Written by: Khairul Haqeem, Journalist, AOPG
The 4IR, also known as Industry 4.0, tends to pique the interest of both avid and casual web surfers. While the term is commonly used to make small talk or appear erudite online, it was coined to describe the cultural, political, and economic shift from the digital age of the late 1990s and early 2000s to an era of embedded connectedness characterised by the ubiquitous presence of technology.
The blockchain system is one of the most remarkable technologies that the 4IR has introduced to the general public. The current state of affairs shows that blockchain has had a significant impact on a wide variety of important industries, such as the banking industry, data management, social media privacy, and gaming. With the advent of Ethereum, a smart contract blockchain, and the emergence of decentralised financial systems like Curve and Aave, as well as decentralised gaming platforms like Axie Infinity, blockchain technology has grown exponentially since Satoshi released his bitcoin paper in 2008. However, there are obstacles to this rapid expansion. Here, we’ll talk about the interoperability of blockchains, which is a significant limitation.
Interoperability refers to the cooperation between multiple chains. This means that blockchains will be able to interact with one another and trade data or tokens with little to no friction. Blockchains or ‘mainnets’ are usually referred to as ‘Layer-1’, while interoperability projects are sometimes known as ‘Layer-0’ projects which manage the ‘Layer-1’.
One might initially wonder why interoperability is necessary. We will begin by identifying the issues with blockchain technology as it stands today, and then we will see how interoperability may address these issues.
Interaction Between Blockchains
Although there has been significant development in many blockchains, interoperability remains a significant challenge that must be overcome before its full potential can be realised. Bitcoin, Ethereum, Solana, and Cardano, all of which are considered ‘Layer-1’ blockchains, have emerged as the most popular options due to their mass adoption and the widespread utilisation of the many applications that have been developed for them. These blockchains have interoperability concerns, meaning they have trouble talking to one another. The sad reality is they are incompatible with one another and cannot work together.
Take the hypothetical case of two people, A and B. Currently, A has 20 BTC and B has 100 ETH. As part of their agreement, A and B agree to trade tokens, making A the proud owner of 100 ETH and B the lucky recipient of 20 BTC. Unfortunately, they are unable to consummate this transaction since BTC and ETH exist on separate distributed ledgers (blockchains). It is impossible to complete this transaction without A and B each owning a Bitcoin and Ethereum wallet. The next step is for A to send 20 BTC from his Bitcoin wallet to B’s Bitcoin wallet, while B sends 100 ETH from his Ethereum wallet to A’s Ethereum wallet.
Several issues might arise from a deal of this nature. For starters, there’s the issue of safety. Considering the two transactions take place on different blockchains, one of them may choose to forego sending their token to the other. Subsequently, each chain has a unique transaction time and block finality time. Thus, in the former scenario, even if it is confirmed that 100 ETH from B’s Ethereum account has successfully moved to A’s Ethereum account, the 20 BTC from A to B will require a further delay to be validated, leaving B on the short end of the transaction if it fails. Lastly, the aforementioned exchange only applies to tokens but there may be times when information must be moved across multiple ledgers. In spite of this, such a deal could never be finalised between chains.
After the Ethereum merge, Vitalik Buterin, the inventor of Ethereum, has still not addressed the scalability trilemma, which is one of the three fundamental problems with blockchain technology. There is congestion in the network or the gas fees to mine a new block is too high for many of the early blockchains. This is because the transaction throughput is capped at below 20 transactions per second.
The ‘one-for-all’ blockchain design, in which the blockchains process all transaction types (including payments, token and data exchanges, governance, and trading), is to blame for this limitation. Due to the fact that the whole network of transactions uses the same blockchain, congestion is inevitable. As we will see later, having interoperability between chains can help mitigate this bottleneck.
On top of the main blockchain, several apps run their own custom software. This is particularly noticeable in smart contract blockchains like Ethereum and Solana. These blockchain apps often operate under their own rules and are governed by a Decentralised Autonomous Organisation (DAO) driven by the community. Application governance manages and governs these apps’ protocols, features, and long-term strategies.
However, the regulatory framework for mobile apps does not enjoy complete independence and sovereignty. They are still dependent on the primary blockchain they were created on. The blockchain apps built atop it will be subject to any restrictions or modifications to the protocol made to the main network. Since this is the case, blockchain applications cannot be as powerful as they may be. For blockchain applications to regain their autonomy, there must be a clear demarcation between governance levels, and each blockchain service must be able to function in isolation from the others.
Interoperability as a Solution
A workaround for blockchain communication issues is interoperability across various blockchain systems. The communication issue can be resolved forever if blockchains can exchange information and tokens with one another through direct communication.
Next, the issue of scalability can be achieved via separate but interconnected networks of specialised chains exchanging information. Blockchains will exist independently for governance, payments, data sharing, and games but they may interact with one another. Congestion will be significantly relieved when each task is carried out on its chain. Theoretically, horizontal scaling enabled by interoperability may also enable limitless scalability.
Challenges related to sovereignty tend to be complex. Most smart contracts are built to operate on certain blockchains. On the other hand, interoperable projects make it possible for blockchain apps to operate autonomously from the major blockchains, giving them their own form of sovereignty. The apps may achieve this by executing their smart contracts independently, and then communicating with the main chain only when necessary. A concern that might arise if the relay chain fails to do its duty is if apps have too much reliance on other blockchains.
Similar to how blockchain has grown more approachable because of ideas like smart contracts and other enhancements and implementations, there is a push towards less complicated and more effective interoperable solutions.
Interoperability in blockchain development is close at hand with the advent of technologies for blockchain application development and the expansion of sidechain integration. In our lifetimes it is a wishful certainty we may see how interoperability influences the next web3 iteration.