Oracles, Web3 Interoperability, & the Emergence of IoT

Token bridges facilitate the cross-chain movement of assets, making blockchain interoperability a reality.

Smart contract platforms are isolated, but powerful environments which operate based on their own consensus mechanisms and native chains. That is, they have thus far functioned reliably as closed networks. The consensus mechanisms of different networks offer advantageous use-cases by their varying degrees of decentralization, scalability, finality, network fees, privacy, and security. That is to say, that there is no universally perfect blockchain, though that does not necessitate concern if blockchains become interoperable with one another.

Though layer-1 networks have thus far operated primarily in siloed, closed networks, interoperability has been a focus for developers for quite some time. As a result, crypto assets and the networks they were designed for are now experiencing a new parabolic increase in their economic dynamism and composability. That is, their networks can be built upon each other and their assets are interacting synergistically. 

In fact, the varying needs of people and the tradeoffs they will be content to make for different real-world applications suggests that the future will be characterized by cross-chain interoperability. In other words, there will be many winners in the ongoing battle royale for top smart contracts platform. As different use cases call for certain protocol attributes, developers will fill market niches as they emerge.

As evidence of this, there has been a proliferation of various layer-2 scaling solutions as well as token bridges developed in response to blockchain isolation issues. Token bridges act as gateways from one protocol to another, making digital assets even more portable than before. By tokenizing assets to make them compatible with another blockchain’s standards, token bridges increase financial liquidity, and add to the overall value of blockchain as a collective technology. 

Oracles provide critical infrastructure that makes possible the movement of assets and other data across blockchains in real time via token bridges, bringing society even closer to realizing a world composed of the Internet of Things (IoT). Of course, IoT refers to a network of composable or at least interoperable hardware devices with cooperative computational and networking capabilities. That is, it is the basis for concepts like automated healthcare, self-driving vehicles, smart manufacturing and power grids, smart homes, and eventually smart cities.

IoT devices sense and collect data, communicating with relevant networks and nearby devices in order to ‘make decisions’ and interact with both physical and digital realities. To date, IoT development has primarily made use of centralized, cloud servers managed by trusted operators. As the development of Web3 technology continues its upward trend, interoperability and the realization of IoT may be traced back to token bridges, layer 2 solutions, and decentralized oracles. 

Off-chain transactions may take place quickly and with much lower fees, with aggregate totals being periodically written on the parent blockchain.

Rollups allow for fast transactions to happen off-chain without sacrificing the decentralized security model of ETH’s mainnet. They are essentially siloed side-chain networks which periodically write their transactions on Ethereum’s mainnet in batches. For example, these L2 solutions might be useful for online gaming communities with their own internal economy, perhaps even with unique digital items minted as non-fungible tokens (NFTs).

Users could transact in-game and in real-time without paying the higher fees or slower confirmation time of the mainnet. If users were only able to make use of the ETH mainnet, the fees alone could make any reasonable use case economically untenable. Fortunately, layer-2 solutions open up a plethora of opportunities in the payments space as it takes advantage of the security of layer-1 blockchains while leveraging the speed of the layer-2 protocol.  

While token bridges leverage the composability of smart contract platforms, users often have to deal with longer withdrawal times. In order to move assets across chains, the bridge must synchronize with the appropriate parties to ensure that the ledgers on both sides are prepared to transfer value. Of course, withdrawal times depend on how frequently the layer-2 protocol writes its updated, aggregated ledger data to the relevant first layer.

The data is then written onto the appropriate blockchain’s immutable ledger, thus finalizing the transfer of assets and recording the new totals. Once the data is secured on the ledger, the asset’s use is then released for trading on the intended protocol. This level of interoperability opens up the door for a parabolic adoption curve of crypto assets, and a giant leap forward in the direction of a world powered by the Internet of Things.  

Interoperability is quite clearly our future, but security and optimization of our networks must be built layer upon layer.

Moreover, oracles which track real-world conditions and feed that information onto blockchains is another brick in the foundation of IoT. For instance, say a retailer located in a shopping district wanted to optimize her opening hours, store conditions, staffing, foot traffic, and other variables by employing data analytics.

Various smart devices could track these variables in real time, feed the relevant information to the blockchain’s ledger, and provide analysis and optimization services based on the dynamic conditions at the location. This might take the form of moderating the temperature, music volume, or ambient light levels, but may also provide complete staffing services to meet customers needs in the most efficient and sustainable ways. 

As blockchain technology experiences a parabolic adoption curve, we have seen the tribal affinities each community displays for their chosen blockchains or dApps. However, for Web3 to realize its true potential, these communities will inevitably need to embrace one another in cooperation.

The ubiquitousness of this technology depends on the breaking down of blockchain silos in the form of true interoperability, coupled with a clean user experience which shields us from the complicated processes which underpin it. The metaverse illustrates quite clearly the potential value ready to be unlocked by Web3 interoperability and advancements in the security of digital ownership.

The trend towards automation, IoT, and smart cities may thus hinge upon blockchain developers’ ability to make these new networks compatible with one another. Having said that, the level of compatibility needed for IoT and the like must be seamless if they are to be adopted on a broad scale.

In addition, the oracles which networks rely upon for real-time, seamless communications must be robust and maintain network uptime at all times, even in the event of malicious attacks. If these things are not more or less assured, smart cities may remain in the imaginations of the tech-savvy until our ability to secure data and network uptime catch up with protocols’ functional capabilities at smaller scales.

References

1. Baig, H. (2021, 3 July). Cross-layer interoperability: The future of interconnected layer 2 ecosystems. HackerNoon.
2. Ethereum Documents. (2021). Layer 2 rollups. Ethereum Foundation.  
3. MakerDAO (2021). What are blockchain bridges, and why are they important for DeFi? MakerDAO Blog. 
4. Ray P.P., Bhargavi, Das B., Das A. (2021) IoT-blockchain integration: The way ahead. In Balas V. E., Hassanien A. E., Chakrabarti S., Mandal L. (Eds.) Proceedings of International Conference on Computational Intelligence, Data Science and Cloud Computing, vol 62. Springer, Singapore.
5. Redman, J. (2021). Cross-chain bridges that connect 5 different blockchains to Ethereum. Bitcoin.com