As things currently stand, the blockchain industry is siloed among many different platforms and protocols. Blockchain interoperability, broadly speaking, is the term for connecting these various islands of blockchain technology.
Interoperability is one of Komodo's 4 Pillars of Blockchain Technology, with the other three being security, scalability, and adaptability. This post will explain Komodo's blockchain interoperability efforts, including atomic swaps and platform synchronizations.
Blockchain Silos: A Plethora of Protocols and Platforms
The first thing to understand about blockchain technology is that it's not uniform. There are a variety of different protocols, platforms, consensus mechanisms, and, of course, currencies.
In today's blockchain industry, there are two primary protocols: the Bitcoin-protocol and the Ethereum protocol, which includes ETH as well as all ERC-20 and ERC-721 tokens. Let's look at the Bitcoin protocol family first.
The Bitcoin protocol was established at he very beginning of 2009 when Satoshi Nakamoto mined the very first block in the Bitcoin blockchain. It uses the well-known UTXO model and a Proof of Work consensus mechanism. Since then, many projects have leveraged the Bitcoin code base to make incremental improvements and launch a brand-new blockchain.
Litecoin was one of the very first projects to do just that. Charlie Lee, Litecoin's founder, forked Bitcoin's open source code base to create Litceoin in October 2011. Lee simply changed the cryptographic hash function from SHA-256 to Scrypt, reduced the block times from 10 minutes to 2.5 minutes, and launched a new blockchain project with its own currency.
Many other projects followed suite. Some forked from Bitcoin itself, such as Peercoin and Zcash. Other forked from forks, such as Einsteinium and Feathercoin, for instance, which were both forked from Litecoin. Komodo itself is another example of a fork of a fork, as it was originally forked from the Zcash code base. All forks of Bitcoin forks, plus all of their descendants, are all using the Bitcoin protocol.
A non-exhaustive map of Bitcoin forks. Source: unhashed.com
While some Bitcoin forks were spin-offs that had very little to offer, others made major contributions. Zcash is technically a fork of the Bitcoin code base but the Zcash team added a wealth of new technology. Zcash's major contribution was the zero-knowledge proof protocol, known as zk-SNARKs, which gave users the option to make transactions with complete privacy.
Now, let's move on to the Ethereum ecosystem. Unlike Bitcoin, Ethereum uses an account-based model, which means the Ethereum blockchain does not use the UTXO model. It's still a Proof of Work blockchain, but it does't use the same model or protocol as Bitcoin.
The main contribution that Ethereum brought to the blockhain industry is the EVM, or the Ethereum Virtual Machine. This allows third-party businesses and projects to submit code, often called smart contracts, to the EVM for processing on the Ethereum network. A large portion of the contracts running on the Ethereum network are token contracts, which allow projects to create their own digital currency without having to launch their own blockchain.
The Etherscan Token Tracker states that over 215,000 ERC-20 contracts are live on the Ethereum network. That means that there are over 215,000 different digital currencies-- that is, ERC-20 tokens-- within the Ethereum ecosystem today.
It's important to note that ERC-20 tokens do not have their own blockchains or decentralized networks. Rather, there is but one blockchain, the Ethereum blockchain, with a single network. As such, all of the tokens created on the Ethereum platform are essentially paying to use someone else's chain and network to execute transactions. This is just one among many limitations of smart contract platforms.
Of course, there are other blockchain platforms with their own protocols, tokens, and ecosystems. NEO is another prominent example. Projects such as nOS and Effect.AI were both launched on the NEO platform.
Other platforms host third-party projects, as well. NEM hosts projects such as ScanetChain and Digitalcoin, while Stellar hosts projects like SureRemit and Smartlands. There are even more smart contract platforms that host tokens, games, and dApps-- EOS, Tron, and Tezos, just to name a few more prominent examples.
This is all good and well, except that none of these platforms and protocols are compatible with one another. The result? A complete lack of blockchain interoperability.
The Blockchain Interoperability Problem Explained
There is no shortage of platforms in the blockchain industry today-- Ethereum, NEO, NEM, EOS, Stellar, Tron, Tezos, and Cardano, to name a few.
Each of these platforms has its own protocol and its own relative merits. However, not a single one of them can connect or communicate with any of the others. As a result, the third-party businesses and projects built on today's blockchain platforms can't exchange data or value with projects created on other platforms. This creates a scenario where each platform exists as an isloated, siloed ecosystem that is disconnected from all others.
Furthermore, there are a number of additional blockchains that are not platforms but do have unique protocols. Monero, the privacy coin, uses what's known as a ring-signatures protocol. Another example is IOTA, which is built with a unique protocol known as Tangle. In the Tangle protocol, each transaction (rather than a block of transactions) references two previous transactions, forming not a linked list, but a complex web structure known in mathematics as a Directed Acyclic Graph, or DAG for short.
When we consider the sheer number of platforms and protocols in existence today, it becomes fairly obvious why the absence of blockchain interoperability is such a major problem.
