What is Interoperability in crypto, and why it matters
Definition, benefits, and current solutions.
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Up until now, crypto has been in the spot of “proving itself”, and with this last cycle, we have finally reached a point of a much more developed ecosystem with diverse disrupting use cases across industries, alongside institutional and mainstream adoption.
The question is no longer if crypto is here to stay.
Now, the question is focused on how can crypto scale, and how it can reach mass adoption. Interoperability is at the center of this.
But what really is interoperability?
Well, think about the different web products we use on the Internet today... You can use the same wifi router, and the same browser to navigate through different web pages and applications. When you sign up to new pages, there is always the option to do so by linking your existing Google or Facebook account. When you send an email to your friends, you can use your Gmail account to send it out regardless of whether they use Gmail, hotmail, yahoo.com, or any other provider.
You get the gist. Now, imagine the contrary, where everything needs to be from the exact same system to work.
Another example: your credit card. Today, no matter where you shop, online or offline, you can use the same card to get your grocery, shop on Amazon, pay your Netflix subscription, etc.
Imagine if you need a different card to pay for each of the stores and platforms you use. You would have to apply and maintain so many different cards. Really not fun.
We don’t think about this today, because it’s not a problem.
It’s not a problem, because we have interoperability.
And yes, you guessed it. This isn’t available in the crypto world.
When we speak about blockchain interoperability, we are referring to making networks compatible with each other, so information and assets can flow freely across different chains.
Why does it matter?
Let’s look at the problem…
As crypto gets adoption and expands rapidly, we are seeing more and more blockchains emerge.
Moreover, we are seeing the verticalization trend. Why? well everyone has different ideas and therefore will build their blockchain differently based on specific use cases.
By themselves, they have their own ecosystem composed of projects that are built on their platform, becoming effectively a contained ecosystem.
The problem is, therefore, that all these blockchains are acting as siloed bubbles, without speaking to each other.
This is no doubt very limiting. And it is important to find a way to interoperability because massive benefits can come from it:
User Experience: people want fast, affordable, and easy-to-use products and applications. Ideally, we should be at a point with crypto just like how we use the Internet today, with everything connected.
Avoid information silos: to achieve connectivity and scalability, integrating all chains together.
Take advantage of the verticalization of blockchains: as each of these chains has its own strength, we should be able to benefit from it by being able to freely interact with each other. For example, some chains are public, some are private, some are industry specific, such as VeChain (Supply Chain), Stellar (Global Payments) , Iota (IOT), and the list goes on.
Unblock use cases: if blockchains are interconnected and can leverage on each other, then there can be progression made by building together. It can be more of a team sport working altogether to make crypto a more all-round solution.
All of the above and more would play a significant role in mass adoption.
So is there any Existing Solution?
People are tackling this issue with different approaches, but we are still at the point of figuring things out.
Some of the most well-known alternatives are:
Sidechains: they are essentially another blockchain that is connected to the main chain, and can operate with each other through a cross-chain protocol.
Bridges: just as bridges in the real world, blockchain bridges also connect two different points. In this case, they are connecting different blockchains, allowing information to flow between them.
Blockchain agnostic protocols: abstraction layer that acts like a common interface among blockchains. You can think of it a bit like a translator.
Oracles: in this context, Oracles such as Chainlink offers the solution of connecting on-chain and off-chain data. It’s not exactly interoperability among blockchains, but it’s still offering connectivity, and the critical flow of information.
Worth mentioning that there is also a huge effort put into building
blockchain of blockchains.
These are basically frameworks that allow the creation of application-specific blockchains that interoperate with each other. Essentially they provide interoperability among blockchains that are built on the same architecture. Examples are Polkadot, Ethereum 2.0, Cosmos, etc.
However, these are not really “interoperability” per se.
It’s a significant step forward for sure, but If we continue with the siloed bubbles analogy, they would be best represented as a giant bubble that contains a lot of smaller bubbles within a giant bubble (or a giant ecosystem that contains smaller ecosystems), and will still require side chains to grow.
Final Thoughts
My personal experience with blockchains being siloed has been quite painful whenever I wanted to make cross-chain transactions. It also requires a lot of time to understand and can get quite frustrating.
If it’s complex for someone who spends a fair amount of time and energy in crypto, no wonder why it can be a big barrier for people.
Therefore this is definitely an area that already is critical, and will only become more critical, so no financial advice, but keep a close eye on projects that are solving for this.
Thanks for making it this far! If there is any particular topic you’d like me to cover, reach out or leave a comment below!