Cross-Chain Chronicles: Uniting the Blockchain Universe Through Interoperability

 ยท 40 min read
 ยท Arcane Analytic
Table of contents

1. Introduction

1.1 The Blockchain Boom: A Tale of Many Networks

Ah, the world of blockchain! It has experienced an unprecedented growth in recent years, fueled by the irresistible allure of decentralization, peer-to-peer networks, and the desire for greater privacy and security in the digital realm. Blockchain technology has given birth to a plethora of platforms, each with its unique features and characteristics. From the granddaddy of them all, Bitcoin, to the versatile Ethereum, the privacy-focused Monero, and many others, each blockchain platform has something special to offer. However, this exciting growth has led to an increasingly fragmented landscape, where these platforms often exist in isolation, unable to communicate or collaborate with each other. ๐Ÿค”

Enter the concept of interoperability in the context of blockchain networks! Interoperability can be described as the ability of different blockchain platforms to communicate and exchange information seamlessly, allowing them to work together for a common goal. In mathematical terms, if we have two networks $A$ and $B$, interoperability ensures that a function $f : A \to B$ exists, such that it translates and transfers information between the networks in a meaningful manner.

Achieving interoperability is no easy task, due to the inherent complexity of blockchain architectures and the multitude of consensus mechanisms that underpin these platforms. For example, while Bitcoin utilizes the Proof of Work (PoW) consensus mechanism, Ethereum is in the process of transitioning to Proof of Stake (PoS). These differing mechanisms result in unique challenges when attempting to establish communication between the two networks.

1.2 The Need for Interoperability: Connecting the Blockchain Dots

Now, you might be wondering: "Why is interoperability so crucial for the continued growth and success of blockchain technology?" Well, dear reader, let's delve into the fascinating world of cross-chain communication, where amazing possibilities await! ๐Ÿ˜ƒ

Interoperability can unlock new use cases and applications that were previously deemed impossible or impractical. By allowing multiple blockchain platforms to work together, we can leverage the strengths of each platform, creating a synergistic effect that benefits all parties involved.

One such use case is decentralized finance (DeFi), which has been taking the crypto world by storm lately. DeFi applications often require interactions between different blockchain platforms, such as lending and borrowing assets across multiple networks. In this context, a cross-chain solution can be represented by a tensor product between two vector spaces, $A$ and $B$, denoted by $A \otimes B$. This tensor product can be seen as a representation of DeFi interactions, enabling seamless cross-chain transactions.

Another example is supply chain management, which involves tracking the movement of goods and assets through complex, multi-tiered networks. By leveraging interoperability, we can create a unified and transparent supply chain system that spans multiple blockchain platforms, providing an unprecedented level of visibility, traceability, and efficiency. This can be represented as a directed graph $G = (V, E)$, where $V$ represents the set of blockchain networks and $E$ represents the set of interoperable transactions between them.

To achieve these exciting possibilities, we must overcome the technical, economic, and governance challenges that hinder the progress of interoperability. As we dive deeper into this fascinating topic, we shall find that the path to a unified blockchain ecosystem is paved with innovative solutions, groundbreaking research, and a healthy dose of optimism, positivity, and humor! ๐Ÿ˜„

In the next sections, we will explore the challenges in achieving interoperability, the various approaches and solutions that have been proposed, and real-world applications that showcase the power of cross-chain communication. So, buckle up, dear reader, as we embark on a thrilling journey into the world of blockchain interoperability! ๐Ÿš€

And remember, as the great mathematician and philosopher Bertrand Russell once said, "Mathematics, rightly viewed, possesses not only truth but supreme beauty." So, let's unleash our inner math wizards and explore the beauty of blockchain interoperability through the lens of mathematics! ๐Ÿง™‍♂๏ธ๐Ÿ”ข

Now, are you ready to dive deeper into the fascinating world of blockchain interoperability? If your answer is "Yes!", then let's go on to explore the challenges and potential solutions in the sections to come!

