As interest in Blockchain-based enterprise solutions continues to grow, so does the need for interoperability between individual Blockchain solutions. Currently, this lack of interoperability between individual Blockchain solutions is hindering your adoption at the enterprise level.
To unleash the full potential of blockchain technology, blockchains must be able to communicate with each other and with each other to transact, share data, and transfer value. To overcome this barrier, smooth interoperability between individual blockchain solutions is required. This is because blockchain technology will only be able to develop its full potential with increasing technology convergence.
To reach the next level of blockchain technology and to create sufficient interoperability between the previously independent networks, standardization is required. Widespread standardization is essential in that it provides a high level of security for blockchain-based applications and devices, which is necessary for widespread adoption.
This is because only interoperability between systems allows cross-platform integration and the inclusion of DApps from a wide range of developers. In this increasingly fragmented context, various stakeholders here have long recognized the need for uniform standards and definitions that enable all parties to ensure the interoperability of different blockchain solutions and their further development in the long term. To create this standard, we can already find the first movements to achieve this goal. One example of where attempts are being made to define a standard comes from the International Organization for Standardization (ISO), which has established a technical committee consisting of over 30 international experts. The ICO/TC307 technical committee covers the following core topics:
- Security / data protection
- Smart contracts
- Use cases
- Support for interoperability
But the community itself is also making efforts in creating standards through the open-source approach. An example of this is the ERC-20 standard, for the creation and use of tokens. This ERC-20 standard can be understood as smart contracts, which, if based on the ERC-20 standard, can be executed on the Ethereum blockchain and exchanged or traded for other ERC-20 tokens. Thus, one of the goals of the ERC-20 standard is to create interoperability between applications and participants within the Ethereum blockchain.
Two other standards that have established themselves in the area of non-fungible tokens are the ERC-721 standard, which was first used by the CryptoKittys, and the ERC-1155 standard, which solves the problem of collective fungibility. Standardization for NFTs is therefore essential, as it describes how an NFT should behave vis-à-vis a smart contract and promotes interoperability between contracts. In short, standardization defines the way an asset should behave. For example, in the ERC-721 standard, or Deeds, the transfer of an asset occurs through three parameters:
- Seller Address
- Buyer address
- Token ID
In terms of functionality, firstly, the total supply of tokens available on the network is recorded, a query is made of the owner of a particular token, defined how a token is transferred from one wallet to another, and last but not least, a query is made of the current balance of a wallet.
The ERC-1155 standard goes one step further and allows for multiple assets to be sent at the same time in its function, rather than just one asset as is the case with the ERC-721 standard. This allows for efficient trading and accumulation of transactions, which saves on transaction fees.
Universal protocols offer another possibility for standardization. Universal protocols offer the possibility of electronic data transfer between participants of different blockchain networks. The idea of a common protocol for communication between independent blockchain solutions originated as the Internet’s TCP/IP network communication protocol. These common protocols generally pursue the goal of neutrality and simplicity to achieve the highest possible interoperability. An example of a common protocol is the Interledger Protocol ILP, which was developed to provide a freely usable protocol for processing cross-border monetary payments. The inter-ledger protocol is designed to allow customers (as senders and receivers) to settle money payments, provided those customers have an account on two different blockchain networks. By using ILP, customers no longer have to rely on third parties operating independent, coordinated processing systems for verification and processing. Rather, data packets are transferred between the two accounts via different connection points. These can either be pre-defined or automated to take the shortest path.
Interoperability in the Internet of Things (IoT).
Interoperability plays another major role in the Internet of Things (IoT). The interoperability of independent blockchain networks enables wireless end devices (IoT devices) to interact, communicate with each other, execute smart contracts and transfer data in real-time. For this process to work smoothly, different applications must interact with each other. The three core properties here are transparency, trust, and security. The goal of such systems is to replace the current rigid value chains and combine them through a large number of new blockchain-based applications to create a large, secure, and interoperable ecosystem. The interoperability of blockchain networks means that everything, from both the physical and digital worlds, can be mapped digitally. In short, all machines can communicate with each other in networked digital ecosystems.
Data transfers between blockchains have been the exception, but manufacturers and developers are increasingly working on solutions. Currently, however, there is more than one solution for the ideal interoperability of blockchains. One of them is the development of so-called sidechains, which are translation architectures that connect independent blockchain networks. This is where trusted data exchange takes place. However, this poses risks in terms of security and transparency and is ultimately only a detour instead of solving the actual problem.
For protocols and interfaces to gain interoperability, specifications and standards must be developed. So that intermediaries can be increasingly eliminated, the decentralized approach should remain the top priority here.
Specifications and standards should support development so that interfaces and protocols can work more interoperably. However, the decentralized approach is still important because it eliminates the need for the middleman. Protocols such as the ILP or the ERC standard provide the first promising solutions here, on the way to nationwide interoperability. Probably the greatest potential for area-wide interoperability of blockchain solutions is to develop a common standard. In the industry, in particular, this can help to reduce investment costs and lower the barriers to the digital transformation of value chains.