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Interoperability Meaning

Dec 2, 2022 | Updated Jul 18, 2023
Blockchain interoperability refers to the ability to share or see information across different blockchains. It allows blockchains to communicate, share data, and build on each other’s features and use cases.

What is Blockchain Interoperability?

Blockchain interoperability is the concept of different blockchain protocols interacting across multiple networks.  

It can get pretty technical, but a good analogy for the overall goal of interoperability is an email.  No matter your email provider, whether it’s Google, Yahoo, or Hotmail, you can send an email to any address. You can send an email from a Gmail address to a Yahoo account – that’s interoperability. 

Right now, it isn’t possible to directly exchange data or assets without some sort of intermediary mechanism. If you’re building a dApp on the Ethereum Network, you can’t make payments from Bitcoin. 

Interoperability solves this problem by creating a platform for you to send data and tokens from one blockchain to another, e.g. Bitcoin to the Ethereum network. 

Why is Interoperability Important to Blockchain Technology?

Interoperability is necessary for the adoption, scale, and innovation opportunities within blockchain solutions and Web3. 

Various blockchains have different functions and solve different problems. For example, the Bitcoin blockchain was created to offer a decentralized way of storing and transferring money. On the other hand, the Ethereum network is designed to create a platform for building decentralized platforms like dApps. Solana was created to offer a faster and more scalable blockchain to build dApps. 

But without interoperability, it is almost impossible to adopt blockchain technology, because each individual project would be too siloed. You can think of blockchains without interoperability as computers without the internet; they exist independently and can’t communicate with each other. 

Interoperability (sometimes called cross-chain) solutions allow blockchain to read and write data to other blockchains. It facilitates cross-chain solutions that can operate on different blockchains, while utilizing the different functionalities from each blockchain. For example, a dApp built across the Bitcoin, Ethereum, and Solana blockchains can take advantage of the security of Bitcoin, the ease of use of Ethereum, and the speed of Solana.

How is Interoperability Achieved?

There are degrees to interoperability, and multiple approaches to achieving it. Here are some of the current cross-chain technologies in the crypto space: 

Sidechains: Sidechains are layer two independent consensus protocols built on a layer one blockchain. They use a cross-chain communication protocol and utility tokens to communicate and transfer data to and from the main blockchain. 

Oracles: Oracles serve as bridges between a blockchain and the outside systems. It feeds the necessary information from the outside world to blockchain for the smart contracts to execute.

Bridges and Swaps: A blockchain bridge connects two blockchains and allows token transfer between them. A cross-chain swap connects two blockchains through smart contracts and Automated Market Makers that govern transactions. 

What are Interoperable Blockchains?

Interoperable blockchains allow the transfer of data between that network and the outside world, or act as a bridge to connect other blockchains. Here are examples of blockchains that have focused on interoperability: 

Polkadot: Polkadot acts like a bridge for other blockchains via para-chains. Para-chains are like parallel independent blockchains that connect to a central component through bridges. 

Cosmos: Cosmos relies on an inter-blockchain communication (IBC) protocol that acts like a messaging protocol between blockchains. The Cosmos blockchain can connect a non-interoperable blockchain like Bitcoin to another blockchain through its Cosmos architecture. 

Cardano: Cardano is an interoperable blockchain built to support multi-tokens and cross-chain transfers. The blockchain also allows several smart contract languages to run different types of smart contracts. 

Wanchain: Wanchain leverages the power of cross-chain technology to create a bridge-like protocol that connects both public and private blockchains. 

Automated Market Maker

An automated market maker defines the underlying protocol that provides liquidity to decentralized exchanges and determines asset prices.

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On-chain transactions are transactions that are recorded on the blockchain’s distributed ledger and are publicly accessible to anyone who has a copy of the blockchain’s ledger.

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A subnet (sub-network) is a network within a network.

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