Top 3 Technologies that Power Cross-chain Interoperability

Blockchain interoperability refers to the capacity of different blockchain systems to communicate seamlessly with one another. Individual blockchain systems connect, integrate, and communicate with one another so that they can transfer assets frictionlessly for a variety of utility purposes.  

Why is Blockchain Interoperability Important?

One of the major barriers to the widespread acceptance of blockchain technology is the lack of interoperability among distinct blockchains. Since its inception in 2008, blockchain systems have existed in silos.  

By definition, no single blockchain has it all. In fact, most blockchains arise by refining their protocols to accommodate specific characteristics while selling off others. For example,  Bitcoin has established itself as a decentralized and censorship-free store of value; on the other hand, Hyperledger Fabric values privacy and scalability over decentralization.  

With interoperability in blockchain technology, isolated blockchains can not only communicate seamlessly but also result in an interconnected network of blockchains that leverage each system's individual strengths. This increases the technology's overall potential in solving real-world problems.  

Comparison of Cross-Chain Interoperability Technologies

The cross-chain interoperability is powered by various technologies; out of all, the top 3 are discussed below:

1-    Trusted bridges

In blockchain, a trusted or centralized bridge is a system run by a trusted party, such as an exchange or clearing house, which permits the transfer of data or assets between blockchain networks.

These trusted bridges connect distinct blockchain networks efficiently by monitoring events on one chain and executing equivalent transactions on another, leveraging the central operator's trust and authority.

Trusted bridges provide quick transactions and seamless integration. Centralized bridges increase efficiency by requiring a central operator or a small group of certified entities to check cross-chain messages. However, this opens up various attack routes, including user censorship and the risk that bridge operators will be hacked. Bridge hacks alone resulted in approximately $2.7 billion in financial losses in 2022.

2-    Trustless bridges

A trustless or decentralized bridge connects disparate blockchain networks by leveraging a network of smart contracts and relayers. This system works by collecting events on one blockchain (the source chain) and employing a network of relayers that operate without a central authority to carry out comparable activities on another blockchain (the destination chain).

Trustless bridges, in particular, combine light client verification of chain state updates with zero-knowledge proofs to create a strong framework for secure cross-chain communication.

Light clients  

A smart contract on the target chain implements a light client that synchronizes block headers from the source chain. This ensures that the target chain may independently verify information about the condition of the source chain.  

Relayers

The task of relaying block headers from the source chain to the target chain can be performed by a single operator, a federation, or a group of motivated parties.  

Validity Proofs

Parties charged with relaying the most recent block headers must generate a zero-knowledge proof validating the correctness of relayed block headers to the light client contract. This proof attests to the authenticity of the blockchain's state (as reflected in the block headers) in accordance with the consensus protocol.

Bridge contracts

Trustless bridges, like regular cross-chain bridges, handle deposits and withdrawals using contracts placed on bridged blockchains. Typically, a deposit or withdrawal is approved only after the bridge contract receives a signed message from a relayer confirming the user's request.  

Trustless bridges differ in that they only accept withdrawals or deposits after receiving a header from the light client contract that confirms the presence of a deposit or withdrawal transaction. This would require users to simply give Merkle proof that shows the transaction's inclusion in the chain they're bridging from.

3. Atomic Swaps

Atomic swaps enable peer-to-peer crypto token exchanges across various blockchain networks, but only if both parties deposit a specified number of tokens into the exchange contract. In this way, any two users can trade digital tokens without depending on a third party to facilitate the transaction, which eliminates counterparty risk.

Atomic swaps employ a hash timelock contract (HTLC), which functions as "cryptographic escrow account" that protects user funds and only executes when the appropriate number of tokens are deposited into the contract. To unlock tokens, each user must acknowledge receipt within a specific time period.

Hashed Time Lock Contract (HTLC)  

An HTLC is a time-bound smart contract that uses a private key and a cryptographic hash to control access to money. To be finalized, each participant must comply with all of the exchange agreements; otherwise, tokens will be returned to their original owner.

An HTCL comprises of two main security features:  

• Hashlock key—Both sides must present cryptographic proof that they fulfilled their respective obligations under the swap contract.
• Timelock key—If proofs are not submitted within a specified time frame, the deposited coins are returned to their rightful owner.  

Atomic swaps can be less user-friendly and are restricted by the requirement for compatible cryptographic techniques.

Choosing the Right Interoperability Technology for Your Project

When selecting cross-chain connectivity solutions, you need to consider the level of decentralization required by your project, the speed with which transactions must be processed, and the ease with which they may be implemented. Depending on the protocol you choose to build with or the network you wish to connect to, many bridging solutions may be available.

The decision is made by weighing the benefits and drawbacks and making trade-offs between speed, security, and decentralization.  

The Future of Blockchain Interoperability  

The rise in the number of blockchain ecosystems in recent years is due to the awareness that no single blockchain solution can solve the trilemma of problems that blockchain technology addresses. 

However, if we have learned anything from blockchain analytics thus far, it is that interoperability is required to overcome the concerns of decentralization, security, and scalability simultaneously. The many blockchain systems designed to solve these difficulties must interact in some way via interoperable blockchain systems. One solution is cross-chain platforms like ARMswap, which enables smooth bridging and swapping opportunities across 31 blockchains.

Stakeholders must invest in the standardization of blockchain protocols and activities to develop frameworks for cross-chain interactions.  

Chainlink, Polkadot, and Cosmos are already at the forefront of this effort, but the most significant accomplishment will be the development of global standards and protocols for cross-chain communication that will steer innovation throughout the sector.