Blockchain interoperability explained, with examples from supply chain

12.09.2019
6 min.

To make the distributed Web 3.0 a reality, all blockchain networks must be able to interact with one another. It is here that interoperability plays a vital role.

The Bitcoin blockchain was launched in 2009. Since then, many other blockchains have been created with their own protocols and ecosystems. As of 2019, there are around 9,150 active blockchain projects in the GitHub repository. Each of those projects has its protocol and is implemented using a specific programming language.

In 2018, PwC surveyed 600 executives from 15 distinct regions regarding the status of blockchain projects at their companies. The results showed the following: 84% have been actively involved with blockchain, 30% see China as a rising blockchain leader, and 28% say the interoperability of systems is key to success.  

The PwC survey shows how far companies are in their blockchain initiatives

What is blockchain interoperability and why is it necessary?

The absence of standards in blockchain may give freedom to developers but it is also likely to give IT departments a headache in case blockchains lack interoperability and cannot communicate. Interoperability here means the possibility to freely share value across all blockchain networks without the need for intermediaries. In an interoperable ecosystem, you can interact with users from other blockchain networks without spending resources on translation or experiencing downtime. You can receive information from other members, process what they sent, and respond accordingly.

The biggest challenge to interoperability is the existence of many blockchain networks that differ in parameters such as consensus models, transaction schemes, and smart contract functionality. 

To combat interoperability issues, there are several standardization efforts underway.

One possibility is to use existing standards in new blockchain applications. For example, IBM and Microsoft are adopting the data standards developed by GS1 to enforce interoperability in their blockchain applications for supply chain.

Another option is to develop standards from scratch. For example, the Enterprise Ethereum Alliance developed a standard version of the Ethereum blockchain for businesses.  

Blockchain interoperability efforts can be divided into two groups: open protocols and multi-chain frameworks.

  • Open protocols: Standardized protocols that allow blockchains to communicate with each other without intermediaries or trust processes needed. The most recognized open protocol is the Atomic Swap.  
  • Multi-chain frameworks: Blockchains can plug into a framework to become a part of the standardized ecosystem and transfer data and value between each other. Multi-chain frameworks are more complicated than open protocols. They are often referred to as the “internet of blockchains.”

Interoperability in blockchain brings the following benefits:

  • Smooth information sharing across participating blockchains
  • Easier execution of smart contracts across blockchains  
  • Sharing of blockchain solutions and cooperation on the ongoing development for enterprises
  • The possibility for IT staff to develop a deep knowledge of a few prominent blockchain standards instead of having a basic knowledge of many protocols
  • Opportunity to develop partnerships within the blockchain ecosystem

Most prominent projects focusing on blockchain interoperability

Due to the importance of blockchain interoperability, there are several initiatives currently developing cross-chain platforms. Below are some of the most notable projects.

Cosmos

Cosmos is currently one of the biggest names among blockchain interoperability initiatives. It runs on the Tendermint Byzantine fault tolerance protocol, which was developed by Ethan Buchman for his MS Thesis. Independent blockchains, referred to as zones, are plugged into the Cosmos network. Zones are all connected to the Cosmos Hub and can interact with each other.

New zones can connect to the network and exchange value thanks to the standardized protocol. One distinguishing feature of Cosmos is granting zones the freedom to preserve their consensus mechanism.

Cosmos Hub and zones

Polkadot

The idea of Polkadot is attributed to Gavin Wood, one of Ethereum’s founders. The distinguishing characteristic of Polkadot is that it facilitates not only transactions but also data exchange.

The Polkadot ecosystem contains parachains (individual blockchains that became part of the Polkadot environment), and a relay chain that is a central connector between parachains. Each parachain can have different characteristics and spread its transactions across the ecosystem. All chains that become a part of the Polkadot ecosystem are required to abandon their consensus mechanism to the Polkadot’s mechanism, but they have the freedom of developing the structure and function of their blockchain.

Aion

Aion was developed by Nuco, a Canadian company specializing in enterprise blockchain solutions. This company has connections to the government as well as major corporations in Canada. This might come useful, as interoperability is about standards. Aion is very similar to its competition as it allows different blockchains to exchange value eliminating the intermediary. However, Aion distinguishes itself by working toward integrating AI in its consensus model.

Most blockchain systems are not able to accommodate large amounts of data. Aion addresses this issue by using a high‑performance virtual machine and a scalable database.

Ark

This is one of the most ambitious projects in blockchain interoperability with a big community of supporters. Ark aims to create a blockchain interoperability solution that is scalable and adaptable. Therefore, Ark automated the creation of new blockchains within the ecosystem. As a result, users can create new blockchains within minutes.

Ark has built-in support for numerous programming languages including Java, Swift, Python, and Ruby. This makes Ark accessible to people who prefer working with particular languages.

How blockchain impacts supply chain

The supply chain industry is fragmented, and every party is adopting its own approach. Hopes are attached to blockchain to bring a unified standard and facilitate interoperability and communication across different supply chain parties. With customers willing to know everything about products they purchase, blockchain provides a unique source of legitimate data gathered at different stages across the supply chain.

