Blockchain interoperability refers to the ability of different blockchain protocols to become compatible with one another.
As things currently stand, the blockchain industry is not interoperable. Instead, the industry is siloed into many different islands of blockchain technology. A project that builds on Ethereum, for instance, can easily interact with other projects built on the Ethereum platform, but cannot interact with projects built on NEO, EOS, TRON, or any other smart contract platform. This effectively makes each smart contract platform a gated garden, where the projects built within are both locked in and forbidden from sharing data or value with any projects outside that particular environment.
Achieving true blockchain interoperability among heterogeneous protocols is a prerequisite step for mainstream adoption of blockchain technology. This is true because many businesses are reluctant to build within a locked platform environment. To invest with confidence, businesses need much more autonomy, as well as assurances that they will be able to interact with any other blockchain project, not just the ones that happen to be built within the same gated garden.
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 tokens and ERC-721 tokens. Let's look at the Bitcoin protocol family first.
Bitcoin Protocol Blockchains
The Bitcoin protocol was established at the 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 hashing algorithm from SHA-256 to Scrypt, reduced the block times from 10 minutes to 2.5 minutes, and launched a new blockchain 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 considered Bitcoin protocol blockchains.
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 codebase but the Zcash team added a wealth of new technology. Zcash was the first blockchain to use the Equihash algorithm, but the team's most prominent 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.
Ethereum Platform Tokens
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 doesn't use the same model or protocol as Bitcoin. It’s also worth noting that Ethereum plans to transition to become a Proof of Stake blockchain in 2021.
The main contribution that Ethereum brought to the blockchain 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 236,000 ERC-20 contracts are live on the Ethereum network. That means that there are over 236,000 different digital currencies-- that is, ERC-20 tokens-- within the Ethereum ecosystem today.
It's important to note that neither ERC-20 tokens nor ERC-721 tokens have their own independent blockchain or decentralized network. Rather, there is but one blockchain, the Ethereum blockchain, with a single peer to peer network. As such, all of the tokens created on the Ethereum platform— or any other smart contract platform that uses the same single-chain architecture— are essentially paying to use someone else's chain and network to execute transactions.
Additional Protocols & Platforms
Of course, there are many blockchain protocols in addition to Bitcoin and Ethereum. Those two are the most prominent examples but many other protocols exist in the blockchain space.
Some protocols belong to smart contract platforms, similar to Ethereum. This means that the platform’s blockchain and all third-party projects it hosts belong to that particular protocol.
For instance, third-party projects such as nOS and Effect.AI were launched on the NEO platform. It can be said, therefore, that nOS and Effect.AI are built on the NEO protocol.
In other examples, the NEM platform hosts projects such as ScanetChain and Digitalcoin, while Stellar hosts projects like SureRemit and Smartlands. There are even more smart contract platforms that host third-party projects on their native protocol— EOS, Cardano, Tron, and Tezos, just to name a few.
Other protocols are unique to a single blockchain. For example, Monero uses a ring-signature protocol that shuffles transactions to promote privacy. This protocol is unique to Monero (as well as Monero forks, such as Monero Classic [XMC] or Electroneum [ETN]). However, Monero is not a platform so third-party projects cannot create tokens on the Monero blockchain.
IOTA is another great example of a blockchain that is not a platform but does have a unique protocol. IOTA uses what’s 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.
While all of the protocols mentioned in this section are developing different features and trying to gain adoption, none of them are compatible with one another. This leads to a complete lack of blockchain interoperability.
The Blockchain Interoperability Problem Explained
As discussed, there are many different protocols and platforms in the blockchain industry today-- Ethereum, NEO, NEM, EOS, Stellar, Tezos, Cardano, Monero, and IOTA, just to name a few. Each of these protocols has its relative merits. However, not a single one of them can connect or communicate with any of the others. There is no blockchain interoperability.
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 siloed ecosystem that is isolated from all others.
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 clearinghouse. Traditional trading methods won't allow you to exchange Basic Attention Coin (BAT) and Digitbyte (DGB) directly, for instance, because the protocols are different. You would need to use a centralized exchange to make the conversion.
Second, it's completely impossible to exchange logic between dApps created on different platforms. This prevents many dApps and smart contracts from optimizing their own functionality and value. If every dApp and blockchain-based program could share data and logic despite being built upon heterogeneous protocols, the entire industry would benefit from the network effect. It would also promote adoption, as no single project would need to worry about building on a platform that becomes isolated or obsolete.
Third, the siloed state of the blockchain industry 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 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 lead to increased innovation across the board.