2. Challenges in Achieving Interoperability

As we embark on this thrilling adventure towards a unified blockchain ecosystem, we must first acknowledge the formidable challenges that lie ahead. Fear not, dear reader, for every challenge presents an opportunity for innovation, and our journey through the realm of interoperability will be no exception! ๐Ÿ˜„ So, let's unravel these challenges together and set the stage for the exciting solutions that await us in the next section.

2.1 Technical Hurdles

First and foremost, we must address the technical challenges in developing interoperable blockchain solutions. These challenges stem from the diverse nature of blockchain platforms, each with its unique architecture, consensus mechanism, and cryptographic algorithms. To illustrate this diversity, let us consider three popular blockchain platforms: Bitcoin, Ethereum, and Cardano.

  1. Bitcoin: Based on the Proof of Work (PoW) consensus mechanism, Bitcoin uses the SHA-256 cryptographic hash function and the Elliptic Curve Digital Signature Algorithm (ECDSA) for signing transactions.
  2. Ethereum: Also based on PoW (with plans to transition to Proof of Stake or PoS), Ethereum employs the Ethash hashing algorithm and the same ECDSA as Bitcoin.
  3. Cardano: Utilizing the PoS-based Ouroboros consensus protocol, Cardano relies on the Ed25519 signature scheme and the Blake2b hash function.

Given the differences in consensus mechanisms and cryptographic algorithms, we can represent the challenge of interoperability as a mathematical problem. Let $A$, $B$, and $C$ be the vector spaces associated with Bitcoin, Ethereum, and Cardano, respectively. Our goal is to find functions $f_{AB} : A \to B$, $f_{AC} : A \to C$, and $f_{BC} : B \to C$ that allow for the seamless exchange of information between these networks. However, the differences in their underlying architectures make finding these functions a complex task.

To further complicate matters, each blockchain platform has its unique smart contract programming language and execution environment. For example, Ethereum uses Solidity, while Cardano employs Plutus. This heterogeneity adds an additional layer of complexity to the interoperability problem.

2.2 Economic and Governance Barriers

Beyond the technical hurdles, we must also consider the economic and governance challenges that hinder the progress of interoperability. These challenges arise from misaligned incentives, competing interests, and the decentralized nature of blockchain networks.

For an interoperable solution to be successful, it must align the incentives of all stakeholders across the participating networks. This can be represented as a Nash equilibrium in a multi-player game:

$$ \begin{aligned} & \text{Find } (s_1^*, s_2^*, \dots, s_n^*) \\ & \text{such that } \forall i, \pi_i(s_i^*, s_{-i}^*) \geq \pi_i(s_i, s_{-i}^*) \end{aligned} $$

Here, $s_i^*$ represents the optimal strategy for player $i$, $\pi_i$ is the payoff function for player $i$, and $s_{-i}^*$ denotes the optimal strategies for all other players. The challenge lies in designing a cross-chain collaboration mechanism that achieves this equilibrium, ensuring that all stakeholders are incentivized to cooperate.

Moreover, the decentralized nature of blockchain networks introduces governance challenges, as reaching consensus on the adoption of interoperability solutions requires the support of a majority of network participants. This can be a slow and arduous process, as exemplified by the numerous debates and controversies surrounding proposed upgrades in the blockchain community.

To overcome these economic and governance barriers, we must explore the role of incentives and consensus mechanisms in cross-chain collaboration, as well as devise novel approaches for fostering cooperation among disparate blockchain networks.

So, with a clear understanding of the challenges that lie ahead, let us now venture forth into the realm of interoperability solutions and approaches, where innovative protocols, atomic swaps, and blockchain bridges await our discovery! ๐Ÿš€

Remember, as the famous mathematician and physicist Isaac Newton once said, "If I have seen further, it is by standing on the shoulders of giants." So, let us stand on the shoulders of the brilliant minds who have come before us and explore the frontiers of blockchain interoperability! ๐ŸŒ 

