Collaborating Blockchains
By Lekshmi P G, R &D Engineer, Kerala Blockchain Academy
We live in an era of collaboration, where seeking help or utilising other resources is perfectly acceptable. So why not try it out in blockchains? As we know, blockchains are not allowed to do that naturally. So, we need some external source to mislead our blockchain. Kidding…we need some program to help blockchain interact with the outside world or other blockchains.
New blockchains are evolving daily, and they all exist as different galaxies or planets in the universe. The isolation property in blockchains constrains the functionalities of Dapps. Interoperability in blockchain technology can revolutionise decentralised applications (DApps) and bridge the gap between isolated blockchains. We can unlock new possibilities in decentralised finance (DeFi) and the metaverse by enabling communication and data exchange across blockchain networks. This could lead to more versatile and integrated applications, fostering a more connected and efficient blockchain ecosystem. Embracing interoperability can transform isolated blockchains into a cohesive, collaborative network, enhancing user experience and functional potential.
Ways for Interoperability
Bridge: Bridge is one solution for interoperability. Bridge helps in the asset and data transfer between blockchains. The mechanism consists of smart contracts deployed on chains and an external program. With the help of Bridge, we can:
- swap tokens between different blockchains
- use tokens for different games or metaverse environment
- transfer data between blockchains.
Oracles: Blockchain is restricted from communicating with any external APIs. Oracles is a way to interact with the outside world, let’s say an API. The real-world information includes weather information, financial market prices, etc. Here, we also need a smart contract and an outside program to make this happen. With the help of Oracles, blockchain can get real-world information from different APIs and IOT devices.
By providing access to real-world data, Oracles enable a wide range of use cases:
- In decentralised finance (DeFi), Oracles can provide real-time price feeds for cryptocurrencies, which is essential for trading, lending, and borrowing platforms.
- In insurance, Oracles can supply data for claims processing, such as weather conditions for crop insurance.
- In gaming or metaverse applications, Oracles can fetch dynamic content or interact with external systems, enriching user experiences.
How to do it
If we want to swap a token in one blockchain for a token in a different blockchain, like if you have POL (native currency of Polygon, formerly known as Matic) tokens in your hand, and you want to convert them to DAI tokens in Ethereum. For this, we need to have two smart contracts deployed on each chain (in this case, the Polygon and Ethereum chains) and an external program communicating with these chains. The whole process can be done in two ways:
Lock & Mint: In this technique, your POL tokens in Polygon Blockchain are locked in the smart contract on the Polygon chain, and equivalent DAI tokens are minted in the smart contract on the Ethereum chain. Now you have DAI on Ethereum.
Burn & Mint: Another equivalent technique in which your POL tokens are burned (destroyed) by the smart contract in the Polygon chain, and equivalent DAI tokens are minted by the smart contract in theEthereum chain. There you go. Your DAI is ready on Ethereum.
So, by having POL tokens in Polygon, we managed to get DAI on Ethereum.
Issues with Interoperability
Security: As we said earlier, a bridge involves smart contracts and external programs, which can become a point of vulnerability. For instance, if a smart contract on one chain has a flaw, an attacker could exploit it to manipulate token transfers, steal funds, or execute malicious actions.
Also, bridges commonly rely on external sources to validate cross-blockchain transactions, and attackers can target these external sources. For this reason, while designing a bridge, developers must consider every possible attack vector — ranging from reentrancy attacks to transaction delays — and use rigorous security audits to identify and patch any vulnerabilities.
Transaction time: The whole process may be time-consuming due to the number of steps involved, such as burning, verification, minting, etc. Also, it’s happening between two different blockchains with different consensus mechanisms and block confirmation times.
Such delays affect user experience and expose the process to timing-based attacks. Time is critical, especially in decentralised finance (DeFi) apps, where rapid token transfers are essential for liquidity. Solutions must aim to minimise transaction time, ensuring that cross-chain interactions happen within an acceptable timeframe without introducing security risks.
Connectivity and Compatibility: Bringing interoperability between different blockchains is not an easy task. Different blockchains have different architectures and consensus mechanisms and also follow different standards. For example, the token standard for fungible tokens in Ethereum is ERC20, but it’s not the same for another blockchain like Binance or Sepolia. Therefore, a solution that works for one pair of blockchains might not be compatible with another.
Developers need to evaluate whether two blockchains are compatible and whether a bridge can support a seamless connection. The steps for bridging may not be the same for all.
Scalability of solution: An interoperability solution must be designed to handle not only token transfers, but also, for larger and more complex types of data transfers. This includes supporting various types of asset, smart contract execution, and possibly large-scale data sharing between chains.
Conclusion
Interoperability between blockchains will definitely open a wide range of functionalities for Dapps. By enabling token transfer, data transfer, and asset transfer, interoperability unlocks new possibilities for applications like DeFi, DAO, gaming, and Metaverse. However, achieving this requires addressing significant security, transaction speed, compatibility, scalability, and governance challenges. While solutions like bridges and oracles offer pathways to interoperability, careful design, rigorous security measures, and innovation are needed to ensure seamless, efficient, and trustless cross-chain interactions. As blockchain technology continues to evolve, interoperability will be key to enhancing the overall functionality of decentralised systems.
References
[2] https://chain.link/education-hub/blockchain-interoperability
