Blockchain Interoperability – How Does It Work?

  • By Alex Hickey in Learning
  • 07 Jul 2022
  • 7 min read

Blockchain interoperability has emerged as a hot topic within the crypto space, and will ultimately result in being a game-changer. This will further ensure that growth and innovation continue, coupled with accelerating the broad adoption of blockchain technology globally. It is a somewhat complex topic, but that can be understood by anyone as long as it is broken down and explained in a logical manner.

 

Table of Contents

What is Blockchain Interoperability?

In its simplest terms, blockchain interoperability allows different blockchain protocols to actively communicate with each other. Therefore, different chains can interact and share data, which results in making it easier to use different blockchain networks. A common analogy is that of emails. We send emails everyday, and one of the most essential functions of all email systems is that someone with a Gmail account can send emails to someone with a Yahoo or Info account.

 

In its current state, there are no layer one blockchain protocols that can do this.

 

While you are working with an application on the Ethereum network, as an example, you cannot make a direct payment to a separate chain like Cosmos. Blockchain interoperability would mean that any blockchain layers could transact or send messages to an outside chain.

 

The ability to cross blockchain networks in this way is still largely theoretical but many projects have made great strides in their studies to find a solution to interoperability.

 

For more in-depth information on Blockchain interoperability, read our What is Blockchain Interoperability blog post

Interoperability in Web3 – Why it Matters

As a basic explanation, Web3 is the evolution of the internet to incorporate state-of-the-art tech, among others blockchain networks. The major part of this evolution is decentralized access to financial systems. The use of cryptocurrencies and tokens on blockchain platforms also allow the creation of new use cases and opportunities. An example of this is the monetization of nonfungible tokens (NFTs) within metaverse applications.

 

So why does interoperability matter when it comes to Web3?

 

Many different blockchain networks have a variety of different functionalities. It is only normal for the everyday user to access a plethora of different applications to achieve their daily requirements. This is also evident in Web2 as well where someone may be on Amazon at one time, and using Googledocs at another. If the two couldn’t be accessed with ease and simultaneously, we would have a lot of deadlock on the internet.

 

Your web wallet on Polkadot would be of no use to a DeFi platform that works within the Ethereum chain. Maybe you want to open a new smart contract on Cardano, but store most of your assets within the Avalanche network. With the advent of interoperability in Web3 this and much more will be possible.

Blockchain Interoperability Protocols/Projects – 5 Examples

As mentioned above there are a multitude of protocols that have already taken steps towards interoperability. By and large, for the time being, all efforts have been channeled towards providing applications with the ability to interoperate with each other within the same protocol.

 

We are going to look at five protocols that are pioneering interoperability: Polkadot, Cosmos, Cardano, Plasma Bridge, and Lisk.

Polkadot

Polkadot utilizes parachain technology. Parachains can be thought of as individual Layer-1 blockchains that have the ability to function in parallel within the Polkadot ecosystem. Each parachain relies on a central shard within the ecosystem for cross-chain communication and security. As long as this aspect of the chain is secure, parachains will also operate safely within the Polkadot network.

 

This method is referred to as ‘pooled security.’ Parachains are capable of exchanging data when validators from the central shard can confirm that it is correct against a state transition function. If all information being exchanged can be confirmed, it is passed through to the corresponding parachain.

 

Cosmos

Cosmos works in a very different way to Polkadot. Using what is called the Inter-blockchain communication (IBC) protocol, chains can communicate with the creation of certificates. If either chain cannot create certificates as part of their mechanics, interoperability through IBC cannot be achieved.

 

Cross-chain certificates are a scalable and efficient way of interoperability, but come with their own sets of requirements and limitations. Applications would need to be lightclients to each other, and validate the certificates that are created in the process of exchanging information. If this cannot be maintained, then there can be no communication between the different parties.

Cardano

Cardano is another of the most widely used chains that is approaching interoperability. Cardano from the start has championed the development and functionality of smart contracts, therefore the concept of bridges to other chains was inevitable. Cardano also adopts a cross-chain certificate standard for its solution, however, it is largely focused on Proof-of-Stake chains.

 

Using sidechain technology, Cardano is starting to show the possibilities of communicating with chains like Algorand, and the Nervos system. Though this is limited to PoS chains with very specific necessities, it shows the potential for future development.

Plasma Bridge

On to mechanisms, rather than layer 1s. Plasma focuses on scaling the Ethereum network by using child chains and moving transactions from one chain to another. The Plasma bridge allows for assets to be sent from one layer 1 to another through shared Plasma child chains. This Proof-of-Concept is being experimented with as a layer 2 solution on the Ethereum network currently.

