20.12.2024
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Just as isolation can negatively affect human beings, it can be detrimental to blockchains as well. The isolation or lack of interoperability in the blockchain industry can hinder adoption and prevent us from realizing a truly decentralized world. As a result, interoperability is a crucial next step for the future of this industry.
Read on to learn about blockchain interoperability and the role it has in Bitcoin’s future.
Blockchain interoperability is the capacity of an independent blockchain to communicate with other chains.
Interoperability allows the transfer of data among blockchains, which in turn enables the movement of digital assets between blockchains and facilitates the deployment of the same smart contract on different platforms.
It creates a more integrated blockchain ecosystem where users can switch from one chain to another with little effort.
The simplest way to understand interoperability is to think of how email operates. Due to interoperability, you can send and receive an email from any provider, such as Google, Microsoft Outlook, Yahoo, Proton, or Zoho. Similarly, blockchain interoperability enables networks to exchange information despite their differences. For instance, blockchain interoperability could potentially allow Bitcoin (BTC) to exchange data with the Ethereum (ETH) network and vice versa.
As the blockchain ecosystem progressively becomes multi-chain and multi-layered, blockchains can still continue to function in a siloed way, but it might hinder their efficiency. Therefore, blockchain interoperability is crucial because it can improve the overall productivity of these systems.
It can also have the following positive effects:
When blockchain networks can communicate seamlessly with each other, developers can leverage the features of various platforms to build new and innovative products that can potentially bring more use cases. In return, this can attract more people to this space, improving the overall adoption of blockchain technology.
Blockchain interoperability makes managing and using your different crypto assets simpler and more convenient while leveraging the benefits of different blockchains, possibly even without knowing—or caring—which chain you are using at the time.
Blockchain interoperability is essential because it allows people to move digital assets across chains. This helps unlock the liquidity of crypto assets previously confined to an individual blockchain network. In return, the unlocked liquidity enables better capital efficiency and introduces new opportunities for DeFi applications.
While most blockchain ecosystems are still relatively siloed, numerous cross-chain interoperability solutions have emerged, enabling people to move digital assets from Bitcoin to other chains and vice versa.
Let’s take a look at some of the most prominent solutions.
Cross-chain atomic swaps are smart-contract-powered solutions that allow two parties to exchange digital assets peer-to-peer across different blockchains or between Layer 1 and Layer 2 networks, without the need for a centralized third party. For example, you can trade digital assets to and from Bitcoin and Stacks (STX) using LNSwap.
Bitcoin bridges link two or more blockchains, permitting the transfer of data, such as digital assets and messages, across chains. Bridges use various mechanisms to make these transfers possible, such as the lock-and-mint technique, where a token is locked on the source blockchain, and an equivalent so-called wrapped version of it is minted on the destination chain. Wrapped Bitcoin (WBTC) is an example of a Bitcoin bridge that allows the use of BTC in DeFi applications on the Ethereum blockchain.
Bitcoin layers use numerous methods to achieve cross-chain interoperability. For instance, Build on Bitcoin (BOB) leverages EVM (Ethereum Virtual Machine) compatibility to bring interoperability between Bitcoin and Ethereum. This means you can purchase Bitcoin-native assets like runes using an Ethereum-based crypto asset like ETH. You can perform this exchange on the Sovryn DEX, for example, which operates on BOB.
Other Bitcoin layers like Rootstock, for example, use sidechain technology to enable the exchange of value to and from the main chain.
Interoperability solutions will open Bitcoin up to users of other blockchains, allowing them to transfer digital assets and interact with popular and unique products like Runes and Ordinals.
To illustrate, Bitcoin layers like BOB and Rootstock are enabling users to bridge their Ethereum assets to Bitcoin’s DeFi ecosystem which they can then use to acquire Bitcoin-native assets.
This is good because Bitcoin’s DeFi ecosystem will continue to expand as more liquidity flows into the ecosystem and eventually might grow as big or even bigger than Ethereum’s. Using bitcoin, a provably scarce and fully decentralized asset, has numerous advantages for DeFi. Moreover, increased liquidity will motivate developers to build more applications on Bitcoin and, in return, attract more users.
While existing layers are already bringing interoperability to the Bitcoin ecosystem, BitcoinOS, a new and more efficient Bitcoin layer spearheaded by Sovryn, is set to take interoperability to a whole new level once it debuts later in 2024.
This smart layer will enable interoperability between Bitcoin and Ethereum thanks to EVM compatibility and across decentralized applications due to its interoperable rollups.
Buy SOV today to participate in Sovryn’s Bitocracy and have your say in the new era of Bitcoin.
The lack of interoperability in blockchain means that chains can’t exchange data among themselves because they are built with separate rules and standards, making them incompatible. To solve this problem, cross-chain messaging protocols can be built, permitting blockchains to read data from other chains and write data to other blockchains.
Cross-chain technology, such as atomic swaps and bridges, connects independent blockchains by leveraging smart contracts. These self-executing pieces of code are capable of communicating with each other and are usually deployed on separate chains. As a result, users can bridge assets or swap tokens across chains.
Although blockchain interoperability can have significant positive effects on the blockchain space, it still faces a few hindrances. For instance, most blockchains operate under incompatible rules, making it complicated and expensive to build cross-chain messaging protocols that enable interoperability. Also, guaranteeing that assets will remain safe as they are transferred from one chain to another is a challenge that has plagued many bridges.
