Do Blockchains Need Interoperability To Thrive?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Right now, most blockchains suffer from a major problem — they’re cut off from one another. This means one blockchain cannot easily communicate with another, which essentially forces each blockchain to operate as a standalone ecosystem, with its own suite of products, own userbase, and own set of developers.

This is simply not efficient.  Worst of all, it’s a nightmare from an end-user’s perspective. Since users essentially need to maintain positions on every chain they want to use, get to grips with the various tools and explorers that the chain offers, and multiply the amount of effort needed to get things done.

This problem also manifests as a major duplication of efforts across blockchains, with each blockchain platform having its own set of applications — many of which are simply duplicates or analogs of what’s available on other chains. For example, Ethereum’s Uniswap, Fantom’s FantomSwap, Solana’s Raydium, Binance Smart Chain’s PancakeSwap, etc., all of which are simple automated market makers (AMMs) with their own liquidity pools and user bases designed for a specific blockchain.  Unfortunately, baking in interoperability at the base layer is highly unlikely to happen any time soon for most of the major chains — such as Bitcoin, Ethereum, and Binance Smart Chain (BSC).

This would require a huge overhaul of the underlying code and could also require that they undergo a hard fork to incorporate interoperability capabilities — potentially fragmenting the community and causing chaos among stakeholders. This has led to the recent trend of new blockchains adding support for the Ethereum Virtual Machine (EVM) to allow developers to port their Ethereum DApps to the new blockchain. However, without also supporting cross-chain data/value transfers, this only speeds up the rate at which new chains can launch cloned versions of Ethereum DApps — increasing redundancy while doing nothing to stop the divisive nature of the blockchain industry today.

But this might not be the case for much longer, thanks to the rapid development and adoption of platforms that allow current-generation blockchains to interoperate without needing to implement any changes at the base layer.

Wanchain is one of the most promising platforms tackling this problem. The platform introduces a creative approach to the interoperability issue by allowing users to easily move their funds between different supported blockchains (such as Bitcoin, Ethereum, Ripple, and more).

It achieves this through a highly versatile bridge solution, which allows users to securely lock their funds on one chain in order to mint proxy tokens on Wanchain. These proxy tokens can then be used throughout the Wanchain ecosystem or bridged to any other supported blockchain — thereby enabling users to eventually access practically the entire landscape of decentralized applications (DApps) without needing to maintain positions on each independent chain. 

Likewise, Polkadot has quickly become recognized as an attractive solution to the interoperability issue. The platform features a plug-and-play interoperability mechanic that uses a central relay chain to connect practically any sovereign blockchain. Once connected, these sovereign blockchains would be then able to exchange value and data with other blockchains built directly on top of the Polkadot framework as parachains or parathreads — allowing for the creation of powerful cross-chain DApps and value-adding services.

With the decentralized finance (DeFi) landscape growing by the day, and more and more traditional investors and users finding their way into the cryptosphere, cross-chain technologies will likely be crucial in ensuring the industry remains accessible to everyone. Far from the proprietary, siloed, and divisive approach of today, most blockchain platforms and blockchain-based applications will likely be built with this focus in mind in the months and years ahead. 

Image by Gordon Johnson from Pixabay

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.