Anyone who’s involved in the implementation of DLT-based solutions will need no introduction to the problem of interoperability. It’s an issue that has dogged the technology from the very beginning and has severely limited its application. Now, though, that era is in the past. Today, DLTs can interoperate seamlessly and easily, allowing their full potential to be realised across a multitude of use cases. Here, we’ll take a look at how this breakthrough has been achieved. And we’ll begin with a review of the problem and the various attempts to solve it.
Over the years, there have been many attempts to solve the problem of interoperability. Of the various approaches taken, the World Economic Forum (WEF) identified three main categories: Cross Authentication (DLT-relayers), Oracles and the API Gateway. Which, of course, begs the obvious question: which is the best path to follow in the search for true universal interoperability?
To answer this question we will firstly introduce each approach and follow with a comparison between them.
WEF DLT Interoperability Category 1: Cross Authentication
This interoperability category is the most decentralised of the three categories. It requires separate authorization on each side of the interoperability connection. Examples include:
– Hash-locking: this is used, for example, to atomically swap assets across distributed ledgers.
– DLT-Relayers: these are distributed ledger communication protocols that act as orchestration layers between other distributed ledgers. They are designed for the exchange of different types of messages between these networks. Two DLT- relayer examples are Polkadot and Ethereum 2.0.
WEF DLT Interoperability Category 2: Oracles
Oracles allow distributed ledgers to connect to external data resources (which may be another distributed ledger). Oracles are therefore orchestration layers, connected to different resources, that perform various actions according to on-chain and off-chain pre-defined bespoke rules. Some oracles not only pass information from an external data resource to smart contracts but also send data from the distributed ledger back to the external resources. There is usually a single oracle to perform each task, but occasionally there can be a collection of oracles performing the same task (in a permissioned or permissionless manner). Smart contract logic then states how consensus of data is achieved between multiple inputs recorded by different oracles. An example of an oracle system is Chainlink.
WEF DLT Interoperability Category 3: API Gateway
An API provides access to a server and the resources it is connected to. An API gateway provides organised access to many underlying API resources, simplifying requests to the underlying resources to improve the user experience. A DLT API gateway can have shared end points across distributed ledger networks, standardise DLT data objects and can compress many DLT actions into one endpoint. This is the approach we take with Quant’s Overledger API.
One way to determine the best interoperability path to follow in the search for true universal interoperability is to look at how each approach “scores” in terms of the key functional criteria that defines a robust, flexible and scalable solution. These criteria are:
Proven Technology
While it’s true that DLT-relayers have been in development for many years, they are not yet proven technology – there is, as yet, no stable implementation running in a high-load environment. A similar story is true of oracles – although data feed technology is established, data feeds from one distributed ledger network (DLN) to another and back again has yet to be proven in practice. API gateways, on the other hand, have a long-proven record with many thousands of implementations around the world.
Decentralisation method: As pointed out by the WEF, the three different models have different decentralisation properties. DLT-relayers, for example, can be fully decentralised if a permissionless DLN is used. Oracles, however, have two different levels of permissions. One depends on the network permissions, the other depends on the smart contract permissions. With API gateways, on the other hand, the amount of decentralisation is provided by the ecosystem of separate API gateways run by different stakeholders.
How users interact: For DLT-relayers, users either need to be provided with direct access to relayer nodes, or they must be given access to DLT-relayer nodes through an API gateway model. Non-oracle users can interact with the on-chain oracle smart contracts, or they can interact with an off-chain oracle instance. For the API gateway itself, users interact through the API using standard elements like REST.
Resilience: The resilience of DLT-relayers depends on the consensus protocols it runs, particularly that of the connecting chain. As each consensus protocol has limits on the percentage of malicious nodes that it can handle, the resilience of the entire network is dependent on the number of nodes in the network. With oracles, the more oracles that feed data about the same topic, the more resilient the system – generally speaking – will be. An API gateway’s resilience is determined by the number of instances running and its load balancing capabilities and can be tuned for each type of use case.
Combining permissionless and permissioned DLNs: As yet there is no technical, or convincing theoretical demonstration, of how this can be completed using DLT-relayers without compromising security.
The brief analysis above points to a clear conclusion: API gateways have significant advantages over the other approaches. And it was for this reason that Quant chose the API gateway model for Overledger, our own solution to the challenge of interoperability. Developed by a team highly experienced in enterprise security and nation-level critical systems, Overledger is built on research that began as a collaboration with UCL, and now provides a secure, simple, and cost-effective API connection to all major DLTs. A robust, enterprise-grade solution, Overledger is easily integrated with multiple DLTs, including Hyperledger Fabric and Hyperledger Besu, and Quant is constantly expanding the list of supported DLTs.
Today, Overledger is helping to unlock the potential of DLTs in many major projects across the world. One of the most ambitious of these projects is LACChain, an alliance led by the Inter-American Development Bank. Operating across the Latin American and Caribbean region, LACChain is already having demonstrable positive social impact, and the consortium has developed a roadmap that will ultimately lead to the interconnection of regional DLT ecosystems.
Achieving success will require the integration of LACChain (which provides both Hyperledger Besu and EOS technologies) and Quant’s unique Overledger technology. This will facilitate the creation of a new, fast cross-border payments system for the region, using tokenised currency. By flexibly tokenising money, using Quant’s (patent-pending) multi-DLT token technology (MLTS), the LACChain DLN will power a variety of new solutions, ranging from money transfers between private individuals to government and corporate payments, as well as many other future LACChain use cases.
One immediate benefit of this breakthrough will be a revolution in remittances and financial inclusion. For example, where, currently, cross-border banking services for people such as migrant workers or farmers are hard to access and unreliable, the LACChain solution, supported by Overledger, will allow foreign and/or local currency to be transferred in a simple but secure manner, with affordable transaction costs. The system has the potential to be expanded to the large-volume market of the unbanked or others currently excluded from the financial system. In short, the LACChain/Quant partnership will open the door to a host of faster, more efficient and more inclusive financial processes and applications in the LAC region, ranging from cross-border and interbank settlement, to the deployment of digital wallets and smart contracts. The pilot phase of the LACChain project is already well advanced, and full commercial development over the coming twelve months will be a landmark year for DLTs and DLNs.
