Cryptocurrency and blockchain enthusiasts pride themselves on being a community dedicated to the future of the financial system. However, because multiple blockchains work independently of each other, the community is inherently fragmented. The dream of mass adoption of blockchain and decentralized finance faces a major obstacle: a lack of interoperability.
At the same time, decentralized applications (DApps)-the result of decentralization-are being shelved. DApp developers face difficulties when transacting between different blockchain networks. The reason behind this is that they are trapped in the Ethereum ecosystem. Despite having the best infrastructure, Ethereum is losing its foothold.
Ethereum pursues single-network blockchain dominance
According to the DApp market report, about 59% of DApps Run On the Ethereum blockchain. Despite the growth of decentralized finance on Ethereum, many developers and users are not satisfied with the network.
Increasing transaction fees are a complete bane for developers and users. Similarly, the Ethereum network is also prone to congestion. Even six years after its launch, the transaction speed of Ethereum is still hovering around 15 transactions per second (TPS). The combination of the above factors undermines the feasibility of the developers’ projects and derails their efforts.
In addition, the highly anticipated Ethereum 2.0 upgrade failed to solve the scalability problem. The complete implementation of Eth2 may take more than a year. When you consider related work such as proof-of-stake migration and security upgrades, the measures to solve the scalability problem seem to be far from the priority list.
a part of Imagine The goal of Eth2 is to “make applications faster and cheaper to use.” However, as reality moves away from this vision, the crypto financial community is looking for alternatives.
These alternatives are based on cooperation rather than competition. The potential driving force for the growth of decentralized finance is enhanced interoperability.
Interoperability and finding interoperability solutions
As a solution for applying decentralized finance outside the Ethereum blockchain, interoperability has further promoted the concept of decentralization. By facilitating seamless communication between different blockchain networks, interoperability is the future.
With interoperability, the traditional mentality of “I use blockchain B because it is better than blockchain A” has undergone a paradigm shift. We are moving towards a culture in which blockchains A and B collaborate and are used uniformly for specific purposes.
For a better background, please consider this: Without interoperability, the vast majority of DeFi protocols will lack the largest blockchain network and cryptocurrency Bitcoin (Bitcoin). However, with the help of a blockchain bridge, it is now possible to transfer a person’s BTC assets to the Ethereum network in the form of parcel tokens, such as parcel bitcoin (WBTC), Approximately 1% of Bitcoin supply has been tokenized On Ethereum. These ERC-20-compatible packaged tokens provide faster Bitcoin transactions and enable users to use Bitcoin on DeFi protocols (such as Aave) to lend and borrow assets – or perform other DeFi activities.
It is precisely because of the interoperability of the blockchain that users can freely trade ERC-20 tokens on the Binance Smart Chain, avoid the soaring gas fees of Ethereum and execute transactions almost immediately. The arrival of interoperable solutions will become a window for a variety of DeFi products and applications.
Many developers, especially those in high-volume fields such as games, are now looking for layered solutions to solve their problems. However, when developers are hesitant to choose options such as Plasma state channel technology, many of these solutions have been slow to deliver. Summarization is a hot new solution that can bundle transactions to improve throughput.
However, the fact is that many Ethereum layer 2 protocols restrict DApps to the Ethereum ecosystem. Without opportunities for interoperability, developers and users cannot take advantage of any value generated by other platforms.
Moving on, how do we achieve seamless interoperability while bypassing the challenges of existing second-tier infrastructure?
Trustless Bridge: The Holy Grail of Blockchain Interoperability?
As the name suggests, blockchain bridges are designed to cross the blockchain and promote communication. This technology solves the problem of interoperability between two different protocols. Using a trustless bridge, users can take advantage of the advantages of the two blockchains.
Usually, these bridges are managed by the “burnt and mint” method. According to this, the tokens will not leave their respective blockchains during the transaction. The token is destroyed or locked in its blockchain, and its equivalent is minted or created on another blockchain. This method ensures a stable supply of tokens and reduces volatility.
There are two types of blockchain bridges: federation and trustlessness. The former is a private, more concentrated project that requires certain standards to be used in order to use the bridge. On the other hand, decentralized bridges operate in a decentralized environment: similar to Bitcoin and Ethereum (Ethereum) Miners and trustless bridge validators get incentives to maintain the bridge. Here, the trustless bridge works on mathematical truth, and there is no human error or corruption.
In addition to the inherent transparency, trustless bridges have many advantages. They realize the interoperability of tokens between different networks. Ethereum can use this ability to offload its transactions to another blockchain. In addition, trustless bridges can help reduce congestion in blockchains with a large number of transactions, and provide users-especially DApp developers-with a seamless transaction experience.
A bridge to trust and open finance
Using a trustless bridge is an effective way for the collaborative development of blockchains. It also greatly motivates developers to design DeFi applications to advance the prospect of an open financial system. The Trustless bridge opens up a new era of interoperability, which will ultimately unlock new value for the interests of all market participants.
Through the bridge of trustlessness, the potential for cooperation between DeFi platforms and centralized banks has emerged. The convenient peer-to-peer banking system set up by traditional banks is the hope given by the bridge of distrust.
This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Stephen Xie He is the founder and CEO of Harmony.one. He used to be a researcher at Microsoft Research, a senior infrastructure engineer at Google, and a chief engineer of Apple’s search rankings.