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Why is Cross-Chain Technology Crucial in Blockchain Interoperability?

By May 17, 2022June 22nd, 20224 minute read

Blockchain is a decentralized ecosystem driven by distributed ledger technology. However, when we delve further, it becomes clear that this is not an accumulating ecosystem. There are several blockchains on the market, and each Blockchain ecosystem is separate from the others.

Furthermore, individual chains were created with distinct use-cases in mind; therefore, they have unique strengths, weaknesses, and degrees of decentralization. For example, if the goal of a blockchain is to increase transaction throughput, the Blockchain’s decentralization and security may suffer.

Blockchains are unable to communicate with one another since they reside in silos. It indicates that one chain’s strength cannot assist other chains and that a blockchain’s limitations cannot be mitigated by using the characteristics of another chain. These divisions dilute Blockchain’s potential and worth as an industry, reducing user experience and impeding industry growth.

This is where the Cross-chain technology comes into play. It’s a way to improve blockchain communication with one another. Interoperability is facilitated by a cross-chain architecture, allowing two or more blockchains to trade off their efficiency, decentralization, feature set, and security. This can help to increase chain efficiency, eliminate fragmentation, and allow users and features to move freely across many blockchains.

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Introduction to cross-chain technology

The widespread adoption of blockchain platforms has brought to light difficulties with processing speed and scalability in earlier blockchains. Furthermore, because all blockchains function separately and do not connect, developers face a unique challenge: users will be unable to benefit from blockchain technology fully.

People on various blockchains cannot achieve optimal decentralization unless connected through a standard protocol. Cross-chain technology tries to overcome this problem by allowing multiple blockchains to communicate. It implies they’ll all be able to converse and exchange information. To learn more about blockchain interoperability, click here.

The cross-chain protocols aim to improve connection and are interoperable with various blockchains. This means that financial transactions across two entirely separate blockchains are possible. Previously, crypto-enabled businesses could only take payments from clients who used the identical Blockchain, preventing them from freely transacting with other blockchain-based firms.

Through such an environment, transaction fees will be significantly reduced, and downtime will be eliminated.

Characteristics of cross-chain technology

  • The atomicity concept supports cross-chain technologies.
  • It ensures that numerous interconnected blockchains are consistent.
  • It allows networks to be distributed over several platforms.

Importance of cross-chain technology in Blockchain interoperability

The significance of cross-chain technology is that it allows users to communicate data and trade tokens without an intermediary. Furthermore, this architecture enables blockchain interoperability, allowing two or more blockchains to improve efficiency while balancing decentralization and security.

It is also necessary because it increases chain efficiency, decreases segmentation, and allows users to communicate across numerous blockchains freely. As a result, cross-chain technology has a lot of promise for allowing blockchain interoperability, which can address many problems and eliminate a lot of limits on Blockchain and other networks.

How does cross-chain technology work?

There is no one method for implementing cross-chain technology. To support transactions across numerous chains without using third parties or centralized solutions, different networks may adopt other methods for blockchain interoperability.

Some techniques for cross-chain communication are listed below.

  1. Atomic Swaps

Since two chains do not interact, atomic swaps are not a real kind of cross-chain communication. However, the system allows users to coordinate transactions across chains, allowing for direct peer-to-peer trade of one cryptocurrency for another.

  1. Stateless SPVs

It allows a smart contract with enough sophistication to validate a portion of Proof of Work history. As stateless SPVs are generally affordable, they may be customized to a broad range of use cases.

  1. Relays

Relays allow a smart contract on one chain to validate events on other chains. On-demand, Relay may check a chain’s complete history and particular headers. The relay approach makes trade-offs between the Relay’s security and its operational cost. Relays, on the other hand, are sometimes fairly costly to operate.

  1. Merged Consensus

A relay chain is used to facilitate two-way interoperability between chains. To guarantee a merged consensus, the chain must be designed from the ground up. Projects like ETH 2.0 and Cosmos use joined consensus.

  1. Federations

A restricted set of trustworthy persons can use federations to certify the happenings of one chain on another. Federations are strong, but they require a third party’s faith. That is its primary flaw since it undermines the decentralization of Blockchain.

Future of cross-chain technology

The development of cross-chain technology is still in its early stages. As a result, some questions about cross-chain technologies remain unsolved.

Cross-chain technology has the potential to expand token use cases and accelerate blockchain adoption in the future. Aside from token exchanges, the system must also allow information, payment, and resource sharing. Furthermore, token transactions should be more straightforward, and consumers should only rely on one wallet system. Finally, customers should be able to do business successfully in real-time on numerous blockchains without incurring hefty fees in a commercial scenario.

Nonetheless, cross-chain technology development has advantages such as improved user experience and efficiency. Furthermore, the sector will be less competitive, which is advantageous since the value of blockchain advantages will be preserved. Projects are frequently formed as responses to the competition in the crypto sector. Distinct blockchain projects have different transaction methods and features. As a result of the lower competitiveness, cross-chain transactions within the sector may become less complicated.

Final takeaway

The interoperability of blockchains and crossover technologies are two critical components of blockchain technology in general. By combining the two concepts, we can not only learn more about cryptocurrency and its world but also promote blockchain adoption. The key reason for the emphasis on cross-chain technology is that it has significant potential to address present difficulties. From scalability concerns to the critical requirement for transparency on blockchain networks, cross-chain technology can provide several answers to the blockchain ecosystem’s core problems. As a result, it is reasonable to conclude that cross-chain technology represents a nascent future revolution!

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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Harshita Shrivastava

Harshita Shrivastava is an Associate Content Writer with WazirX. She did her graduation in E-Commerce and loved the concept of Digital Marketing. With a brief knowledge of SEO and Content Writing, she knows how to win her content game!

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