Blockchain Interoperability Moves Closer to Fruition But Challenges Remain

DeFi will draw closer to interoperability in 2022, potentially reshaping blockchain technology.

By: Brady Dale Loading...

Blockchain Interoperability Moves Closer to Fruition But Challenges Remain

This article is part of our On the Radar 2022 series.

Blockchain fans tend to bet on one of two futures.

In one, the many blockchains out there are all just skunk works for the one final chain that will absorb all the best innovations as the rest die off to worthlessness. In the other, many blockchains will come up and find a niche in the market, and it will be systems that allow those different blockchains to communicate that will turn it into one network with many chains.

That second vision can be summarized in a word: interoperability. Right now, the consensus bet in this industry is on interoperability. Mechanisms by which different blockchains communicate will be a big story for 2022, infuriating maximalists of all kinds.

Unified Relayer

It’s a funny thing, too, because blockchains are fundamentally very closed off. Bitcoin doesn’t know anything but bitcoin. Its whole business is just continuous introspection. Interoperability requires somehow moving information from outside a chain onto it, then verifying that copies of that information on other chains don’t change.

It’s extremely hard.

There’s a lot of tacked-on bridges between chains, no unified relayer across many chains, not even a website that tells traders how to find their way between networks. Who will build the Google Maps of blockchains?

If a user wants to move value from, say, Bitcoin to Polkadot, they are going to need to do some difficult research to sort out the safest way to do it. Meanwhile, the least expensive way to do it will be anyone’s guess, because the price to do things in crypto is always changing based on network traffic. To move between more obscure chains there is a good chance a user will need to take a pit stop (and burn some fees) going through a third chain.

Ethereum is one chain that’s well connected to many others, but it’s also the most expensive chain to pass through.

But two blockchain ecosystems have shown very strong signs of growth in 2021, however, and both have the potential to become the Grand Central Station of crypto, if they choose to prioritize it. Polkadot (the 11th largest chain, according to CoinMarketCap) and Cosmos (the 29th largest) both have come a long way in 2021 and have the potential to start interconnecting standalone chains aggressively.

It’s hard to turn fiat into coins on many smaller blockchains. Most users rely on centralized exchanges to solve that problem, but if these chains get more fiat on ramps around the world, we could see the upcoming generation of crypto users skipping exchanges entirely.

Songbird Blockchain

The next step will be for users to move from one chain to another, hopefully using the same wallet, seamlessly going from one crypto to the next, as they interact with different applications. The holy grail will be when web3 explorers have the freedom to use all of the ecosystem’s dapps without knowing which blockchain is behind them.

XRP Holders to Get Huge Airdrop of New Blockchain Songbird
XRP Holders to Get Huge Airdrop of New Blockchain Songbird

XRP Holders to Get Huge Airdrop of New Blockchain Songbird

Not only is DOGE a very good boy, its coin is about to be very smart, too — as in, smart contract-ready. Flare is a startup launching its canary network in the coming days, and it’s going to bring smart contract functionality to DOGE. It will also bring it to XRP, Stellar (XLM) and Litecoin…

The Defiant The Defiant

A dark horse network to watch is Flare, which launched the Songbird blockchain this year. Polkadot and Cosmos made the decision to make an architecture that’s friendly to other chains and hope they plug in. Flare opted to specifically woo some of the older chains, such as XRP and Doge, by giving them a new chain on which they could unlock some of their stored value with DeFi applications similar to those that have been built elsewhere.

Why are all of these efforts important to keep an eye on? Imagine if the U.S. Interstate Highway System had been an equity on the stock market. Or a closer example would be the Internet Protocol itself. If the value of either had been tradable, everyone would have wished they had gotten in on them early.