Understanding cross-chain interoperability requires first gaining an appreciation for the fact that two blockchains are unable to communicate with one another. One way to think of a blockchain is as a distributed ledger that keeps an immutable record of the transactions carried out by its users. In order for two blockchains to share data with one another, it would first be essential to reach a consensus on a single state for the blockchains, and then it would be necessary to keep an immutable record of all future transactions on the other blockchain.
Due to the large amount of data that needs to be transferred between the two blockchains in order to complete this procedure, scaling it up is not an easy task. Just about the logistical nightmare that would be needing to complete this task for each and every possible combination of blockchains that want to connect with one another.
By facilitating the transfer of data and value between blockchains, cross-chain interoperability provides a solution to this issue. It allows two blockchains to communicate with one another without the need for a central exchange.
Why Does DeFi Need Cross-Chain Interoperability?
Users of non-Ethereum blockchains, such as Polygon and Avalanche, are excluded from the major DeFi ecosystem because of the lack of blockchain compatibility. Consider each DeFi ecosystem to be its own economy, but without the ability to communicate with others, it would be impossible for any of them to grow to any significant size.
More people will use DeFi if transactions can be sent and received between different chains. There will be more incentive for people to use DeFi if its protocols can be accessed without cost from any blockchain. More people may use Web3 and DeFi if they are easier to obtain. More people using the platform means more money may be lent, staked, farmed for yield, and borrowed, expanding the scope of the DeFi economy as a whole.
Furthermore, users are liberated from the constraints of specific blockchains thanks to cross-chain interoperability; for example, they are no longer constrained by Ethereum's higher gas prices or the poor liquidity and small user base of other networks. Even non-blockchain developers can make the primitives needed to move digital assets between chains.
Potential Dangers of Inter-Chain Compatibility
While advancements have been made to allow value to be transferred between blockchains, there are still significant barriers that must be overcome.
Bridging is a complicated method since it must negotiate between two independent blockchain ecosystems written in incompatible languages. This level of intricacy opens the door to exploitation and hacking. Even Vitalik Buterin has shown concern about the insecurities of bridge.
The bridging procedure is also vulnerable since it results in massive pools of assets being locked in a single contract on a single chain. This concentration of resources makes it easier for hackers to target a single weak spot.
