Deputy Registrar & Associate Professor
Every year, new blockchain networks are created to target specialized markets inside particular industries. Each blockchain has unique features based on its intended use. Layer-2 scaling systems, like Polygon, for instance, are designed to have incredibly cheap transaction costs and quick settlement times. The fact that there isn’t a single ideal solution that can fully address all of the demands of blockchain technology at once is another factor contributing to the creation of new blockchain networks. The linking of these distinct blockchains is therefore essential as more firms become aware of this new technology and its capabilities.
The use of blockchain technology and distributed ledger networks is growing rapidly. As more individuals continue to become aware of the new technology and its potential, linking these new chains is becoming necessary. Let’s explore blockchain interoperability in more detail to see why it matters so much. Because developers are attempting to make the most of the potential of the technology, there are more blockchain applications being created. The increase also reflects the realization that no single, ideal solution will be able to fully satisfy all of a blockchain’s requirements at once. The IOTA blockchain, which aims to improve payments on the Internet of Things, is a prime example. On the other side, VeChain has comparable capabilities but focuses on improving supply chain management on the blockchain. On the other hand, Stellar blockchain aims to make it simple for people to develop a global payment network for resolving low latency problems in remote locations.
One thing jumps out in the plethora of blockchain projects. All ledgers, DAGs, and blockchains carry out a unique set of transactions and manage various amounts of data processing. It is also becoming more and more obvious that there are several networks and blockchains created for various government agencies, labor unions, and religious and community organizations. There will be a wide variety of chains created as a result of the blockchain’s rapid development. Cross Chain Technology is one such technology that is coming into more and more view.
What is Cross Chain Technology in Relation to Blockchain Interoperability?
Technology known as “cross chain” is rapidly being discussed as the best way to improve interoperability between blockchains. A cross-chain technology, to put it simply, is a new technology that aims to make it possible for value and information to be transmitted between several blockchain networks. Although it’s a wonderful thing, the increased use of well-known networks like Ripple, Bitcoin, and Ethereum has given rise to a number of problems, chief among them being financial and technical scaling restrictions. As was already mentioned, the majority of blockchain networks function in closed ecosystems while attempting to meet a specific set of objectives.
Most people are unable to take advantage of all the advantages of ledger technology since chains work in isolation. The full potential of blockchain technology has not been realized since multiple blockchains cannot communicate with one another. By facilitating interoperability between blockchains and so making it simple for them to speak with one another and share information, cross-chain technology aims to resolve all these problems.
Blockchain technology has a promising future in a variety of crucial industries, including finance and healthcare. Blockchain interoperability is necessary to guarantee adequate output and profit from commerce. Interoperability aids in streamlining numerous intermediary processes in addition to generating profit. Additionally, it improves database management processes.
Blockchain interoperability is now falling short of its due status despite having few obstacles. On a smaller scale, only a few improvements are necessary right away, like blockchain interoperability across networks. Innumerable advantages can be gained from blockchain interoperability once these difficulties are overcome.
Why is blockchain interoperability needed?
To overcome the constrained capabilities of blockchain protocols and gain larger scalability, quicker block times, and improved security, blockchain interoperability is required. The operational costs associated with blockchain solutions can be decreased with the aid of interpretability. Here are a few blockchain restrictions brought on by shoddy or nonexistent blockchain interoperability.
The inability of Bitcoin users to directly interact with the Ethereum DeFi ecosystem prevents them from using their cryptocurrency funds there. Users cannot even directly swap BTC for ETH due to non-interoperability without using a centralized cryptocurrency exchange. Although the individual blockchains of Ethereum and Binance Smart Chain both allow USDT, there is no direct way to transfer USDT from the Ethereum blockchain to Binance Smart Chain or any other blockchain.
Blockchain pioneers want to integrate blockchain technology into the current financial system. However, the lack of compatibility will make it difficult to put an efficient approach into practice. This is due to the fact that transactions between the bank accounts of those two banks would be extremely difficult, if not impossible, if the two institutions used different blockchains. Blockchain in the financial sector would result in a system that is more separated than integrated without interoperability.
Questions
- What is cross-chain technology?
- Why is cross-chain technology so crucial?
- Why is interoperability with blockchains required?
- What tools are available to promote blockchain interoperability?
- How is cross-chain technology implemented?
- What difficulties do cross-chain systems face?
- Why cryptocurrency is a market leader in terms of compatibility with blockchains?
- Do we need cross-chain decentralised exchanges?
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Dr Sandeepa Kaur (Deputy Registrar & Associate Professor)
