Homecryptocurrency News

    Explained | What is cross-chain protocol and why is it important?

    Explained | What is cross-chain protocol and why is it important?

    Explained | What is cross-chain protocol and why is it important?
    Profile image

    By Quantent   IST (Published)

    Mini

    Cross-chain technology aims to solve this problem by adding interoperability between different blockchains. It means they will all be able to communicate with each other and share data.

    The adoption of blockchain technology is largely driven by the underlying capabilities and functionalities. As developers continue to innovate and leverage the technology, the number of blockchain projects is on a steady rise.
    Moreover, with the increasing number of blockchain users, it becomes necessary to allow interoperability between various blockchains. As there isn’t a one-size-fits-all solution that can address all the shortcomings of a particular blockchain, newer protocols keep getting developed to optimise the existing blockchains.
    Some examples of blockchain projects include the IOTA blockchain that aims to improve payments systems on the Internet of Things (IoT), VeChain, which strives to streamline supply chain management on the blockchain and the Stellar blockchain that looks to overcome latency-related problems in remote areas to facilitate seamless payments.
    Also Read:
    Newer protocols mean enhanced abilities, and one such project is cross-chain technology.
    What is cross-chain technology?
    Widespread use of blockchain platforms has highlighted the issues of processing speed as well as scalability among older blockchains. Since all blockchains operate independently and do not interact with one another, it poses a unique challenge for the developers – users cannot realise the full potential of blockchain technology and its benefits.
    Complete decentralisation cannot be achieved unless people on different blockchains are interconnected with each other through one common protocol. Cross-chain technology aims to solve this problem by adding interoperability between different blockchains. It means they will all be able to communicate with each other and share data.
    The cross-chain protocols are compatible with other blockchains as they aim to augment connectivity. This means financial transactions can be enabled between two completely different blockchains. Earlier, crypto-enabled businesses would have to accept payments only from clients using the same blockchain as them, thus not allowing companies to transact freely with other blockchain-based companies.
    Transaction fees will substantially reduce through such an ecosystem, and downtime will become zero.
    Why is interoperability so important?
    For transacting to become truly effortless, both participants must be allowed to transact across blockchains. Let’s say user A wants to send cryptocurrency to user B. User B has no choice but to use the same blockchain as A if the funds are to be transferred. With cross-chain technology, this problem will soon become a hurdle of the past.
    The potential applications need not be limited to financial transacting either. If ground-breaking ideas are conceptualised, they can be developed upon by sharing information through the highly secure blockchain technology itself. When communication between two parties is not moderated by central oversight or intermediaries, the security increases.
    Experts believe the addition of interoperability between blockchains will lead to the development of added capabilities between blockchains. Such a fully decentralised and secure system could be at the heart of a completely digital economy.
    Multi-token wallets are also being developed, which means transactions involving the exchange of multiple tokens will become possible if 100 percent interoperability is achieved. The primary benefit will be that users will be able to transact using a single wallet for all transfers.
    Which other blockchain projects are working on interoperability?
    Let us look at some other blockchain projects that aspire to achieve similar results through disruptive innovation:
    1. Polkadot: The Polkadot blockchain is the brainchild of Gavid Wood, one of the Ethereum founders, and focuses on transmitting smart contract data between blockchains. This blockchain uses ‘parachains’, which horizontally broaden the network and move all the processing away from the main chain. This decongests the main chain, boosts processing speed, and improves scalability.
    2. Cosmos: Cosmos, or ‘the internet of blockchains’, is a technology that focuses on scalability through ease of development. It offers coders a software development kit (SDK), making it extremely easy to create decentralised apps and deploy them on the blockchain with smart contracts. All chains on the Cosmos blockchain (zones) are interconnected and with the main chain (the hub) through the Inter-Blockchain Communication Protocol.
    Blockchain technology coupled with interoperability solutions is expected to find diverse applications across sectors. Blockchains have struggled with scalability for years, and it can be addressed with cross-chain protocols. It will also support crypto adoptions as it will no longer matter which blockchain one uses.
    Cryptocurrencies with such strong underlying fundamentals have utility value and are therefore safer for investment purposes. Investors must delve deep into the functioning of blockchains to understand what is going on at the heart of the system before making investment decisions.
    arrow down

      Market Movers

      View All
      CompanyPriceChng%Chng