Lisk

The Lisk interoperability solution uses sidechain technology to allow for communication between chains. The basis of this solution is a series of CCMs (Cross-Chain Messages) are collected prior to deploying a transaction to another application. After these messages reach the receiving platform, they can be verified and added to the block.

 

Cross-chain messages collected at different times can verify the state transition to ensure that information is valid over a period of time. This allows for the simple validation of the state of the chain and acceptance into a separate network.

 

Blockchain Interoperability Solutions – Examples

As we have seen in the last section, protocols approach interoperability from a variety of angles. Some have shown far more progress than others but each new method offers a wealth of information to consider and learn from when moving forward. Here is a breakdown of the solutions from the protocols.

Pooled Security

Working on the Polkadot network, parachains use a central shard in the mainnet to send information from one application to another. Pooled security allows validators from this central shard to confirm that the information being relayed is correct against the current state of the application.

Inter-Blockchain Communication

On Cosmos, among others, IBC utilizes certificate creation to correspond and transact between chains. The major limitation of this is that if a chain cannot produce certificates, it cannot be communicated with directly.

Sidechains

Sidechains require applications outside of the mainnet to communicate information from one chain to another. These connections relay information across one chain and to another with validators confirming information from one to the other for simple and straightforward integration of transactions. This depends on a lot of factors, as we have seen with Cardano, which relies on PoS systems that are capable of accepting these kinds of communication.

Plasma Bridge

Similarly to sidechain technology, Plasma bridges employ child chains to communicate transactions between different Layer 1s. Plasma is a layer 2 solution that is in development on the Ethereum network.

The Lisk Interoperability Solution

The Lisk interoperability solution relies on cross-chain messaging to interoperate. Sidechains built using the Lisk SDK can relay information across the network via the mainnet. A group of messages are collected from the sending chain over a period of time that can be validated on the receiving chain. This relies on recognition of the state transition at the various times being congruent when arriving at the receiving chain. This process allows for accurate validation of data sent.

How Does the Lisk Interoperability Solution Work?

Lisk also deploys sidechain technology. This is divided between the interoperability of sidechains in the Lisk ecosystem itself and with other mainnets. Using a system of certificates to communicate transactions and timestamps to confirm data, sidechains can communicate with each other. The ability to interoperate with other mainchains is currently in development and won’t be discussed in too much depth here.

 

With sidechains on Lisk, all blockchain applications work independently of one another, and work off of a Proof-of-Authority and central BFT consensus mechanism. The major difference between Lisk blockchain applications and traditional dApps is that blockchain applications are more autonomous and allow for greater independence in development. DApps are built onto a chain and therefore are reliant on the main chain’s infrastructure, blockchain applications are built as sidechains to the main chain.

 

Therefore through the modular approach of the SDK, all other aspects of each application are interchangeable. All these applications built with the Lisk SDK, are interoperable within the Lisk ecosystem.

 

In the case of the Lisk interoperability solution, sidechains work with certificates to communicate across chains. Prior to an action being performed, CCMs from several blocks need to be collected into a CCU (Cross-Chain Update) and posted to the receiving chain. This cross-chain update contains the cross-chain messages, a certificate, and information about the current validator set of the sending chain.

 

The receiving chain can validate these CCUs against the most recent message so that it can ensure that messages were in fact sent. This allows for communication between chains and the transfer of assets and data through these messages.

 

The final phase of the Lisk roadmap, the Diamond phase, will research and address the case for full interoperability in blockchain. You can see the full Lisk roadmap here.

How to Build an Interoperable Blockchain?

As you can see developing an interoperable blockchain has taken years of development and intensive labor. But just as blockchain has become more accessible through concepts like smart contracts and different improvements and implementations, we are seeing a drive towards simpler and more efficient interoperable solutions.

 

With solutions to blockchain application development like the Lisk SDK, and the growth of sidechain integration, interoperability in blockchain development is seemingly round the corner. Lisk offers an easily accessible JavaScript based SDK allowing the freedom of blockchain development. Lisk is pioneering interoperability through sidechain technology, and with the ease of development through the SDK, developing interoperable chains is the next step in the story.

 

In future iterations of the Lisk SDK, the interoperability will be built in as a module to use in development. This will substantially increase the ability of blockchain developers to create chains that can bridge to other sidechains, as well as other layer 1 protocols like Cosmos and Polkadot.

Alex Hickey

Writing for most of his life, Alex found his passion for blockchain writing back in 2019. Now with Lisk he brings the same passion and dedication to the team that he has with countless others. Having certification from the Linux Foundation and Berkeley, as well as being an active member of the CVA, Alex is a true crypto enthusiast.