This blockchain interoperability problem isn't just a theoretical or anecdotal issue. In a survey of 600 executives from 15 territories conducted by PriceWaterhousecoopers, 28 percent of respondents agreed that "interoperability of systems is a key for success."
Moreover, 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 blockchain technology continues to evolve and progress, blockchain interoperability will become an essential feature for any platform or protocol to thrive. It simply doesn’t make sense to have dozens of ecosystems completely isolated from one another.
Blockchain Interoperability Within A Specific Protocol
All platforms offer varying degrees of blockchain interoperability to all third-party projects within the confines of their platform. It is normally possible for users to trade directly between two assets created on the same platform.
For example, decentralized exchange projects like 0x and IDEX allow users to swap Ethereum tokens, such as ERC-20 or ERC-721, without an intermediary. Suppose Bob has Basic Attention Coin (BAT) that he would like to swap for Maker (MKR). Suppose that Alice has MKR that she wants to exchange for BAT. Since they are both Ethereum-based assets, Alice and Bob could easily make this swap in a secure, peer-to-peer fashion.
This level of blockchain interoperability is common to most platforms. Exchanging assets of the same protocol is relatively simple.
Generally speaking, platforms also offer a means for the exchange of logic or data. For instance, a dApp built on a particular platform can ping the API of another dApp to receive price data or information about state changes of a specific smart contract.
Let’s spell this out with an example. Imagine that a platform hosts two dApps: an oracle dApp and a sports betting dApp. The oracles project brings real-world data, such as the prices of various world currencies and the outcomes of sporting events, onto the blockchain’s decentralized ledger. The betting dApp allows users to place bets on various sporting events with cryptocurrency.
In this scenario, both dApps would benefit greatly. The betting dApp would get the data it needs to determine which users were winners and deserve payouts, and which users were losers and lost their bets. At the same time, the oracles dApp would be receiving fees in exchange for its oracles data and, perhaps more importantly, gaining real adoption for providing a useful service.
Blockchain Interoperability Between Heterogeneous Protocols
Although platforms typically offer interoperability between third-party projects built on the same protocol, blockchain interoperability between different protocols is much less common. With that said, there are several projects working on blockchain interoperability solutions.
One prominent project working to provide interoperability is the Cosmos Network. Cosmos is a multi-chain platform that gives an application-specific blockchain with the Tendermint BFT engine to every third-party project. This stands in contrast to smart contract platforms, which do not give an independent blockchain to third-party projects. Instead, smart contract platforms simply allow others to submit contracts to the platform’s blockchain network for processing.
The Cosmos blockchain itself essentially acts as a bridge between the third-party projects built within its ecosystem. There is another bridge-like blockchain, known as Ethermint, that acts as a bridge between the Cosmos platform and the Ethereum platform. Thus, in theory, projects that build an application-specific blockchain in the Cosmos ecosystem can still exchange value and data with projects built in the Ethereum ecosystem.
This is one approach to inter-protocol interoperability that is certain worthy of attention but has not yet withstood the test of time. There are not many projects in the Cosmos ecosystem so it isn’t clear whether the Ethermint bridge provides true interoperability between the two protocols.
Other projects, like Wanchain, Quant, and Polkadot, are pursuing similar interoperability solutions. While their approaches vary, the goal is the same across the board: to build bridged between the currently siloed ecosystems throughout the blockchain industry.
Blockchain Interoperability Through Atomic Swaps
Komodo is working towards industry-wide blockchain interoperability with a different technology: 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 heterogeneous 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 transaction 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 from BTC-based altcoin—>ERC-20 token (or vice versa).
Other protocols are currently in the integration process. For instance, the Komodo Dev Team recently performed the world’s first atomic swap between Ethereum (ETH) and Tezos (XTZ).
Komodo DeFi Engine, the networking technology that powers AtomicDEX, is technically capable of supporting atomic swaps for over 95% of all coins and tokens in existence. No other decentralized exchange or platform can claim this degree of blockchain interoperability.
Komodo’s New Blockchain Interoperability Technologies
In addition to atomic swaps, Komodo is advancing blockchain interoperability with two other technologies: Platform Synchronizations and Blockchain Bridging.
The Platform Sync 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 Komodo independent blockchain 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 innovative 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 chain cluster.
The second benefit to Platform Synchronizations is that any Komodo independent blockchain can communicate with all other chains in the Komodo ecosystem. This includes the ability for one Komodo independent blockchain 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 chains' daemons through an open API.
In addition, 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.
📧Komodo Newsletter
If you'd like to learn more about blockchain technology and keep up with Komodo's progress, subscribe to our newsletter. Begin your blockchain journey with Komodo today.