It’s a longtime fact the cryptocurrency sector is extra fragmented than shattered glass. Trade devotees have lengthy made probably the most of working piecemeal, accepting ever-increasing fragmentation as the worth of a decentralized monetary system. However what developments may we obtain if we may cease paying it?
At first look, interoperability looks as if a near-impossible objective. Based on CoinMarketCap, over 8,000 unique cryptocurrencies at present exist – a 400% increase from two years in the past. These numbers sound spectacular at first, nonetheless, the veneer wears off when you contemplate the sheer inconvenience that selection poses.
Stephen Tse, is founder and CEO of Harmony.one. He was beforehand a researcher at Microsoft Analysis, a senior infrastructure engineer at Google and a principal engineer for search rating at Apple.
Decentralized purposes (dapps) are restricted by the constraints of their dwelling blockchain. If a dapp is constructed on Ethereum, it will probably often solely take pleasure in the advantages supplied by Ethereum (ex., sensible contract performance). Thus, for all the benefits that numerous cryptocurrencies may current individually, customers might wrestle to take full benefit of the multiplicity as a result of the blockchains are usually not interoperable.
Right here’s the problem – whereas profession cryptocurrency merchants could also be keen to manually “hunt and peck” across fragmented cryptocurrency exchanges and blockchain apps for the options and companies they need, it appears overly optimistic to suppose that the rising cohort of traders will likely be content material with the established order. Contemplate the push in the direction of cryptocurrency normalization we noticed in 2020. Three main fintech corporations (Square, MicroStrategy and Mode) embraced bitcoin, and PayPal recently launched its own cryptocurrency trading service.
In consequence, the folks we see getting into the crypto market aren’t expertise professors or builders, they’re peculiar shoppers and traders who’re accustomed to extra streamlined and cohesive experiences.
“As new customers enter the business, I’ve seen a transparent demand for ‘intermediaries’ that mirror the centralized monetary entities shoppers are used to, improved person expertise, and higher liquidity, however I’ve additionally seen the management and holding of customers funds: sacrificing possession for entry,” cryptocurrency skilled Alexey Koloskov recently wrote for Forbes.
If the crypto sector’s fragmentation stays unaddressed by these inside it, Koloskov suggests, there’s a threat that conventionally minded gamers will provide options that undermine the freedoms cryptocurrencies had been invented to supply.
The intervention of centralized powers is frustrating, both for its tacit erosion of trader freedom and because consumers are right to ask for interoperability. They need innovation, they need new interoperability tools – and if innovators who appreciate the philosophy that underpins blockchain can provide it, they stand to not only solve a major UX problem, but also redefine the capabilities of fintech as a whole.
Consider the work that has already been done with trustless bridges as an example.
For context, a trustless blockchain bridge is essentially a public blockchain network that allows two technologically different and economically sovereign chains to freely communicate with each other sans permissions. This connection allows for interoperability between two blockchains that would otherwise have no means to conduct mutual transactions or utilize the other’s chain-specific apps.
Trustless, two-way bridges could provide game-changing fluidity across previously siloed chains, allowing newcomers and blockchain devotees alike unprecedented access and ease-of-use. Assuming future advancement, we can imagine a future version of the cryptocurrency sector, one that upholds interoperability without compromising its commitment to decentralization and individual autonomy.
Beyond enabling smoother transactions and a more cohesive and informed trading experience, such bridges facilitate greater usability. By linking two disparate cryptocurrencies by cross-chain bridges, users can enjoy the best of both, rather than having to pick one over the other. When using a cross-chain bridge between Ethereum and Cosmos, for example, a user could leverage Ethereum’s smart contract functionality and Cosmos’ scalability.
Imagine that versatility multiplied out over a dozen blockchains. Imagine the functionality we could achieve if end-users and app developers could ultimately cherry-pick the features they wanted in their trading experience.
We may not be to the point where such fluidity is possible yet, but there’s little doubt that such a reality waits on the horizon. Innovations like cross-chain bridges offer a glimpse of what the future of fintech and crypto could look like – what it might mean to introduce a truly decentralized financial system where consumers finally, truly, have the final say not only on trades, but on their trading experience.
The blockchain fragmentation drawback is important and, within the absence of correct consolidation instruments, increasing. The cryptocurrency sector wants to supply options that facilitate blockchain connections amongst all folks and any economic system.
Our fragmented and siloed established order won’t work indefinitely. We have now the technological means – and the market impetus – to hunt interoperability with out compromising on decentralization or shopper expertise. By actually bridging the silos, we gained’t simply enhance person expertise, we’ll usher in a brand new period of economic innovation and creativity.