The world’s largest companies are actively developing their own blockchain projects. With the spread of distributed ledger technology, the issue of interoperability, i.e. the active interaction of different decentralized systems, is becoming increasingly pressing.
In an interview with Bloomchain, co-founder of Symbiosis Finance, a multi-chain protocol company, Nick Avramov spoke about the difficulties faced by multi-chain developers and about where the service could be interoperable in the market in the future.
– Why has it become necessary to solve the problem of interoperability, namely blockchain interoperability?
– Let’s start with the concept itself. Interoperability is about providing communication between different blockchains. Multichains can unify networks at multiple levels – they allow linking not only blockchains, but also L2, i.e. second-tier solutions deployed on top of the base blockchain. Apart from that, they can also combine blockchain with L2.
I like the analogy with the World Wide Web and local area networks. If you remember, previously you may not have access to the Internet, but you can replace it with a LAN network. They can exist in one city, while all available sites are located only in this local network circuit. At the same time, the LAN itself is not interconnected. In fact, Moscow and St. Petersburg have two different Internet connections, and each has its own set of services.
This is very similar to the current situation with blockchains – they are slightly related to each other, and each has its own set of decentralized applications. At the same time, these blockchains do not communicate with each other – this problem is solved by multi-chain.
– When did the need to unify blockchain arise?
– This need is always there. For example, people have always wanted to be able to exchange Ethereum for bitcoin without resorting to a centralized solution.
The first interoperable solutions already existed in 2016. Over time, their demand has increased significantly. This was due to the increasing popularity of smart contracts and the “DeFi boom”, which caused the Ethereum blockchain – at the time the only blockchain in demand with support for smart contracts – could no longer cope with the increased demand and started having problems with scaling.
This led to the emergence and explosive growth of a new blockchain – the Ethereum virtual machine (EVM). For example, Binance Smart Chain, Avalanche, and Polygon. Their development has led to the fragmentation of the liquidity of the DeFi market.
– Perhaps the most interesting question regarding interoperability is its practical utility. What tasks allow you to complete them?
– In fact, it is difficult to predict which solution will build on the protocol before this protocol is created. Perhaps the most obvious is the creation of a non-custodial wallet that can operate in a decentralized manner with all user assets across all networks of interest. Such services already work – for example, XDefi cross-chain wallets.
The next step is the ability to exchange assets on different networks without leaving such a wallet. Well, then you can only fantasize – for example, it is possible to take collateral in one network and put it on pharming on a cheaper blockchain, and so on.
– How difficult is it to implement an interoperable solution?
– The main problem is the availability of infrastructure for data exchange between blockchains. In fact, any such decision rests on the need to create an intermediary blockchain that will not only transfer messages between networks, but will also be “motivated” not to cheat these systems.
– How can such blockchain interactions be regulated?
Every decentralized network faces a problem known as the blockchain trilemma. This means that developers have to compromise at the expense of one of the most important parts of the network – decentralization, scalability, or security.
The same problem arises when creating cross-chain solutions. We have three important parameters: untrustworthiness – how decentralized the solution is, UX – how easy it is to use, and generalizable – how scalable.
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You can only choose two of the three. And depending on what the developer chooses, this or that blockchain interaction model is formed. For example, it could be an atomic exchange – a completely decentralized exchange that does not require a trusted party, but is at the same time technically difficult for users. Or a bridge, which is much simpler, but at the same time requires trust in the operator or the mechanism that controls it.
More on how to implement interoperability: blockchain interoperability – what it is for and how to achieve it
– What ends up having more leads?
– In my opinion, in the future it is necessary to move away from completely untrustworthy decisions, such as atomic swaps. Just because they are very inconvenient for users.
This means that solutions that require a certain level of confidence will be more desirable. The question is whether it will be a bridge where the user trusts certain people who manage his work. Or another way to organize blockchain interactions is a relay network, where participants trust a consensus algorithm.
This last method seems to me the most promising – the solutions created with its help are the easiest to use, which means that they will be able to attract the most users’ attention. That is, where there are users, and where there is a lot of liquidity.
This can be compared to the success of Uniswap – before its appearance, there were many decentralized exchanges, but none of them stood out so much. And this is precisely because Uniswap was able to create a simple user interface that allows you to exchange one token for another at a good price. The first to do the same for cross-chain will be the winner of our race.
– What about blockchain developers? How profitable is multi-chain existence for them?
– Of course, this is very beneficial for them. Blockchains themselves rarely attract new users – more often than not, they try to drag them off other networks. Therefore, the easier it is for users to move their assets, the more beneficial it is for blockchain developers. And with multi-chain, this movement occurs thanks to a single transaction and a few clicks.
– Is it possible to create a blockchain that is completely incompatible with others? And can such a product be in demand?
– On the other hand, some blockchains may not be compatible with some multi-chain solutions. For example, Polkadot and Cosmos use cryptographic signatures that are incompatible with the signatures used by multi-chain solutions sharpened on the EVM blockchain. But this leads more to the creation of different interoperable services for different standards and different blockchain classes.
It is technically almost impossible to create a completely autonomous blockchain – you can only greatly increase the complexity of implementing a multi-chain solution. Moreover, the creation of such a blockchain will not bring any benefit – if the outflow of capital from it is artificially restricted, the inflow of funds will be automatically restricted.
– How do you see the future of multi-chain?
– The demand for multi-chain will exist as long as there is competition between different blockchains.
– Can the competition between blockchains end with someone winning?
– I don’t think so. Different user groups require different blockchain properties. For some, decentralization is important and speed is not so important. Some, on the other hand, are ready to sacrifice decentralization in exchange for speed and low transaction prices. It is highly unlikely that in the near future there will be a blockchain architecture that is suitable for all users, without exception.