In addition to delivering a wealth of data to customers, blockchain helps supply chain participants cooperate more efficiently. For example, after incorporating blockchain, Walmart was able to reduce the time needed to track their mango supply from one working week to a few seconds.

Blockchain is most effective when used in collaboration with IoT.

Supply chains across industries and countries will be reimagined, improved and disrupted by blockchain technologies. We now have safer and more efficient ways to connect with business partners as well as to track and exchange any type of asset. The ability to deploy blockchain technologies to creat the next generation of digital supply chain networks and platforms will be a key element in business success

Eric Piscini
How blockchain enable technology

There are several blockchain platforms developed specifically as solutions for the supply chain. One example is Deloitte’s TraceChain. This blockchain-based platform offers the possibility to store and track information about finished goods and materials. This information is immutable and cannot be changed by unauthorized parties. Additionally, TraceChain offers rich insights into the production process in real time.

However, blockchain will not be the answer to all supply chain challenges. Supply chains may involve poor product information and outdated business processes. If someone lies initially about the origin of particular ingredients or enters inaccurate information into the blockchain, this fault will be persistent throughout the blockchain. It’s the classic ‘garbage in, garbage out’.

Fashion industry: authenticity of luxury goods

Globalization is impacting trade. Nowadays, raw materials for luxury goods are extracted from anywhere in the world, assembled in yet another location, and sold in one of the major cities. However, globalization can result in unethical practices and exploitative working conditions. As customers increasingly need to be aware of the origins of what they consume, companies are seeking ways to provide as much information as possible on their products. Here, blockchain comes to the rescue.

One such blockchain platform was developed by luxury goods producer LVMH in cooperation with Microsoft. With the help of this platform, customers can access a wide range of information about their luxury products such as the origin of components, warranty, product care instructions, and other relevant details. It will also be possible to follow products all the way to the second-hand market.    

Another example of such cooperation is luxury brand Alyx teaming up with German blockchain developer Lota to offer its customers more transparent information on its supply chain. Customers will be able to scan QR codes and get access to a wealth of information about each product, from the first stitch to the sale.

Matthew Williams, creative director at Alyx, spoke about this blockchain initiative:

We are taking it a step further: we are going to be the first brand to introduce blockchain technology this month in Copenhagen. We are doing a blockchain prototype that shows the raw material to the finished garment. Our brand is about evolution not revolution, so we work on making the things we do better.

Matthew Williams

Automotive industry: purchasing platforms

Purchasing platforms facilitate interaction and value transfer between all contributors within the automotive supply chain. All participants can view information on raw materials supplied, buy them, and sell their own. Such platforms operate using smart contracts.

Smart contracts maintain information on supply and demand on the market, generate requests from buyers, enable suppliers to place their bids, and allow adding new information as needed. For example, it is possible to penalize a supplier when they do not deliver on their contractual obligations.  

Blockchain-backed car passport

With a limited ability to get under the hood or predict their future performance at the moment of purchase, cars are particularly tricky deals considering their high monetary value. This is true for both, new and used cars.

To address the issue of trust, there were several attempts to develop a blockchain-based vehicle passport. Volkswagen took part in a hackfest where participants design a concept and develop a prototype of a vehicle passport that aggregates maintenance-related data from different sources and gives the customer a possibility to be more confident about the purchase. This passport contains trustworthy records on car inspection, fuel consumption, mileage, prior damages, and repairs. Customers only need to enter the car ID into the web application to access all this information.

A similar attempt was made by Renault. However, none reached the production phase at the time of writing this article.

Can we expect universal blockchain interoperability anytime soon?

A universal interoperable platform would be an excellent solution for blockchain interoperability issues, and many existing products strive for this status. However, no one can tell yet if this will ever be the case. In the end, all those platforms are competing with each other.

Some argue that what is called “interoperability” is solely an integration of selected platforms. Christopher Ferris, a co-leader of the Hyperledger Fabric project and a member of the Governing Board of the Linux Foundation blockchain project, reports that true universal interoperability is very unlikely to be reached anytime soon:

True inter-platform interoperability ... would require developing the “one API/protocol to rule them all” and getting every platform to adopt that, consistently. Even if we could, it would be years in the making.

Christofer Ferris

Conclusion

The fact that blockchains operate in isolation makes it difficult for companies to fully benefit from blockchain technology. This has triggered several attempts to develop independent interoperable solutions that link existing blockchains together.

Interoperability brings about many benefits. It allows data and value sharing among different participants and facilitates the execution of standardized smart contracts. Furthermore, it allows organizations to cooperate on the development of blockchain solutions and form partnerships within a single blockchain ecosystem.  

To understand whether you need blockchain and get ready to tackle interoperability issues:

  • Decide if your company needs what blockchain has to offer: data robustness and integrity with intermediaries removed from the process. However, at this point in time blockchain may impede data privacy and slow down transaction processing time.
  • Identify the business partners in your blockchain ecosystem: your company might need to reorient toward working with competitors and suppliers along the value chain.
  • Understand if you are willing to abide by consortium rules: if you are a part of the interoperability ecosystem, there will be defined responsibilities and governance models that every member is expected to follow.
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