Blockchain Interoperability: The Holy Grail for Cross-Chain Deployment

As per a detailed report released by accounting giant Deloitte at the World Economic Forum on the subject of blockchain interoperability, this fast-evolving technology still has some distance to tread before it can be ported into action for mainstream purposes such as large-scale supply chain management, secure data sharing and other processes.

In this regard, a number of big-name web service providers such as IBM, Oracle, Azure Blockchain Services and SAP have been vocal in their support for cross-chain platforms and have made a firm commitment to solving many of the issues that currently plague this fast-growing technology.

For example, the World Health Organization in conjunction with the help of the aforementioned companies was able to deploy a platform called MiPasa, which has been built atop the Hyperledger Fabric framework, to enable the “early detection of COVID-19 carriers and infection hotspots.”

Similarly, tech giants Accenture and Fujitsu recently announced that they are currently working on an open-source software called “Hyperledger Cactus,” which will allow for the secure and reliable integration of multiple blockchains using Fujitsu’s proprietary security technology “ConnectionChain” and Accenture’s “Blockchain Integration Framework.” The project is aimed at fostering a new foundational framework that can enable faster asset transfers and streamline the recovery process associated with blockchain transaction errors.

With all these platforms already launched, there are still a lot of concerns around cross-chain technologies, such as, “Are they really feasible?” and, “How will their governance work?” and perhaps most importantly, “How can public and private blockchains be linked with one another without any security or privacy lapses occurring?”

Mainstream deployment of interoperable blockchains

As more enterprises and large-scale corporations continue to realize that they cannot exist in complete exclusivity, interoperability (in terms of seamless information transfer and data exchange) via the use of blockchain tech has become an increasingly attractive option for not only streamlining internal processes but also reducing day-to-day operational costs.

So far, most enterprise blockchain applications reside on private blockchains such as Hyperledger and Corda, but over the past couple of months, Hyperledger itself has started to move toward leveraging more public networks such as Ethereum.

However, with the Ethereum network still being subject to regular clogging, something that its evolution into a 2.0 proof-of-stake network is set to change, a number of other public networks that focus on interoperability and scalability like Cosmos and Polkadot have sprung up. In this regard, the Cosmos Inter Blockchain Communication, or IBC, protocol is currently undergoing an incentivized testnet and will most likely go live to mainnet by the end of Q3. Similarly, Polkadot’s Inter Chain Messaging Protocol will most likely go live in about a year’s time.

To get a more holistic view of cross-chain systems and whether there are current use cases that have demonstrated their viability, Cointelegraph reached out to Tushar Agarwal, CEO of Persistence, an institutional finance-focused enterprise chain within the Cosmos ecosystem.

Agarwal pointed out that his team recently performed an “Interoperability Transaction” test where they executed a non-standard IBC transaction. These transactions send and receive data between a network of industry-specific, specialized chains in a completely trustless manner. Furthermore, he also pointed out that the ZCash (ZEC) team is working on constructing interoperable “bridges” using Cosmos’ native framework.

Commenting on the subject, Michael Burgess, chief operating officer of Ren — an open protocol that enables the permissionless and private transfer of value between any blockchain — told Cointelegraph that his company is just weeks away from a production-ready interoperability solution for public blockchains like Bitcoin (BTC), Ethereum (ETH), and Zcash. On the potential downsides of cross-chain systems and feasibility, he added:

“All interoperability solutions will likely have trade-offs; so it’s a matter of designing systems that find a balance between security, governance, adaptability, and economic incentives that suit their target market.”

Solutions can never be perfect

When dealing with multi-chain systems, governance architecture needs to be the core focus, since the networks involved in any cross-chain transactions must have absolute trust in the central governance layer that ensures integrity of the participants. Also, there is a substantial degree of risk due to the possibility that a private chain could become completely centralized and hosted by biased third parties as compared to decentralized networks that rely on a distributed consensus. Providing his thoughts on the matter, Agarwal opined:

“Private chains operating without distributed consensus are more prone to data manipulation and the integrity of the data/assets being transferred from a private, permissioned and centralized chain to a more decentralized chain could be questioned. Overall, there is no one solution that fits all in terms of being public/private, centralized/decentralized — it is a broad spectrum with specific trade-offs.”