3. Interoperability Solutions and Approaches

Brace yourselves, intrepid explorers, for we are about to delve into the mesmerizing world of interoperability solutions and approaches! Let's dive into the treasure trove of cross-chain communication protocols, atomic swaps, and blockchain bridges that promise to bridge the gap between multiple blockchain platforms and networks. ๐ŸŒ‰

3.1 Cross-Chain Communication Protocols

The cornerstone of interoperability lies in the design of cross-chain communication protocols. These protocols enable disparate blockchain networks to exchange information securely and efficiently, paving the way for a unified blockchain ecosystem. ๐Ÿ’ซ

Several cross-chain communication protocols have been proposed to address the challenges of interoperability. Some of the most notable examples include:

  1. Interledger Protocol (ILP): ILP is a protocol designed to facilitate secure, efficient, and scalable cross-chain transactions. It abstracts the differences between various blockchain networks, allowing them to interoperate without the need for a central authority. The ILP leverages the concept of "connectors" that maintain escrow accounts on multiple networks and facilitate atomic transactions between them. Here's a simple ILP transaction flow in the form of a mathematical equation:

    $$ \text{Source} \xrightarrow[]{\text{ILP Prepare}} \text{Connector} \xrightarrow[]{\text{ILP Fulfill}} \text{Destination} $$

    For a more detailed explanation of ILP's inner workings, check out the Interledger Whitepaper.

  2. Cosmos: Cosmos is a decentralized network of independent, scalable, and interoperable blockchains, powered by the Tendermint consensus engine. At the heart of Cosmos lies the Inter-Blockchain Communication (IBC) protocol, which enables data and token transfers between different blockchains. The Cosmos Hub, a PoS-based blockchain, acts as the central hub for connecting and routing messages between different chains. The IBC protocol is built on a modular architecture, allowing for various consensus algorithms, state machines, and application layers – which can be represented as:

    $$ \begin{aligned} \text{Chain A} &\xrightarrow[]{\text{IBC Packet}} \text{Cosmos Hub} \xrightarrow[]{\text{IBC Packet}} \text{Chain B} \\ \text{Chain C} &\xrightarrow[]{\text{IBC Packet}} \text{Cosmos Hub} \xrightarrow[]{\text{IBC Packet}} \text{Chain D} \end{aligned} $$

    For an in-depth exploration of Cosmos and IBC, consider perusing the Cosmos Whitepaper.

  3. Polkadot: Polkadot is a heterogeneous multi-chain technology that emphasizes security, scalability, and interoperability. Its unique architecture consists of a central relay chain, multiple parallel chains (parachains), and bridges to other networks. Polkadot's Cross-Chain Message Passing (XCMP) protocol facilitates communication between parachains, enabling them to exchange information and even move tokens with remarkable ease:

    $$ \text{Parachain A} \xrightarrow[]{\text{XCMP}} \text{Relay Chain} \xrightarrow[]{\text{XCMP}} \text{Parachain B} $$

    To get a taste of Polkadot's ambitious vision, feast your eyes on the Polkadot Lightpaper.

Each protocol has its unique advantages and drawbacks, necessitating careful consideration when selecting the ideal approach for a given use case. For example, ILP is highly scalable and can be applied to a wide range of networks, but may require more extensive trust assumptions between connectors. On the other hand, Cosmos and Polkadot provide stronger security guarantees through their consensus mechanisms, but may be less flexible in accommodating diverse blockchain architectures. ๐Ÿง

3.2 Atomic Swaps and Decentralized Exchanges

Atomic swaps are an ingeniously devised method for achieving asset interoperability between different blockchain networks. These trustless, peer-to-peer exchanges involve the simultaneous transfer of assets between two parties without the need for an intermediary. By leveraging cryptographic primitives such as hash time-locked contracts (HTLCs), atomic swaps provide a secure, non-custodial solution for cross-chain transactions.

The magic of HTLCs lies in their ability to create a verifiable commitment to a transaction, ensuring that either both parties fulfill their obligations, or none at all. In mathematical terms, the HTLC can be represented as:

$$ \begin{aligned} \text{Alice} &\xrightarrow[]{\text{HTLC}} \text{Bob} \\ \text{Bob} &\xrightarrow[]{\text{HTLC}} \text{Alice} \end{aligned} $$

For a hands-on introduction to atomic swaps, check out the Python implementation by Decred.

