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Blockchain interoperability has been a buzzword and a top priority within the crypto and web3 industries for years. Despite countless platforms, protocols, and projects aimed at solving the lack of inter-blockchain communication, broad interoperability within the ever-expanding ecosystem remains out of reach.
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Despite the up and down cryptocurrency price swings we’ve seen lately, the foundation of the digital asset industry, which includes blockchain, is much more mature, stable, and focused on solving real-world problems. We have also seen the adoption of blockchain technology in many industries, including supply chain management, where efficiency has been improved by eliminating the need for multiple intermediaries due to its transparent and traceable features.
We cannot diminish the progress of blockchain over the past two years, both within web3 and with its expansion into other sectors such as real estate and healthcare. Despite advances in areas like decentralized finance, decentralized physical infrastructure networks, and tokenized real-world assets, how can we expect mainstream adoption if assets cannot be smoothly transferred between major blockchain networks like Solana (SOL) and Ethereum (ETH)?
Whether it’s cross-chain bridges like Wormhole, layer 2 solutions like Arbitrum, interoperable-oriented blockchains like Polkadot (DOT), or interoperability protocols like Chainlink (LINK), each of these solutions tends to address only one aspect of the problem. to solve.
Security issues associated with cross-chain bridges and sidechains are well documented, as they rely on complex smart contracts and often employ centralized custodians to hold funds during transfers. This creates one ‘single point of fail’ that hackers can and have abused. All we have to do is examine the 2022 Ronin Bridge hack, where a hacker made off with approximately $625 million worth of crypto via a compromised private key, to understand the risk these pose.
Blockchains like Polkadot or Cosmos have implemented innovative and advanced mechanisms to solve the interoperability puzzle. However, Polkadot’s interoperability is limited to the ecosystem and is not scalable. Cosmos offers a little more flexibility, but suffers from security weaknesses and its mission is to “Internet of blockchains.”
The main problem with blockchain’s current limited interoperability is that it fragments the space into disparate ecosystems, essentially turning the industry into a growing number of isolated islands of liquidity. Polkadot’s parachains can communicate with each other, but it would be vastly more beneficial for the entire web3 space to be able to transfer assets and data between blockchain networks like Ethereum or Binance.
Solving this would enable seamless asset transfers by making them faster, cheaper, and more secure, even increasing the usability of stablecoins, altcoins, and tokens across multiple chains. Furthermore, interoperability would significantly expand the role of DeFi protocols by enabling the creation of unified liquidity pools, which would create deeper and more stable markets and reduce slippage in larger transactions.
Breaking these liquidity barriers not only equates to smoother money flow and higher token values. It can also translate into reduced reliance on centralized exchanges, which essentially serve as high-risk bridges, improved scalability, a more user-friendly experience, and greater potential for innovation on the Internet3.
Although interoperability seems to be less and less of a priority as other Web3 developments and trends steal the headlines, there is still a lot of R&D going on behind the scenes. Several projects are developing their own solutions, but no single framework has emerged as a universal standard.
For example, Kima represents one of the most promising interoperability protocols currently developing a solution to unify the entire blockchain ecosystem. As an asset-agnostic, peer-to-peer money transfer and payment protocol, Kima has developed a flexible, decentralized solution to move assets between blockchains without using smart contracts. Powered by its decentralized settlement layer, universal payment rail and liquidity cloud, Kima has undergone three years of intensive R&D as it prepares for the upcoming mainnet and token launches.
Kima has secured pre-launch support for all major blockchains and is developing partnerships with a wide range of web3 and TradFi players, as the protocol is also built to link digital assets to fiat systems such as bank accounts and credit cards. By facilitating smooth transfers between fiat and crypto, Kima is positioning itself as a crucial infrastructure component at the intersection of both DeFi and finance.
Advancing true blockchain interoperability is certainly a challenge, but progress is being made. It requires broad collaboration among competing networks and a commitment to a universal standard. Standardizing communication protocols, facilitating the highest level of security and maximizing decentralization are a good starting point. Continued investment in research, along with a thriving community of dedicated developers, provides ample optimism that true interoperability is achievable.
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