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Blockchain, Featured, Technology

Interoperability is Vital for Global Mass Adoption of Blockchain

The rapid global implementation of blockchain across countless sectors is pushing its relevance as one of the most disruptive technologies in the present scenario. The technology can provide highly optimized and cost-effective solutions with specialized functions. And, it is just the beginning. With Layer-2 solutions facilitating quicker settlement and fractional transaction fees, blockchain networks are proving to be integral across several corporate sectors. What is perfect today can be perfected further- and organizations are understanding that while blockchain may not be the perfect solution addressing all their requirements, its capabilities also expedite interconnection with other networks. This is exactly why interoperability is proving to be an integral reason behind the mass adoption of blockchain. 

The Meaning of Interoperability

Interoperability of a blockchain network refers to the multiple methods which enable intercommunication with other blockchain networks. The communication also includes sharing of confidential digital information and assets, which contribute to a more productive work collaboration and output. 

Blockchain networks not only enable the sharing of transaction data but digital assets or cryptocurrencies as well. The transmission between separate blockchain networks occurs through “bridges” which are cross-linked and decentralized. The feature is not readily available across all blockchain networks- they may very well have separate standards, protocols, and base codes. In the conventional sense, blockchains should be incompatible, and all the transactions must be carried out through a single network.  

Also Read: Crypto Regulations: The Need for a Compliance-Driven Crypto Broker Platform

Why is Interoperability Crucial?

Renowned blockchain experts acknowledge interoperability can be likened to the freedom that can be availed during the exchange of data. Base layer protocols at the present stage are unable to sustain effective communication with each other. Ethereum, the world’s most widely used blockchain network, features Layer-1 protocol and allows the secure exchange of data using smart contracts, but only across their own ecosystem. Crypto tokens exiting a blockchain network lead to a vital question: How can blockchain networks acknowledge and trust the validity certification of other blockchains?

Blockchain consensus mechanisms determine the validity of all occurring transactions throughout the network’s history. This generates gigantic files that require processing while being recorded in each block. Another disadvantage is the fact that the data can be only viewed in the native language of the concerned blockchain. 

Interoperability within 2 or excess blockchain networks is a property that allows all the sides being able to comprehend the transaction data history of each other. This way, interoperability enables asset exchange between separate Layer-1 blockchains. While people may argue that public blockchains integrate interoperability since their inception, the reality is different. 

Also Read: Crypto Predictions: How will Bitcoin and other Digital Assets Fare in 2030?

Why are Enterprises Using Blockchain Calling for Interoperability?

Interoperability is essential for realizing the actual potential of blockchain decentralization. The intercommunication and exchange of information between separate networks linked across a sole protocol will reduce the difficulties users face, and will also propel the use of DApps or decentralized applications without having to worry about changing networks.  

  • DeFi Applications

In the Decentralized Finance(DeFi) sector, traders can access their digital assets in a higher number of ways and generate better opportunities for business growth and revenues. Multichain yield farming, for example, will facilitate the generation of multiple passive income returns across separate blockchains just by having the ownership of one crypto token. 

Investors can easily utilize Bitcoin, USDC, or other stablecoins and divide the asset across different blockchain protocols through bridges. The feature will also enhance liquidity across blockchain networks, which is currently a major concern within the crypto community. It will help users in fund allocation and transfer across different blockchains.  

  • Smart Contract Utility

The element of interoperability is also applicable across smart contracts and other protocols. Platforms that host smart contracts can integrate interoperability features to activate their functionality across multiple blockchain platforms. The function works by hosting the smart contract on its native platform and then deploying the contract across other blockchain networks allowing it to be executed. Smart contracts featuring interoperability help developers, easing the creation process of cross-chain apps. They also enable users to access DApps across separate blockchain networks without changing networks by utilizing cross-chain transfer methods. 

Blockchain solutions that document real-world data using DLT technology can also reap the benefits of interoperability. They can receive data from either sensors or API and later transmit the data to a smart contract for later activation, once the pre-programmed conditions have been fulfilled. 

  • Wrapped Tokens

Crypto users can actually utilize Bitcoins within the Ethereum network as wBTC i.e. Wrapped Bitcoin. This is crucial for the DeFi sector, as it allows participants to transact without purchasing the native token of the platform. Native tokens often tend to have higher volatility than stablecoins or predominant crypto assets such as Bitcoin or Ether. 

Wrapping Up

Interoperability can significantly boost the productivity of blockchain technology with an impact that can easily propagate throughout the entire crypto landscape. It will benefit both users and blockchain developers, in the seamless transfer of data, smart contracts, and assets from one blockchain network to another. In combination with decentralized public blockchains, interoperability will trigger the mass-scale adoption of the underlying technology behind cryptocurrencies.

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