Blockchains validate ledger updates through a consensus mechanism, providing a secure, transparent, and impartial system for multi-party record-keeping. Blockchain interoperability refers to the capacity of different blockchain systems to exchange data, messages, and digital assets.
Interoperability is a hot topic because blockchains lack native ways to communicate with other networks, back office systems, or external data sources. As blockchain networks become commonplace, new tools for inter-blockchain communication, or cross-chain applications, are essential.
This article serves as a guide to blockchain interoperability, introducing key benefits of multi-chain capabilities, solutions for connecting networks, and how Kaleido enables advanced interoperability for the enterprise.
The web3 landscape is becoming more complex with over 100 base-layer blockchains and multiple layer-2 and layer-3 networks. These layers are a result of blockchains customizing their features to better fit specific use cases, often by making trade-offs like prioritizing throughput over decentralization. They also differ in aspects like consensus protocols, performance, and support for programming languages. Blockchains are also adopting different strategies for scalability, such as having a single high-performance base layer, or using additional layers for modular applications.
Interoperability in blockchain technology enables seamless exchange of data and assets across different blockchain networks. Currently, transactions are straightforward only if both parties are on the same blockchain. Interoperability aims to simplify cross-chain transactions, making it easier and more efficient for parties to interact.
This is particularly crucial in the financial services industry, where different financial ecosystems operate on various blockchains. Interoperability allows for cost-effective, timely, and secure transfers of data and funds between these ecosystems.
Most layer-1 blockchains don't inherently support cross-chain interoperability. However, various techniques are being developed to increase the level of interoperability between different blockchain networks. Cross-blockchain compatibility offers several key advantages, including:
Interoperability helps to solve the blockchain trilemma by using different chains for what they are good for. For example, you might use a public chain for security and a zero-gas sidechain for cost savings and to facilitate lots of transactions. When we connect these two, we get the best of both worlds.
The ability to build applications across different chains opens up new business models and revenue opportunities for businesses. Some industry specific examples include:
The benefits of blockchain interoperability are clear in a number of use cases. The business value is also clear, as we increase capabilities and scale. But the more important benefit may be to the end user.
For web3 applications to reach mass adoption they need to be easy to use for end consumers. Interoperability, more chain support, connected DApps, all this leads to simpler user experiences and a larger customer base. By making experiences where one account can connect to many, versus a world where a consumer needs a login for every blockchain app, we can bring more people into the fold.
Choosing the right development platform, managing transaction fees, synchronizing on-chain and off-chain activities, and providing user wallets are just a few of the issues that you need to consider. Kaleido serves as a comprehensive resource for addressing all your web3 interoperability challenges, offering solutions for each aspect of blockchain development.
By using a bridge, we can help enterprises securely link its permissioned blockchain to a public blockchain, enabling access to the benefits of both networks. Bridging can also facilitate the exchange of assets between different blockchains. For example, a user on one blockchain may want to send a digital asset you're managing to a user on another blockchain. A bridge can facilitate this transfer by allowing the asset to be "wrapped" in a form that can be recognized and transferred between the two networks.
At the heart of FireFly is the concept of a FireFly Supernode. This Supernode can interface with any public or private blockchain. Once connected, it can execute specific smart contracts, manage tokens, and monitor transaction activity. Think of FireFly as a brain or data orchestration layer. A single FireFly Supernode is able to connect to multiple chains and create a cross-chain network by facilitating transactions, data, and messaging.
The system operates on an event-driven model, ensuring reliable data transfer between your DApp and connected blockchains, complete with correct sequencing, retry mechanisms, and idempotency for both on-chain and off-chain data.
For instance, Hyperledger FireFly can function as a secure intermediary between multiple chains. You configure FireFly with the relevant RPC URLs and chain IDs for the blockchains you wish to connect. FireFly's inherent messaging and event-monitoring capabilities then handle token minting and burning on the connected chains.
Hyperledger FireFly comes with other robust features like a comprehensive web3 development stack, modular security options, token APIs, and smart contract management. An open-source version is available for those looking to get their feet wet. For more advanced needs, Kaleido offers a managed FireFly service, complete with additional APIs and enterprise-specific security features.
Kaleido helped Swift complete a CBDC Sandbox. Leveraging Hyperledger FireFly, the sandbox demonstrated that CBDC-initiated cross-border payments can plug into Swift’s enhanced platform exactly as real-time gross settlement (RTGS) payments do. This was facilitated using Swift's newly designed CBDC connector gateway.
The sandbox started with 18 central and commercial banks and simulated nearly 5,000 transactions. The testing received positive feedback and showed promise for additional use cases, and Swift announced a second phase of testing with an expanded list of 30 participants.
Blockchain interoperability brings numerous benefits and opportunities, including seamless data and asset exchange between disparate blockchain networks. This enables cross-chain applications, opens up new possibilities for industries like healthcare and finance, and streamlines the user experience by potentially allowing easier transactions across different applications.
Kaleido is a platform that simplifies the creation and operation of multi-chain networks. It offers tools for managing cross-chain transactions, smart contracts, and asset movement, making it easier for enterprises to adopt blockchain technology while navigating its complexities. This can speed up the deployment of interoperable blockchain solutions, reducing the time and resources required to build and maintain such networks.
If you want to dive deeper into blockchain interoperability or discuss your use case with one of our solutions architects, you can schedule time here.
Kaleido is your easy button for developing next era blockchain based business applications.