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Cross-Chain Was So 2021. Welcome to Omnichain: A Primer for a More Interoperable Blockchain World

By:
victoryoung
Updated: May 26, 2022, 12:22 UTC

The need for interoperability has always been at the forefront of consumer demands.

Blockchain, Omnichain

In this article:

Be it Web 2.0 – the current version of the internet that we know and use – or Web 3.0 – the decentralized internet that we are gradually transitioning to, the need for interoperability will always take center stage.

In the Web 2.0 realm, it is now easy to browse and interact with content from several different platforms, servers, and locations. Each of these content sources often links out to other websites, images, videos, and whatnot – effectively interconnecting the vast ecosystem.

But when it comes to Web 3.0, you won’t necessarily find a similar degree of connectivity, at least for now. This is because the current blockchain ecosystem is highly fragmented: hundreds of standalone blockchains, dozens of sidechains, hubs, and bridges are working in siloed environments with their respective captive user communities.

Because each blockchain serves a specific purpose, catering to a specific audience and facilitating related use cases, they aren’t able to communicate with each other. Hence, Web 3.0 solutions built atop these blockchains will ultimately exist in large siloes unless the situation is remediated.

Fortunately, a solution has been formulated: omnichain interoperability. But before we delve into the specifics of omnichain interoperability, let’s take a look at the current scenario.

Cross-Chain Technology Only Solves Half Of The Problem

We are still in the early days of blockchain ecosystem development. Accordingly, several components that power interoperability across the Web 2.0 ecosystem, such as APIs (application programming interfaces) that allow standalone applications (and programs) to communicate with each other, are still under development.

Recent advances in blockchain technology have unlocked several new use cases that will lay the foundation of a fully interoperable Web 3.0 ecosystem. As enterprises, large-scale corporations, startups, and the general public began adopting blockchain technology, developers quickly realized that no single blockchain protocol could achieve optimal efficiency while remaining in complete exclusivity.

To address the problem of blockchain interoperability, developers introduced cross-chain technology to enable the seamless transfer of data and value between individual blockchains without any intermediary. This means that all blockchains that share similar network features can transfer data and value between each other.

As an emerging mechanism, cross-chain technology has a long way to go to support meaningful blockchain interoperability. In today’s paradigm, cross-chain interoperability can be achieved three ways:

  • Sidechains – Also known as layer-2 platforms, sidechains have their own consensus mechanism, tokens, and security parameters. Most sidechains support their own specific use cases. Examples: Polkadot, Cosmos.
  • Oracles – In the context of interoperability, oracles play the role of connecting on-chain data with off-chain applications. They work across multiple blockchain platforms, thus contributing toward interoperability. Examples: Chainlink, API3.
  • Bridges and swaps – In this process, tokens of one network are locked, and then an identical asset is minted on the other network and sent to the original requestor. Swaps, also known as atomic swaps, allow users to exchange tokens from different networks through a decentralized platform. Both bridges and swaps facilitate the cross-chain transfer of value.

That said, while cross-chain technology has solved the interoperability dilemma to a huge extent, it only works for blockchains (and the ecosystems built atop them) that share similar network features. For instance, cross-chain technology will work if someone wants to transfer data between Ethereum and any other EVM (Ethereum Virtual Machine)-compatible chain, but it won’t work if someone wants to transfer data between the Bitcoin and Ethereum blockchains (since both are standalone chains and share no similar network features).

The Future Is Omnichain

Given the current challenges and the growing demand for multi-chain DeFi and NFT solutions, partly driven by Ethereum’s ongoing headaches (high gas fees and slow transaction speeds), developers and users are actively seeking better alternatives.

Since cross-chain technology is largely focused on Ethereum and other EVM-compatible chains, it won’t be of much help in an expansive Web 3.0 ecosystem that consists of thousands of decentralized applications (dApps), protocols, and metaverses – each on different blockchain networks. Up and coming projects are focusing on developing solutions to facilitate a multi-chain ecosystem by bringing together data, value (liquidity), and users from fragmented and individual blockchains by leveraging the omnichain interoperability protocol.

Omnichain interoperability unlocks cross-chain composability, thereby uniting all of the dApps residing atop disparate blockchain networks. It goes beyond the existing cross-chain interoperability standards by bringing together all EVM-compatible and non-EVM chains to build an interconnected multi-chain ecosystem of dApps and DeFi protocols and support new use cases like multi-chain decentralized exchanges (DEXs), multi-chain lending, yield farming, and multi-chain NFTs.

The more the underlying technology evolves, the more the connectivity between isolated ecosystems will increase. By extension, as connectivity increases, the user experience and engagement across the Web 3.0 ecosystem of blockchain gaming, NFTs, DeFi, and other primitives improve in kind.

About the Author

victoryoungcontributor

Founder and Chief Architect at Analog, a layer-0, proof-of-time (PoT)-enabled, trustless omnichain interoperability network using PoT consensus and threshold cryptography to achieve complete decentralization and security at scale. Young is a computer scientist, blockchain protocol researcher and serial investor with two decades of experience in guiding early-stage startups (web 2.0/web 3.0) into successful companies.

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