It is an established truth that the cryptocurrency sector is more fragmented than broken glass. Industry insiders have made the most of their work for a long time and accepted the ever increasing fragmentation as the price to pay for a decentralized financial system. But what progress could we make if we could stop paying them?
At first glance, interoperability appears to be an almost impossible goal. According to CoinMarketCap, there are currently over 8,000 unique cryptocurrencies – an increase of 400% over two years ago. Those numbers sound impressive at first, but the veneer does wear off when you factor in the inconvenience that variety brings.
Stephen Tse is the founder and CEO of Harmony.one. Previously, he was a researcher at Microsoft Research, a senior infrastructure engineer at Google, and a senior search ranking engineer at Apple.
Decentralized applications (dapps) are limited by the limitations of their home blockchain. If a Dapp is based on Ethereum, it can usually only use the advantages of Ethereum (e.g. smart contract functionality). With all of the advantages that different cryptocurrencies can individually offer, users may have difficulty taking full advantage of the multitude as the blockchains are not interoperable.
Here’s the problem: while career cryptocurrency traders may be willing to manually search fragmented cryptocurrency exchanges and blockchain apps for the features and services they want, it seems too optimistic to believe that the growing cohort of investors are using that will be satisfied with the status quo. Consider the push to normalize cryptocurrency in 2020. Three major fintech companies (Square, MicroStrategy, and Mode) have chosen Bitcoin, and PayPal recently launched its own cryptocurrency trading service.
As a result, the people we see entering the crypto market are not technology professors or developers, but rather ordinary consumers and investors who are used to leaner and more cohesive experiences.
“As new users enter the industry, I’ve seen a clear demand for ‘intermediaries’ that mirror the familiar centralized financial firms, improve user experience and increase liquidity, but I’ve also seen user control and holding funds: sacrifices sacrifice for access, ”wrote cryptocurrency expert Alexey Koloskov recently for Forbes.
If the fragmentation of the crypto sector is not addressed by those within the crypto sector, Koloskov says there is a risk that conventionally minded players will offer solutions that undermine the freedoms for which cryptocurrencies were invented.
Consumers are right to demand interoperability. They need innovation, they need new interoperability tools.
Intervention by central powers is frustrating, both because of the tacit erosion of free trade and because consumers are right to ask for interoperability. They need innovation, they need new interoperability tools – and if innovators who value the philosophy behind blockchain can offer them, they can not only solve one major UX problem, but also remake the capabilities of fintech as a whole define.
As an example, consider the work that has already been done with trusted bridges.
For the context, a trustworthy blockchain bridge is essentially a public blockchain network that enables two technologically different and economically sovereign chains to freely communicate with each other without authorizations. This connection enables interoperability between two blockchains that would otherwise have no way of performing reciprocal transactions or using the other’s chain-specific apps.
Trustworthy two-way bridges could provide breakthrough fluidity across previously isolated chains, providing newbies and blockchain followers alike with unprecedented access and ease of use. Assuming future advancement, we can envision a future version of the cryptocurrency sector that will maintain interoperability without sacrificing commitment to decentralization and individual autonomy.
Such bridges not only enable smoother transactions and a more coherent and informed trading experience, but they also enable better usability. By linking two different cryptocurrencies via cross-chain bridges, users can enjoy the best of both instead of having to choose each other. For example, using a cross-chain bridge between Ethereum and Cosmos, a user can take advantage of the intelligent contract functionality of Ethereum and the scalability of Cosmos.
Imagine if the versatility has multiplied over a dozen blockchains. Imagine the functionality we could achieve if end users and app developers could ultimately choose the features they need for their trading experience.
We may not have gotten to the point where such fluidity is possible, but there is little doubt that such a reality is on the horizon. Innovations like cross-chain bridges offer a glimpse into the future of fintech and crypto – what it could mean to introduce a truly decentralized financial system where consumers finally have the final say, not just in trading but also in trading trading experience.
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The problem of blockchain fragmentation is significant and increases in the absence of appropriate consolidation tools. The cryptocurrency sector needs to provide solutions that enable blockchain connections between all people and every economy.
Our fragmented and isolated status quo will not work indefinitely. We have the technological means – and the market momentum – to seek interoperability without compromising decentralization or the consumer experience. By literally bridging the silos, we’re not only improving the user experience, we’re ushering in a new era of financial innovation and creativity.
