Interoperability is the ability for software to exchange and make use of information. With blockchains, an interoperable system means information could easily be shared and accessed by other blockchains. Currently, every blockchain acts independently, and they require intermediaries inbetween them.
An example of interoperability is cross-chain atomic swaps
Currently, if you want to exchange Bitcoin for Ether you would have to register with an exchange then transfer your coins over and trade them for Ether. This defeats the whole purpose of Bitcoin because the idea is to remove intermediaries altogether and make trading more peer-to-peer.
Atomic swaps are trades made from one user to another, or to be more precise, they are trades made from one user’s wallet to another.
By cutting out the exchange, users increase the security of their trading. Atomic swaps eliminates the possibility of losing your money due to an exchange getting hacked.
Additionally, atomic swaps also give more control. Nearly all exchanges do not hand over the private keys to the wallets users and if you do not own the private keys, you do not own your coins.
Therefore, atomic swaps give you more control and more security.
Today, as it is, every blockchain has a specialized function. Some are for finance, others are for medical records, some are for land titles or microtransactions. Still others are for certain groups, such as labour unions, or even governments that have their own chains.
And none of them can communicate with each other. It is as if every blockchain is its own island, with no way to access the islands around it. There is currently little or nothing bridging the distances between them.
So, imagine this scenario. On one blockchain, there is a record of all the land titles that have been tokenized. On another blockchain, there is a list of the legalities put into smart contracts, but the two blockchains do not communicate, resulting in no real-world application for this technology.
Therefore, the key to mainstream adoption may be interoperability.
To add further, there is currently no way for blockchains to share innovations. As things are right now, each blockchain speaks its own language, so a developer has to go into the sourcecode and translate that lagnuage to fit the ecosystem that they want that innovation to exist in. This takes a lot of work. What is not happening is an easy way to share the technological innovations that might exist in each blockchain. They are isolated and hard to get to.
In an interoperable system, there would be no need for a human translator, but rather there would be a technological one that could share that information between each blockchain, so that any new innovation can be easily accessible and used by every other blockchain.
In other words, interoperability will speed up progress.
Who are some of the players behind blockchain interoperability?
There are at least 11 projects looking to create a “blockchain of blockchains,” where they would be able to bridge the gaps between each ecosystem and allow for the sharing of each ledger’s information.
Interoperability will increase security, make trade more peer-to-peer, it will speed up the progress of innovative ideas in the blockchain space, and is the key towards mainstream adoption. However, there are some technological challenges that developers face.
These challenges include heavy competition between each group. Remember that blockchains are value-based (think money-driven), so cooperation will be more difficult, and different agendas will compete against each other.
Also, successfully creating this type of interoperable distributed ledger system is hard work and will require time.
These challenges are unavoidable, and if blockchains are ever to revolutionize the world, they will need to be interoperable.