Decentralized exchanges (DEXs) have emerged as a powerful force in the blockchain ecosystem, enabling users to trade assets across different networks with minimal trust requirements. By incorporating atomic swaps, DEXs can facilitate cross-chain transactions with ease, creating a vibrant marketplace for interoperable assets. Some popular DEXs that have embraced atomic swap technology include Komodo's AtomicDEX and Liquality's Swap. ๐Ÿ”„

3.3 Blockchain Bridges and Sidechains

Blockchain bridges and sidechains are essential tools for connecting separate networks and enabling cross-chain communication. These constructs come in various shapes and flavors, but share the common goal of enhancing interoperability.

A blockchain bridge is a mechanism that enables the transfer of data and assets between different blockchain networks. Bridges can be built using various techniques, such as notary schemes, relay systems, or hash-locked contracts. A simple illustration of a blockchain bridge can be represented as:

$$ \text{Chain A} \xrightarrow[]{\text{Bridge}} \text{Chain B} $$

On the other hand, a sidechain is a separate blockchain that runs in parallel to a main chain, providing additional functionality or resources. Sidechains can be connected to their parent chains through two-way pegs, enabling the secure transfer of assets and information. A visual representation of a sidechain connection can be depicted as:

$$ \text{Main Chain} \leftrightarrows \text{Sidechain} $$

Examples of existing blockchain bridge and sidechain implementations include:

  • Wanchain: Wanchain is a distributed financial infrastructure that connects various blockchain networks using secure multi-party computation (sMPC) and threshold key sharing.- POA Bridge: The POA Bridge is an interoperable bridge between the Ethereum and POA networks, facilitating the transfer of assets and data between the two ecosystems. The bridge uses a set of validators to relay transactions between the networks, ensuring the security and integrity of the process. For a deeper understanding of the POA Bridge, take a look at the POA Bridge documentation.

  • Liquid Network: The Liquid Network is a Bitcoin sidechain developed by Blockstream that provides fast, secure, and confidential transactions. By utilizing a federated consensus model, the Liquid Network enables users to move bitcoin between the main chain and the sidechain, unlocking new possibilities for asset issuance, tokenization, and trading. To learn more about the Liquid Network, visit the official Liquid Network website.

These examples highlight the diverse range of solutions and approaches available for achieving blockchain interoperability, demonstrating the ingenuity and dedication of the blockchain community. ๐Ÿš€

There's still much to explore in our journey through the wondrous world of interoperability, so buckle up and stay tuned for more thrilling adventures! ๐Ÿงญ๐ŸŒ

4. Real-World Applications and Case Studies

4.1 Interoperable Decentralized Finance (DeFi)

The impact of interoperability on the Decentralized Finance (DeFi) ecosystem is nothing short of revolutionary. ๐Ÿš€ By allowing seamless cross-chain communication and asset transfers, DeFi platforms can cater to a wider audience, bridge liquidity, and boost financial innovation.

One prominent example of a successful cross-chain DeFi project is the Thorchain protocol. Thorchain, designed with the Cosmos SDK, facilitates cross-chain liquidity pools and asset swaps. Its innovative Continuous Liquidity Pools (CLP) model is based on the concept of automated market makers (AMMs). The CLP model relies on the following equation:

$$ V = \frac{R}{P}, $$

where $V$ represents the invariant, $R$ is the pool's reserve, and $P$ is the price of the asset. The CLP ensures that the product of the reserve and price remains constant, maintaining the pool's liquidity. Thorchain's native token, RUNE, serves as an intermediary for cross-chain swaps. When a user wishes to swap between two assets, say, Bitcoin and Ethereum, the protocol first swaps BTC for RUNE, then RUNE for ETH. This process allows for a seamless exchange of assets across different blockchains.

