Interoperability solutions in the blockchain industry must be developed

Interoperability solutions in the blockchain industry must be developed

Since the emergence of the practical use of blockchain technology, interoperability remains one of the most important issues. If solved, crypto experts believe, it could facilitate a seamless transition from Web2 to Web3 and have additional benefits. They propose a TCP/IP-like standardized communication system between blockchains, as it can address interoperability.

Blockchain and interoperability issues

Ryan Lovell, director of capital markets at Chainlink Labs, stated that blockchain would require the same level of interoperability that computers use the internet to transfer data across large networks. Modern computers use the TCP/IP protocol for communication, and blockchain will require a similar system to achieve full interoperability.

If developers can develop such a system, blockchains can connect like computers on the internet. This facility could revolutionize the industry, as the crypto industry generated huge profits during the last bull run. But these profits would be multiplied if the isolated blockchains were connected via a system.

Lovell emphasized the need for interoperability and its central need in the financial institutions working on real-world asset tokenization. Only with this device can they ensure that a closed ecosystem does not limit liquidity.

Each blockchain is a unique and secure ecosystem that provides lucrative benefits to others. Imagine a system where users can benefit from each without stressing the need for interoperability. A TCP/IP equivalent robust communication system can solve this problem.

Cosmos has an Inter-blockchain Communication Protocol (IBC), which supports a lending platform, Umee. Its founder and CEO, Brent Xu, told a crypto media outlet that a proper risk management system must be in place to facilitate interoperability. This must be done before real-world assets are brought on-chain, as bridging them will only serve the desired purpose if interoperability is functional.

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Xu further explained that financial institutions should start working with strict KYC credentials to ensure the authenticity of real-world assets before they can be tokenized. This will also be beneficial during the chain proof-of-reserve audit, which is required to be released.

All aspects must be considered

Citing the 2008 financial crisis, he said the significant amount lost after the event could have been saved from being lost given the inefficient inheritance system. If any blockchain technology-like system had been used, the contagion that wasted billions of dollars could have been saved.

Cross-chain bridges, oracles, and independent layer-2 sidechains are commonly used interoperability tools. But several hacks have been on the cross-chain bridges, making them a weak point in the ecosystem. In March 2022, the Ronin Bridge hack caused around $600 million in losses.

Xu noted that most bridges involve multi-signature security setups or rely on proof-of-authority consensus mechanisms. These centralized systems are more vulnerable to attack. He also said that initial interoperability procedures targeted speed and ignored security; this approach backfired.

Xu believes the key would be to include the interoperability protocols in the platform that work on a blockchain instead of a third party. This can significantly improve security as they can eliminate the vulnerability of bridges as they are a known attack point for hackers.

Popular interoperability protocols in the industry are Chainliknk’s Cross-Chain Interoperability Protocol (CCIP); Cosmos’ Inter-blockchain Communication Protocol (IBC).


The views and opinions expressed by the author, or any person mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing in or trading crypto assets comes with a risk of financial loss.

Steve Andersen
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