matter how many functions the blockchain has.
Marcel Hermann, founder and CEO of THORWallet DEX, a non-custodial decentralized finance (DeFi) wallet, told Cointelegraph: Currently, the base layer protocols cannot communicate effectively with each other. Layer 1 protocols such as Ethereum and Cosmos have smart contracts built into their fabric that allow secure data exchange only within their own ecosystem. The transfer of digital assets off a network raises the question of how one blockchain can rely on the validity of another blockchain’s state. ”
Harmann continued, Each blockchains consensus mechanism determines the canonical history of all verified transactions. It can only be displayed in a specific chain-specific language.Interoperability between two or more blockchains refers to the ability of one or both chains to understand and process the history of the other chain, e.g. 1 enables the exchange of assets between networks.
It’s clear that any public blockchain project should be designed with interoperability in mind from the start, but that’s not always the case. However, the benefits of sharing information and working together are driving an increasing number of organizations to seek interoperability.
To maximize decentralization potential,
People participating in multiple blockchains will be linked via a single protocol. This eases the burden on users as they can access various decentralized applications (DApps) without changing the network.
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Blockchains operate independently of each other, making it difficult for users to take advantage of the benefits offered by each network. To do so, they must hold tokens backed by each blockchain in order to engage the protocol within the network.
Interoperability can solve this problem by allowing users to use one token on multiple blockchains. Additionally, by allowing blockchains to communicate with each other, users can easily access protocols on multiple blockchains. This makes it more likely that the value of the industry will continue to grow.
Fabrice Chen, co-founder and CEO of Quadrata (Web3 Passport Network) told Cointelegraph:
Interoperability is very important as it is one of the key advantages of blockchain technology. Decentralized open source technology allows us to create interoperable products across the chain, enabling more and more It enables users, businesses and institutions to stay interconnected.
Cheng continued, People using blockchain technology want to make sure people are screened, KYC verified, and have good credit behavior. DeFi users have access to trading options. or access real-time price feeds.Interoperability is an efficient way to remove middlemen for users, allowing companies to focus on their core values.
When it comes to decentralized finance, giving traders more ways to use their assets can bring more growth and opportunities to the sector. For example, multi-chain yield farming allows investors to own a single asset to generate multiple returns as passive income across many blockchains.
Investors simply need to hold a stablecoin like Bitcoin (BTC) or USD Coin (USDC) and distribute it across multiple protocols on different blockchains via bridges. Interoperability also improves liquidity between multiple blockchain networks, as it makes it easier for users to move funds between different chains.
Interoperability doesn’t just refer to connectivity between blockchains. Protocols and smart contracts are also interoperable. For example, t3rn, a smart contract hosting platform, allows smart contracts to work on multiple blockchains. It works by having smart contracts hosted on a smart contract platform, deployed and executed on various blockchain networks. Interoperable smart contracts make it easier for developers to create cross-chain applications and for users to perform cross-chain transfers.
Interoperable smart contracts make it easier for users to access multiple decentralized applications without requiring network changes. For example, a user is using her DApp on her Ethereum and wants to access the lending protocol on Polkadot. If his Polkdadot-based DApp has interoperable smart contracts, they will be accessed on his Ethereum.
Oracle is another protocol that can benefit from interoperability. Oracles are entities that connect real-world data to blockchains via smart contracts. A decentralized oracle platform like QED can connect oracles to multiple blockchain networks, allowing real-world data to be shared across blockchains. Additionally, oracles can take data from APIs or sensors and send it to smart contracts to activate when certain conditions are met.
For example, a supply chain has multiple organizations using different blockchain networks. Once the supply chain components reach their destination, the oracle can send the data to the smart contract to confirm its delivery. The smart contract releases the payment once delivery is confirmed via the oracle. Oracles are linked to multiple blockchains so each supplier can use the network of their choice.
Interoperability is also important for the exchange of digital assets between blockchain networks. One of the most common ways to do this is with a cross-chain bridge. Simply put, a cross-chain bridge allows users to transfer tokens from one blockchain to another.
For example, wrapped tokens allow users to spend Bitcoin (BTC) as wrapped Bitcoin (wBTC) on the Ethereum network. This is important in his DeFi industry, as users can participate in his DeFi without having to purchase the platform’s native tokens. Platform native tokens can be more volatile than stablecoins and high-quality coins such as BTC and Ether (ETH).
The ability to easily move assets between blockchain networks is a major advantage of interoperability. Anthony Georgiades, co-founder of Pastel Network (Non-Fungible Tokens (NFT) and Web3 infrastructure and security projects), told Cointelegraph:
Interoperability is very important to the blockchain industry due to the diversity of data and assets found within the crypto ecosystem. is required.”
The key to the success of blockchain technology is the level of interaction and integration between many blockchain networks. For this reason, interoperability between blockchains is very important as it reduces the barriers to entry for users who want to engage with the protocol across multiple networks.
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Interoperability between blockchains increases productivity across the crypto sector. Users can quickly move data and assets between blockchains, increasing flexibility for everyone involved. Instead of being tied to a single blockchain, smart contracts work across multiple networks and oracles transmit real-world data across various platforms. Combined with the benefits of public decentralized blockchains, interoperability should provide the foundation for widespread adoption and use of blockchains.
Thus, interoperability allows users to send cryptocurrencies from one blockchain to another, and users to post tokens or NFTs as collateral for other assets. It’s a vision we work tirelessly on, and a multi-chain ecosystem facilitated by a seamless cross-chain bridge will get us there and make that vision a reality.”