The Thorchain protocol also leverages cryptographic techniques, such as threshold signatures, to provide secure and trustless cross-chain transactions. In a nutshell, a threshold signature scheme allows a group of nodes to collectively sign a transaction without revealing individual signatures. This process enhances the security and privacy of cross-chain transactions. For a detailed analysis of threshold signatures in Thorchain, see the work of Bünz et al.

4.2 Supply Chain Management and Cross-Chain Collaboration

Interoperable blockchain platforms offer immense benefits for supply chain management, such as enhanced transparency, traceability, and efficiency. By leveraging the strengths of multiple blockchain networks, supply chain solutions can cater to various industry requirements while maintaining data integrity and security.

A noteworthy example of a supply chain solution utilizing multiple blockchain networks is the partnership between VeChain and Producers Market. VeChain's blockchain platform, VeChainThor, excels at providing enterprise-level solutions with robust security and scalability features. On the other hand, Producers Market harnesses the power of the Stellar blockchain to enable fast and low-cost cross-border payments.

Together, these platforms offer an end-to-end supply chain solution that provides real-time tracking of goods, smart contracts for automating processes, and seamless payment settlement. The underlying technology of this solution relies on the concept of tokenized assets, represented as Non-Fungible Tokens (NFTs). These NFTs serve as digital representations of physical goods, allowing for their unique identification and ownership tracking.

Consider a simplified example of a tokenized asset transfer on the Producers Market platform. Let $G$ be the goods and $A$ and $B$ be the buyer and seller, respectively. The transaction can be modeled using the following equation:

$$ \begin{aligned} & \text{if } A \text{ pays } x \text{ Stellar Lumens (XLM) to } B, \\ & \text{then } G_{NFT} \text{ is transferred from } B \text{ to } A. \end{aligned} $$

The above equation signifies that once the payment in XLM is settled, the ownership of the goods ($G_{NFT}$) is transferred from the seller to the buyer. The VeChainThor blockchain ensures the traceability and authenticity of the goods, while the Stellar network facilitates the payment process.

The integration of multiple blockchain networks in supply chain management not only optimizes operations but also fosters trust and collaboration among various stakeholders. ๐Ÿค By breaking down siloed systems and bridging the gap between disparate networks, interoperable blockchain platforms are revolutionizing the way businesses operate and collaborate.

Now go on and let the blockchain magic unfold! ๐Ÿง™‍♂๏ธ

5. Future Prospects and Challenges

5.1 The Path to a Unified Blockchain Ecosystem

Envision a future where blockchain platforms seamlessly collaborate and interact with each other, creating a unified, borderless ecosystem that fosters innovation and growth. ๐ŸŒ To achieve this utopian vision, advancements in interoperability are crucial. These advancements may include the development of:

  1. Universal Interoperability Protocols: The creation of a unified protocol that enables communication and asset transfers across all blockchain platforms. This protocol should be capable of understanding and translating smart contracts, consensus mechanisms, and cryptographic primitives from different networks.

  2. Scalable Cross-Chain Solutions: As the number of blockchain platforms and applications grows, it becomes essential to develop scalable solutions to handle the increasing volume of cross-chain transactions. These solutions must leverage advanced data structures and algorithms, such as sharding or Directed Acyclic Graphs (DAGs), to optimize transaction throughput and latency.

  3. Privacy-Preserving Techniques: Interoperable blockchains must maintain data privacy and confidentiality while allowing cross-chain data sharing. Advanced cryptographic tools, such as zero-knowledge proofs or secure multi-party computation, can play a vital role in achieving this delicate balance.

Consider a future blockchain ecosystem, where $N$ different blockchain networks, represented by $B_i$ for $i \in \{1, 2, \dots, N\}$, interact within a unified framework. Let $T_{ij}$ denote a cross-chain transaction from $B_i$ to $B_j$. The optimal interoperability protocol, represented by the function $I$, should satisfy the following condition:

$$ I(T_{ij}) = I(T_{ji}) \quad \forall i, j \in \{1, 2, \dots, N\}. $$

This equation signifies that the interoperability protocol must be able to handle transactions between any two blockchain networks in an equal and efficient manner, ensuring a seamless and frictionless experience for users.

