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Crypto Terms:  Letter I

What is Interoperability?

Meaning:
Interoperability - the capability to see and share data from several blockchains.
easy
3 minutes

Let's find out Interoperability meaning, definition in crypto, what is Interoperability, and all other detailed facts.

Blockchain interoperability, also known as cross-chain interoperability, is the capability to see and share data from several blockchains. It’s beneficial because you can trade assets across multiple blockchains without the need for a decentralized, custodial exchange. Interoperability allows users to transact across different platforms, thus it helps with the development of a blockchain. Cross-chain bridges can also contribute to increased liquidity on a blockchain.

In simple terms, cross-chain bridging allows moving assets between different blockchains. However, not all bridges operate on the same principles and have the same level of security - each bridging platform will be different, and that's something that should be kept in mind!

Even though there are several blockchain interoperability solutions on the market (such as Polkadot, which is known for its unique structure of relay chains and parachains, or Cosmos - the so-called "internet of blockchains"), more are needed to connect different blockchains like Bitcoin and Ethereum. One of the well-known solutions is wrapped tokens (or proxy tokens).

The most popular wrapped token at the moment is Wrapped Bitcoin (WBTC). However, with wrapped tokens, you’ll need to have a trusted custodian to hold your funds or develop a safe mint/burn protocol to assure a stable supply of your crypto assets.

People might use cross-chain bridges for multiple reasons, including (but not limited to):

  • Trying out exclusive dApps;
  • Searching for lower fees;
  • Looking for airdrops;
  • Exploring yield programs;
  • Cross-chain messaging.

One of the projects working on a native blockchain interoperability solution is Komodo. They developed a decentralized exchange that is compatible with 99% of cryptocurrencies called AtomicDEX. In this decentralized exchange, interoperability is created through atomic swaps, which are safe exchanges of digital assets between individuals using non-custodial wallets. AtomicDEX offers native cross-chain trading, which eliminates the need for wrapped tokens.

It's worth pointing out that cross-chain interoperability faces many challenges, too. These include, but are not limited to:

  • Transaction speeds;
  • Hack potential;
  • Scalability issues;
  • Lack of standardized protocols;
  • Diverse blockchain architectures.

While not all cross-chain solutions are built to support every blockchain platform, these are challenges that all of those solutions still face, nonetheless.

When it comes to using an actual cross-chain bridge, the process would typically look something like this:

  1. Navigate to the bridge page;
  2. Select the network / tokens that you want to bridge;
  3. Pass through confirmations when needed, approve spending;
  4. Confirm the transaction on the source network;
  5. Claim the transactions on the destination;
  6. Access your assets (coins or tokens) on the destination chain.

The process is rather straightforward on paper, but can differ a bit, depending on the bridge that you plan to use. The core steps, however, should always remain similar.