Why is Blockchain Interoperability important?

In the context of blockchains, interoperability refers to a blockchain's ability to freely exchange data with other blockchains. For instance, every item that is possessed and every transaction that is made are recorded on a specific blockchain. With the correct interoperability solution, any economic activity that occurs on one blockchain may be represented on another.

One of the earliest contributions to the subject of blockchain interoperability was the idea of a trustless crypto exchange, realised in the form of atomic cross-chain swaps, also known as atomic swaps. Users of different cryptocurrencies can exchange their assets in a trustless and atomic method by using atomic swaps.

Interoperability is the ability of a distributed ledger technology (DLT) design to obtain data from or exchange data with external systems. To achieve interoperability, cross-chain technology enables data exchange between DLT designs or external systems. Such data exchanges can increase the DLT designs' security, increase their flexibility, and fix performance issues.

The cross-chain protocol simplifies interoperability between distinct blockchain networks and allows data sharing across numerous blockchain networks. The cross-chain protocol enables direct user-to-user communication. As a result, blockchains with similar networks can exchange information and value.

Blockchain interoperability helps to solve the problem of assets and data interacting across multiple chains. Digital data and value exchange is a straightforward process when two parties use the same blockchain platform, such as Bitcoin.

Because there are so many different blockchain networks that the businesses employing blockchain technology throughout the world operate in, the process of digital transfer is made substantially more difficult. It is anticipated that interoperability will significantly lessen these problems, making it more simpler for participants to transact across blockchains and profit from blockchain interoperability.

For example, it is hard for financial institutions and their clients to interact, trade, and communicate with one another in the financial services sector since financial ecosystems run on different blockchains. However, data and money can be exchanged between economic ecosystems cost-effectively, quickly, and safely if these blockchains can talk to one another.

Among the blockchain interoperability tools used to create smart contracts with the power to change payment channels is the Hashed TimeLock Contract (HTLC). An HTLC effectively provides time-bound transactions in the cryptography world.