5.2 Overcoming Limitations and Embracing Collaboration

Currently, the blockchain ecosystem faces several limitations and challenges in achieving widespread interoperability. These barriers include:

  1. Technical Complexity: The intricate nature of blockchain platforms, combined with the vast differences in their underlying architectures, poses a significant challenge in developing unified interoperability solutions.

  2. Network Security: Ensuring the security and integrity of cross-chain transactions is of paramount importance. As the number of interconnected networks increases, the potential attack surface also expands, necessitating robust security measures and constant vigilance.

  3. Economic and Governance Issues: Aligning the economic incentives and governance structures of different blockchain networks is a daunting task. A successful interoperability solution must consider the delicate interplay of these factors to foster collaboration and avoid disputes.

To overcome these limitations and foster cross-chain collaboration, the following strategies can be employed:

  1. Open-Source Development: Encouraging open-source development and collaboration among blockchain projects can help to create a shared knowledge base and facilitate the development of universal interoperability solutions.

  2. Standardization: The development of industry-wide standards and best practices can help to bridge the gap between disparate networks and simplify the process of achieving interoperability.

  3. Education and Research: Continued investment in education, research, and development is vital for driving innovation and pushing the boundaries of what is possible in the realm of blockchain interoperability.

Together, these strategies can pave the way for a borderless, interconnected blockchain ecosystem that unleashes the full potential of this revolutionary technology. So, let us join hands and embark on this exciting journey towards a more connected, transparent, and decentralized future! ๐Ÿš€๐ŸŒŸ

6. Conclusion

As we reach the end of this exhilarating exploration of blockchain interoperability, it is essential to reiterate its significance in unlocking the true potential of decentralized networks. By bridging the gap between multiple blockchain platforms, we pave the way for a more connected, synergistic ecosystem that accelerates innovation, fosters collaboration, and ultimately revolutionizes the industry. ๐ŸŒ‰

In this blog post, we have delved into the intricate challenges that accompany the quest for interoperability, from the technical hurdles and differences between blockchain platforms to the economic and governance barriers that shape the landscape of cross-chain collaboration. As the famous mathematician Leonhard Euler once said, "Nothing occurs without a reason." In the context of blockchain interoperability, this profound statement alludes to the myriad interconnected factors that influence the development and success of cross-chain solutions. ๐Ÿงฉ

To overcome these challenges, we have explored various approaches and solutions, such as cross-chain communication protocols, atomic swaps, decentralized exchanges, blockchain bridges, and sidechains. The effectiveness of these solutions can be measured using a metric we define as $\textit{Interoperability Index}$, denoted by $I_i$, where $i$ represents a specific solution:

$$ I_i = \frac{\text{Number of successful cross-chain transactions}}{\text{Total number of cross-chain transactions attempted}} $$

The goal is to maximize the $\textit{Interoperability Index}$ for each solution, ultimately achieving near-perfect cross-chain communication and asset transfers.

Additionally, we have highlighted real-world applications and case studies that demonstrate the tangible benefits of blockchain interoperability, particularly in the realms of decentralized finance (DeFi) and supply chain management. These examples provide a glimpse into the immense potential that lies at the intersection of blockchain networks, just waiting to be unlocked.

As we forge ahead into a future filled with boundless possibilities, it is crucial to address the limitations and challenges that currently impede the realization of a unified blockchain ecosystem. By embracing open-source development, standardization, education, and research, we can overcome these obstacles and chart a course towards a more interconnected, transparent, and decentralized world. ๐Ÿš€

In conclusion, the pursuit of blockchain interoperability is not merely a technical endeavor but a testament to the indomitable human spirit that drives us to push the boundaries of what is possible. By transcending the limitations of individual networks, we can create a future where blockchain platforms coexist in harmony, collaborating and interacting seamlessly to revolutionize industries and transform the world as we know it. So let us come together, embark on this exciting journey, and unleash the full power of blockchain interoperability! ๐Ÿค๐ŸŒ

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