Interoperability has been a looming, inescapable problem facing blockchain.
Now, two prominent startups are tackling this issue head-on.
At Consensus 2018, Clearmatics and Axoni demonstrated just how a financial derivative can be issued via a smart contract, trigger a payment and then instigate a cross-chain atomic transfer of value between two distinct networks. This marked the very first time a derivatives contract has been originated on one enterprise blockchain and settled on another.
This is important now that interoperability of blockchains is now an emerging design goal of distributed ledger technology (DLT).
As the financial world moves to a state of many ledgers to fewer ones, blockchain architects have come to realize that trades, deals, and transactions will most likely never be originated, processed and settled by a single, monolithic system.
Robert Sams, Clearmatics’ CEO, had this to say:
“Facilitating end-to-end processing from point of trade to settlement, we need to make the assumption that that process is going travel through multiple systems, rather than a single monolithic settlement system, distributed or otherwise.”
The collaboration is also significant because of the clout of the players involved.
New York-based startup Axoni works with a wide range of leading financial institutions and infrastructure providers to move trillions of notional value in U.S. dollars onto blockchain tech across a variety of asset classes.
Meanwhile, Clearmatics of London works with a consortium of banks and financial institutions to create digital fiat that is fully collateralized by cash at the corresponding central bank and transferable on a distributed ledger.
Looking back, it’s a fair assessment that currently, blockchain interoperability is at the R&D stage.
To fully make sense of the problem involves a lot of requirements based on use cases and the domain applications, which all have to be considered together. Sams emphasizes that the interoperability demo was just a proof of concept – but a very important one, because it drives the spirit of open source collaboration.
“Interoperability needs to be tackled in an open and collaborative fashion and built around open standards and open source implementations,”
he said, adding that:
“There will probably be multiple types of interoperability solutions – not many, but more than one.”
The same spirit extends to the public blockchain community, where a lot of cutting-edge work is being done on the very technical aspects of the topic.
“There’s a lot of overlap between cross-chain atomic swaps in the cryptocurrency space and the stuff that we are doing,” Sams continues. “Even though the domain application is entirely different, the underlying technological primitives are very similar.”
The contract used in the demo was modeled using Axoni’s domain-specific language, AxLang, and then settlement finality of the resulting cash payments was achieved across different permissioned, ethereum-compatible ledgers.
Clearmatics’ contribution to the demo was the use of Ion, an open source interoperability protocol, designed to be able to perform atomic cross-chain transactions.
The AxLang smart programing language used was developed by Axoni to make working with smart contracts in an enterprise setting easier.
Axlang is based on Scala and enables secure and full-featured smart contract development by supporting both functional programming and formal verification. It can also compile to both the Java and the ethereum virtual machines.
However, developers are often asked, why use another programing language?
Gerg Schvey, Axoni CEO, said that doing lots of work with large-scale application design on blockchains revealed certain requirements not being met by Solidity, the first step into programming smart contracts among the ethereum community.
In particular, Solidity lacks formal verification, which is the ability to have mathematical proofs that the code written has compiled properly, Schvey says.
“Being able to check for certain error vectors is a very powerful concept, especially if you are deploying a large scale multi-party infrastructure with a lot of value going through it,” he said.
Indeed, the proof of concept marries two difficult technical challenges: interoperability and formal verification. And there’s an important connection between the two, Sams pointed out.
“Imagine an end state of distributed market infrastructure where you have an end-to-end process flow, occurring through multiple systems,”
“It’s obviously going to be very important that at the semantic layer, a system taking over a process from another system, and vice versa, understands and can demonstrate exactly what the business logic is that they are consuming or producing for another system to consume.”