Understanding the Various Approaches to Multi-Chain Interoperability


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INTRODUCTION

It is clear, the holy grail is within reach. The dream of creating a cryptograpic multi-chain world is becoming a reality before our eyes. We are at the cusp of departing the world of isolated blockchain networks and beginning the realization of a highly interconnected and interoperable ecosystems of numerous networks.

Cryptocurrency interoperability will enable users to employ their assets, data, applications and smart contracts across a multitude of blockchain networks. Everyone will be able to freely move around in this newly created multichain cryptoverse. These developments should also aid in blockchain load balancing, increased safety through removal of single failure points, and ease restrictions on innovation.

There are, however, various mechanisms in use (or in the developing stage). The purpose of this article is to identify and distinguish several of these interoperability options to give the reader a better understanding of the interoperability projects presently contemplated.

[AUTHOR'S NOTE: This article is intended to be a supplement to the following Leo Finance Coin Guides - Cosmos Coin Guide; Polkadot Coin Guide; Avalanche Coin Guide; Cardano Coin Guide; Polygon (MATIC) Coin Guide; and, THORChain Coin Guide.

BRIDGES


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An asset bridge is the easiest, from a technological standpoint, mechanism to enable interoperability. This mechanism is simply a way to permit representations of the native asset of one chain to be able to be used on a non-native chain.

Wrapped Bitcoin (WBTC) is the oldest example of this type of bridge which allows BTC holders to mint ERC-20 compatible representations of their asset, 1:1 in value, for use on the Ethereum blockchain. This is a fairly centralized solution as only a few entities facilitate minting and redemption (i.e. BitGo, REN. and Kyber).

MULTI-CHAIN DECENTRALIZED APPLICATIONS (EVOLVED BRIDGES)

THORChain may be viewed as the next step up the technological evolutionary ladder in the area of bridging. THORChain is a cross chain decentralized exchange which enables users to swap native tokens cross-chain in a manner which is non-custodial and absent third party risk.

In THORChain, cross-chain swaps are resolved without utilization of centralized exchanges to exchange native tokens. Instead, the RUNE token (the native utility token of THORChain) is used as the intermediate token moving native asset value between RUNE vaults on both sides of the exchange.


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THORChain is an application specific independent blockchain constructed using the Cosmos SDK. Being so constructed, it may interact with other chains that are Cosmos based (i.e. TERRA and Binance).

In this vein and worthy of mention is AnySwap, although AnySwap is not an independent blockchain. AnySwap can be accessed through either the Binance, Ethereum, Fantom and Fusion networks, and permits it's users to mint synthetic representative assets on a non-native blockchain for exchange on that same blockchain.

INTERFACE PROTOCOLS (CHAIN OF CHAINS)

The next step up the technological evolutionary ladder are protocols using interfaces to permit communication between blockchains. Protocols of this type are created upon the concept that the future will require many blockchains to communicate and share between them, and as such, to act as a hub to facilitate the same.

Polkadot clearly falls into this category. Polkadot can support many interconnected application specific chains in what are called parachains. Each of these parachains, in turn, plug into a hub, called the Relay Chain, which provides security and consensus to each of the individual parachains.


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It is this system Relay Chain that facilitates cross-chain transactions, applications straddling different parachains, and inter-parachain communication. Given this, one individual chain is no longer required to bear the entire load and specialization exists so as to increase scale and efficiency.

Cosmos is a similar project utilizing hub design but with several important differences from Polkadot. In Cosmos, the main hub (called 'Gaia') does not provide security or consensus to the peripheral chains, but rather, each peripheral chain is independent and responsible for its own security and consensus.


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The peripheral Cosmos chains are connected through the IBC (Inter-Blockchain Communications) protocol. It is this IBC which allows the peripherals to interact and communicate with one another. This IBC permits cross-chain applications to be built on top of it. The role of the IBC is limited to messaging and therefore is highly efficient as other required operative mechanisms are left to the peripheral chains.

Cosmos is massively expansive in scope as any project built using the Cosmos SDK may interact through the Cosmos IBC. Now contemplate plugging Bitcoin and Ethereum into this system and the possibilities for cryptocurrency technology become boundless.

DISTINGUISHING SIDECHAINS, PLASMA AND SHARDING


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These distinctions, from a technological standpoint, are well beyond the scope of this article. However, this topic would be wholly incomplete if, at a minimum, these items were not identified and defined. When further researching the topic of this article, you will routinely run into these mechanisms, even though they generally apply to scale and transaction speeds.

Fundamentally, each of these blockchain architectures has a 'hub and spoke' design consisting of a main consensus chain and various application peripheral level 'child chains'. In each, hashes are published from the child to main chain on a regular interval. While the difference between sidechains and plasma are simple (and shown below) the difference between sharding and plasma deals with the technically complex concept of 'tight coupling' (not discussed).

  • **SIDECHAINS - (AVALANCHE) "[s]idechains are separate blockchain networks, compatible with the mainchain. Sidechains have their own consensus mechanism, their own level of security, and their own tokens. The sidechain doesn’t necessarily need to be public and can also be a privately managed ledger. If the security of a sidechain network is compromised, the damage will not affect the mainchain or other sidechains. Both networks are linked to each other via a “two-way peg” and can transfer any state. This way, tokens can be exchanged at a predetermined rate between the mainchain and the sidechain. The mainchain guarantees overall security and dispute resolution, and the transactions that are outsourced to the sidechain can sacrifice decentralization in return for scalability. [Voshmgir, S. Blockchain Scalability: State Channels, Sidechains & more…. (Accessed October 8, 2021)].
  • PLASMA - "[p]lasma chains are an evolved, more secure form of regular sidechains. Primarily, they are “non-custodial”. That is, in the case of an error, nodes have the option to exit the chain, after a nominal challenge period, and after paying a higher transaction fee on the main chain." [Gupta, V. Comparative Analysis of Sidechains, Plasma, and Sharding. (Accessed October 8, 2021)].
  • SHARDING - (CARDANO) "sharding is a way of partitioning to spread out the computational and storage workload across a peer-to-peer (P2P) network so that each node isn't responsible for processing the entire network's transactional load. Instead, each node only maintains information related to its partition, or shard." [Mearian, L. Sharding: What it is and why many blockchain protocols rely on it. (Accessed October 8, 2021)].

POLYGON (MATIC)


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Polygon presently is the last stop on our technological evolutionary journey into interoperability. The Polygon framework is designed for the building and then connecting of Ethereum compatible networks. This would permit these networks to share data, assets, applications, and the like among themselves.

Existing projects like the Binance Smart Chain, Polkadot, and numerous other networks that are Ethereum compatible, are what the Polygon protocol that seeks to connect and make interoperable.

CONCLUSION

Given the current state of the cryptocurrency universe, coupled with the ever growing need for financial decentralization, it is not hard to envision a future where the entire crypto ecosystem is a complex tangled web of interconnected blockchains capable of meeting the needs of world optimal capital flow. We are at the cusp of future breakthroughs in interoperability, which should be a major disruptive force in dismantling traditional centralized finance.

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