Lastly, since the governance rules handling privacy and security differ by blockchain, with participants having their own fee structures and entrusting various groups to validate transactions, participants may be resistant to any possible future rule changes passed by the central governing body of their cross-chain platform.

The challenges currently being faced by cross-chain systems

Regardless of whether a system is permissionless or permissioned, there seems to be a big divide when it comes to defining the term “interoperability.” For example, if one thinks of the term as a means of copying data between different ledgers, then the process is quite straightforward and can be facilitated in a relatively hassle-free manner.

However, if data is being transferred from a weaker trustable ledger to a stronger one, the latter becomes susceptible to various discrepancies as well as third-party manipulation. Elucidating his thoughts on the matter, Shin’ichiro Matsuo, research professor for the department of computer science at Georgetown University, told Cointelegraph:

“Imagine a scenario where we bring data from a blockchain with only three miners to a blockchain with 10,000 miners. It is essential to establish a framework and mechanism to deal with the difference of trust, though interoperability is strongly needed.”

Lastly, time is also a major issue when it comes to the deployment of interoperable blockchain systems, since it takes a lot of testing and patience for such platforms to become fully developed and matured.

Given that blockchain technology is a relatively new phenomenon, the fact that some existing cross-chain solutions are already viable is an encouraging sign. In the future, even more solutions should emerge as the crypto developer community gradually uncovers new issues not initially accounted for and ingenious ways to solve them.

Other technical challenges that can potentially cause an impediment to large-scale blockchain interoperability include the occurrence of “transaction rate bottlenecks” — when many chains are sending transactions to one particular chain, clogging its throughput capacity. Similarly, coming to a consensus on a common standard of transaction and state representation for native interoperability is another roadblock that can hinder research progress in this direction.

Cross-chain systems as potential game-changers?

Simply put, cross-chain platforms provide users with an immense amount of flexibility in that they are not locked into a single tech solution for addressing individual needs. Not only that, but with improved interoperability between private and public blockchains, it seems as though enterprises will be able to obtain the benefits that public blockchains provide in terms of having a third-party distributed consensus with disincentivization at play while minimizing or eliminating many privacy concerns, such as dealing with those who have not undergone the Know Your Customer check in a much more streamlined manner. On the subject, Agarwal opined:

“Overall this leads to greater adoption of Public Blockchain technology and demonstration of clear business cases for enterprises and corporations in terms of an increase in revenue or decrease in costs.”

Additionally, solutions that facilitate the exchange of assets and data between various cryptocurrency-powered decentralized networks have the ability to decrease the element of tribalism that the crypto industry at large is currently facing, wherein different networks are seeking to establish superiority over their competitors.

Time to break the chains?

In March 2020, Vitalik Buterin expressed his frustration at the fact that fully decentralized transfers of assets between Ethereum and Bitcoin are still impossible. This shows how even the relatively simple feature can be quite technically challenging to maneuver under a completely decentralized setup.

Commenting on this issue, Augusto Teixeira, founder and CSO of Cartesi — a Linux-based operating system for decentralized apps — believes that in order for such a problem to be tackled successfully, it is essential that one blockchain is able to follow the consensus protocol of the other. Moreover, users should be incentivized to feed correct and updated data from one chain to the other while guaranteeing security and good governance. He added:

“As we depart from the simplest case of asset transfers, things become considerably more complex. Naturally, end-users expect these systems to offer: low latency, high throughput, smart contracts capabilities, security, convenience, built-in authentication, and so on.”

With that being said, whether the global crypto community is far from realizing such a dream or such a vision is even feasible to begin with remains unclear.