This lack of blockchain interoperability has three major consequences. First, it's very hard to exchange value between assets created on different platforms. Trading an ERC-20 token for, say, a Bitcoin-protocol-based altcoin or a token created on NEO requires a centralized middleman acting as a clearing house. Traditional trading methods won't allow you to exchange Basic Attention Coin (BAT) and Digitbyte (DGB) directly, for instance, because the protocols are different.
Second, it's completely impossible to exchange logic between dApps created on different platforms. Since various dApps are launched on completely different protocols, there is no way for them to communicate or exchange data or logic. This prevents many dApps and smart contracts from optimizing their own functionality and value.
Lastly, the siloed state of the blockchain indsutry limits the power of open source software. While virtually all blockchain projects are open source, the technology being developed on one protocol cannot be shared with or adopted by other protocols. New developments on one protocol may provide inspiration or ideas for another, but the code itself is never compatible among different protocols. If the industry was more united, every advancement and new technology would be shared equally with all projects, which would almost certainly lead to increased development and innovation across the board.
This blockchain interoperability problem isn't just a theoretical or anecdotal issue. A survey from PriceWaterhousecoopers (PWC) of 600 executives from 15 territories reported that 28 percent of respondents agree that "interoperability of systems is a key for success."
A report from Deloitte titled "Blockchain to blockchains: Broad adoption and integration enter the realm of the possible" also noted the need for interoperability. Here's what the authors wrote about the need for unification in the blockchain industry:
With the proliferation of platforms and protocols in the marketplace today, no single solution has emerged as the clear winner; consequently, no technical or process standards are yet in place. Likewise, operational siloes keep some companies from either developing clear business plans around blockchain or collaborating with ecosystem partners for mass adoption.
As the blockchain industry continues to grow and progress, blockchain interoperability will become an essential feature for any platform or protocol to thrive. It doesn’t make sense to have dozens of ecosystems completely isolated from one another.
Blockchain Interoperability Through Atomic Swaps
Komodo is working towards industry-wide blockchain interoperability with atomic swaps. Atomic swaps are secure trades of digital assets made directly from one user to another, without any third-parties or intermediaries. This eliminates the need for trusted middlemen, like centralized exchanges, and builds bridges between various blockchain platforms and protocols.
Komodo was the first project to bridge the gap between Bitcoin-protocol-based coins and ERC-20 tokens. An article published in Forbes Magazine confirmed this fact:
Komodo, an atomic swap early adopter launched the first atomic swap across ethereum. Today, Komodo has facilitated atomic swaps across 95 percent of all cryptocurrencies. Komodo recently released a new blockchain toolkit that allows users to create an entire blockchain network within minutes.
Prior to this development from Komodo, a trade from a BTC-based altcoin to an ERC-20 token required extra steps in the trading process, thus increasing the transactions costs and security risks. A user would have had to trade BTC-based altcoin—>Ether—>ERC-20 token or, if the altcoin only has a single trading pair with Bitcoin, from BTC-based altcoin—>Bitcoin—>Ether—>ERC-20 token.
Now, with Komodo’s AtomicDEX, a user can go directly BTC-based altcoin—>ERC-20 token (or vice versa). Market Maker 2, the AtomicDEX networking technology, is technically capable of supporting atomic swaps for over 95% of all coins and tokens in existence. No other exchange or platform can claim this degree of blockchain interoperability.
Komodo’s New Blockchain Interoperability Technology
In addition to atomic swaps, Komodo is advancing blockchain interoperability with Platform Synchronizations. In short, this feature allows inter-blockchain transfers of data without performing a swap or trade. This made possible through a combination of notarized Merkle tree proofs.
This new technology creates blockchain interoperability, providing two main benefits. First, if a project launches a Smart Chain with Komodo's Antara Framework and one chain is no longer sufficient to handle that project’s needs, additional chains can be created and synchronized with the first. This is possible because Platform Synchronizations enables several (or many) blockchains to communicate with one another and function as a single chain.
With this new technology, all projects within the Komodo ecosystem can scale on-demand and grow with their business. As a project’s demands increase, more chains can always be added so that performance never falls behind. If one chain isn’t cutting it, add a second. If two chains aren’t enough, create a third. And so on. There is no limit to the number of chains that can exist in a single Smart Chain cluster.
The second benefit to Platform Synchronizations is that any Smart Chain can communicate with all other chains in the Komodo ecosystem. This includes the ability for one Smart Chain to verify transactions that have occurred on another chain. It also includes verifying state changes in smart contracts, exchanging data with other chains' dApps, and pinging other Smart Chains' daemons through an open API.
On top of all that, Komodo is working towards a way to connect platforms through blockchain bridging. This will connect the Komodo ecosystem to other platforms, such as Ethereum and the Tendermint BFT ecosystem, including Cosmos and Polkadot. While this effort is still in the very early stages of research and planning, it's an important long-term goal of the Komodo Development Team.
At Komodo, we strive to accelerate the global adoption of blockchain technology and to lead the world in blockchain interoperability. Atomic swaps and platform synchronizations are two more huge steps towards achieving these goals.
Join us as we continue to innovate end-to-end blockchain solutions.