At Master Ventures, we strongly believe that cross-chain composability is one of the key requirements for the mass adoption of blockchain-based technologies.
With most blockchains unable to communicate with one another and a current lack of standardized protocols for cross-chain value transfers, this has left different blockchains and their communities isolated from one another.
Fortunately, then, that problem of interoperability and cross-chain composability is now coming into focus, and development teams worldwide are beginning to make progress toward solving it once and for all.
As it stands, the vast majority of blockchains were not built with interoperability in mind. Instead, they exist as proprietary, walled-off ecosystems that cannot easily share or receive data or value from other blockchains — regardless of how similar they may be.
This comes down to a variety of reasons. For one, they generally differ in the way they track and exchange value between addresses, e.g. Bitcoin’s UTXO model and Ethereum’s address-based system. This can make it incredibly difficult to reconcile transfers of value between chains.
There is also the problem of security. After all, not all blockchains have the security necessary to sufficiently protect themselves against double-spend attacks — which could pose a problem when performing an atomic swap from a less secure chain to a more secure one.
Unfortunately, this issue has led to several problems, including a severe duplication of efforts across multiple chains (and more than a few copycat DApps) and a poor experience for end-users (who need to maintain wallets and balances on every chain they wish to interact with). But perhaps most importantly — it severely limits the security and scope of smart contracts and DApps, which are constrained to the resources and capabilities of a single chain.
With no standard to follow, and most major blockchains looking unlikely to incorporate major changes to their architecture to support cross-chain communication, the industry is increasingly turning towards open cross-chain communication protocols.
Solutions Are On the Way
Developers have been working on enabling blockchains to communicate with one another for the better part of a decade now. The first generation of solutions were so-called ‘atomic swaps’ — which are a means of transferring assets (or value) from one person to another across different chains through the use of simple Hashed Timelock Contracts (HTLCs).
More recently, there has been a proliferation of cross-chain bridges, which allow users to transfer their coins between different blockchains to benefit from features that are unavailable on the original network — such as smart contract capabilities or lower fees. The Polygon bridge is a poignant example since it allows users to move Ether (ETH) and a variety of ERC-20 assets to the Polygon mainnet and vice-versa. By doing so, these assets can be used throughout the Polygon DeFi ecosystem and benefit from its improved efficiency over Ethereum.
There has also been a great deal of progress in the way of true standardized interblockchain communication protocols — which can be used to allow practically any blockchain to communicate with any other without requiring any changes to their architecture. This is an important point since few blockchains are likely to dramatically overhaul their existing technology stack to support native cross-chain communication — due to the risk of a chain split.
Instead, plug-and-play solutions like Polkadot are increasingly looking like the way to go. With Polkadot’s solution, practically any distributed ledger can connect with a broader network of application-specific blockchains known as parachains through a system of smart contracts that allow value exchanges between other bridged blockchains and parachains. This allows blockchains to benefit from a broader cross-chain network, without sacrificing their sovereignty or unique properties.
We strongly believe that the Polkadot ecosystem is on the precipice of a Cambrian explosion of development and growth. This is why we created the Dot Fund — to help fund and guide the nascent Polkadot ecosystem.
To help provide a stable unit of value across multiple chains (a key step in powering cross-chain value transfers), we have also seen the elaboration of a new payment network known as the USDReserve. The platform is building what it describes as the “internet’s reserve currency”, by providing a Swiss regulated payment token (USDR) that is pegged 1:1 with the US dollar (USD).
USDR is currently available on Binance Smart Chain and Ethereum, with more networks on the way. With a fiat exchange and on-ramp, the platform is built to make accessing the blossoming cross-chain ecosystem as simple as possible, while making it easy for different blockchains to seamlessly exchange value without needing to resort to awkward pegging mechanisms.
The Path Ahead
As you might expect, successfully incorporating cross-chain technologies and interoperability best practices across the extremely diverse and oftentimes divisive blockchain landscape will be challenging to say the least.
But with the introduction of the Poly Network alliance, a workable solution might not be too far off. A recent collaboration between blockchain juggernauts NEO, Ontology, Switcheo, the Poly Network Alliance is building a platform that is designed to provide the infrastructure for the next generation of the internet. It’s known as As Poly Network, and it can be plugged into any smart-contract capable chain with no modifications, allowing seamless communication with all other connected chains.
The platform is also unique in that it supports non-smart contract capable chains through the integration of two modules — ensuring any blockchain can access the broader cross-chain ecosystem. Poly Network is unusual among interoperability protocols in that it has no native token of its own, and is already up and running on close to a dozen blockchains — including Bitcoin, Ethereum, NEO, and Huobi ECO Chain.
However, the recent hack suffered by the platform reiterates the problems that can come with interoperability solutions — since a hack on the middleware layer can adversely affect all associated blockchains. Nonetheless, if it can bounce back from the event, Poly Network will once again be one of the most promising cross-chain solutions.
Overall, with Polkadot’s parachain auctions set to go live later this year, and the first non-parachain blockchain integrations likely to launch shortly after, we may be on the cusp of seeing the first true interoperable blockchain network. With this, we will start to overcome one of the industry’s longest-standing teething problems, while providing the infrastructure for the next generation of internet-scale decentralized applications.
About Master Ventures
Master Ventures is a blockchain-focused venture studio helping to build the next generation of blockchain-based Web 3.0 system innovations within the crypto industry. Launched in 2018 by Founder and CEO Kyle Chassé, the company’s ethos can best be summarized in the acronym #BeBOLD: Benevolent, Open, Love, Decentralized.
Master Ventures co-creates with entrepreneurs and businesses worldwide to turn the best ideas into innovative and disruptive products. They do this by investing as strategic partners through offering advisory services to the projects they believe in. To date, Master Ventures has invested in over 40 crypto projects, including the likes of Kraken, Coinbase, Bitfinex, Reef, DAO Maker, Mantra DAO, Thorchain, and Elrond.
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