If theres one thing holding back mainstream crypto adoption, its lack of interoperability. If you want to buy altcoins, the process is pretty arduous. First you have to either buy crypto with a credit card for an increased rate or wire transfer fiat currency to a major exchange then you have to exchange that fiat for BTC, ETH, or LTC, and then you may have to move your new cryptocurrency to another exchange to trade it for your desired altcoin.
There are a lot of steps, and it takes time time in which the value of your Bitcoin could be significantly less than when you bought it! Its slow, risky, and unappealing to new users still learning the ropes. Dont worry though as with all crypto problems, solutions are on the way, and interoperability may be around the corner.
What is Interoperability?
Well, there are two types of interoperability with different meanings. Cross-chain atomic swaps, and cross-chain message relays.
Cross-chain atomic swaps
Unlike the name, the concept is relatively simple. Instead of all the centralized exchanges acting as middlemen, cross-chain atomic swaps allow value exchange between different blockchains directly. Users trade coins amongst themselves, straight from the chain with no third party involvement and no requirement of trust and the accompanying risk that entails.
The first cross-chain atomic swap in crypto took place fairly recently between Litecoin and Decred. It may take a one or two years before the system is fully proofed and ready for mainstream launch, but its getting there. No bank, no centralized exchange. Just direct exchange of value between private parties.
— Decred (@decredproject) September 19, 2017
How would that work exactly?
Cross-chain atomic swaps are where decentralized exchanges will really have their chance to shine. Exchanges like Omisego are 100% decentralized, meaning the order book for the whole exchange is completely on-chain. Order matching, price discovery the decentralized exchanges will act as user interfaces to exchange currency from one exchange to another without having to leave the safety of the blockchain.
Now, with fully decentralized exchanges, theres a problem. Speed. As we discussed in our decentralized exchanges article, it takes more time to get things moving when everything is done on the chain. With systems like 0x however, those limitations are bypassed and users can have their crypto cake and eat it too.
It works like this: all of the processes apart from the actual transaction are handled off-chain on the 0x network. Yes, this is slightly more vulnerable than fully decentralized systems, but it frees up the blockchain for increased liquidity. When its time for the important part, exchanging currencies, the trading is done securely on the chain.
0x and similar systems are essentially centralized/decentralized hybrids that seek to find a middle ground between utility and security without sacrificing too much of either, and theyre a very promising look into what the future might hold for crypto.
Cross-chain message relays
The other type of interoperability is achieved through cross-chain message relays.
Now were getting into the domain of projects like Polkadot which aims to be the blockchain for other blockchains. Its a PoS system with a native token fundamental to its operation (the token must be staked in order to validate cross-chain transactions).
The main issue faced by this approach is the possibility of double-spending, one of the financial issues cryptocurrency was fundamentally invented to eliminate. The blockchain exists as a permanent, distributed record to demonstrate that nowhere has one coin been spent twice, and that nobody is inventing new coins for themselves, distinct from fiat currency which governments can choose to print more of, leading to inflation.
Cross-chain message relays send messages from one chain to another, but a possible flaw in the system could lie in orphaned forks sections of blockchain that have permanently split off from the main chain and now have no parent chain. Its possible that these could be exploited to double spend, or even lead to accidental double spending. Another issue is that while PoS is the protocol for systems like Polkadot, major currencies like Bitcoin may never leave the PoW protocol behind.
What ‘s next?
image via medium.com
Instead of trying to improve and upgrade existing projects, the solution may well lie in new projects being designed from scratch with interoperability in mind. One such project is Wanchain, which aims to link as many currencies together as possible under one protocol. Theyve been gaining traction, and are currently backing an Interoperability Alliance comprised of Wanchain, ICON, and Aion.
The alliance seeks interconnectivity and fluidity between all currencies. No hacked exchanges tanking market value for years at a time. No fraudulent exchanges pulling inside jobs and scamming users. Just rock-solid blockchain transactions between private consenting parties, with no middleman messing things up.
If the Alliance succeeds in connecting existing chains together, adoption will follow as the process of buying and exchanging cryptocurrencies is made smooth and user-friendly, available to all. The sooner interoperability comes, the better – when currencies can be freely exchanged in a decentralized, anonymous and private way, the true vision of the original crypto creators will be coming to life at last.
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