Why Blockchain Interoperability Is a Priority for Web3 Adoption | Analog Insights
The past few years have raised our hopes about the future innovations that decentralized ledger technologies (DLTs) such as Blockchain will bring. Bitcoin demonstrated the power of decentralization in unlocking the possibilities of functions of money, while Ethereum — through its smart contract capabilities — ushered in programmable money.
Today’s smart contracts and decentralized applications (DApps) can facilitate the transfer of virtually everything from fiat currency and bitcoin to goods transported worldwide. With DApp services increasing and diversifying each day, the Blockchain ecosystem is slowly maturing. And given the superior incentivization mechanisms, transparency, and stability offered by DLTs, DApps could be a gamechanger across various industry verticals in the near future.
However, the growth of DApps and mass adoption of various services within the Blockchain space is below the public expectations, casting doubts about the effectiveness of the technology itself. For example, Ethereum — the most popular smart contract platform — with over 1,000 DApps cannot provide effective technical support due to scalability challenges.
In addition, efforts to solve the Blockchain trilemma, i.e., decentralization, security, and scalability issues, have led to the development of many Blockchains, with each network operating in siloes. Without an interoperable framework, the number of Blockchains could exceed that of DApps.
Similarly, the mass adoption of DLTs is still a mirage, owing to specific challenges, among which the lack of interoperability framework stands out the most. Interoperability is a significant pain point for DApp developers and users. Specifically, network congestion and increasing gas fees hinder transactions between different chains with the growing number of users on major decentralized finance (DeFi) platforms like Ethereum.
Consequently, both DApp developers and users are limited only to the siloed chains, without an opportunity to tap into the value arising from other networks. Even Vitalik Buterin — Ethereum’s founder — has alluded to this problem, urging stakeholders to invest in interoperable solutions that offer cross-chain communication between Ethereum and other chains. Unfortunately, many of the current interoperable solutions have been slow to deliver.
Why Web3 Is in an Urgent Need of an Interoperability Solution
Sharing content between Facebook and Twitter is easy. Perhaps too easy that you could argue that it is due to the popularity of bad information. However, the ease of sharing content between these platforms underlines an essential aspect of the internet: Facebook and Twitter are interoperable.
For example, when you share a Facebook post on Twitter, both the platforms agree on a common language of data transfer and the format of messages. Twitter then displays the content in the same format as that on Facebook. However, despite these interoperable features, Facebook and Twitter are web2 — the current version of the internet — platforms that are largely centralized and monolithic.
Web2 platforms have several limitations, including single point of failure (SPOF) attacks, lack of data protection mechanisms, vulnerabilities to hacking and corruption, and monopoly ownership of data. Web3 — an era of the internet characterized by DLTs, machine learning, and 3D graphics — is a gamechanger in the evolution of the internet.
Decentralization is a fundamental precept of web3. For example, data is no longer stored on a centralized server and controlled by a monolithic platform. Instead, it is stored on a decentralized network of nodes and shared simultaneously to different locations with guaranteed verifiability mechanisms. This gives greater control of data to the users and not big organizations.
Web3 has fundamentally altered the internet landscape as we knew it, changing the way we run businesses, financial systems, and societies. For example, DeFi — a sector that was non-existent a few years back — has now metamorphosized into a full-blown industry worth hundreds of billions of dollars, and it keeps on growing every day.
According to DeFiLlama, the total value locked (TVL) in DeFi-based applications reached US$ 213.3 billion as of April 2022, up from US$ 15 billion a year ago. The adoption trajectory for DeFi-based applications is happening twice as fast as that of the internet itself, accelerating with the explosion of non-fungible tokens (NFTs) and the metaverse.
Many believe that web3 reached its own Netscape moment way back in October 2021 when the first-ever Bitcoin exchange-traded funds (ETF) hit the market. However, observing the growth of web3 so far, we may be well in the third stage of its adoption lifecycle, which pundits often refer to as the “early majority.”
During this phase, the early majority usually undertake a thorough evaluation of the technology before adopting it. Two other phases follow this stage: “late majority” and “laggards.” Once the early majority has completed evaluating the technology, the adoption process moves to the “late majority” stage, where it becomes fully grounded in people’s minds. After that, only one phase remains — the laggards or late adopters joining the bandwagon.
However, we are stuck in the “early majority” phase due to the lack of an interoperable framework. We have already seen multiple Blockchain platforms and layer two scaling solutions joining the space. At this pace, the current web3 space is in danger of balkanization, where interoperability is sacrificed as organizations race to demonstrate their own Blockchain’s superior features and use cases.
This is not a good move for the sector. In our view, the opportunity in the Blockchain sector hinges on seamless interoperability among all the major web3 players. It is only by ensuring that all Blockchains interoperate — whether unrelated or fiercely competitive with one another — that the capabilities of the technology can be realized.
Current Cross-Chain Bridges
Cross-chain bridges are crucial components of web3. They can unite the otherwise siloed Blockchain ecosystem and unlock a broad spectrum of use cases that were previously impossible. With Ethereum experiencing its worst moment due to scalability issues and a whole host of new chains seeing explosive growth, cross-chain bridges can ease the burden on these established networks and unlock a great deal of utility for users. In our view, current cross-chain bridges cannot address the interoperability challenges bedeviling the web3 landscape. This is because most of the bridges are largely centralized, leveraging either the proof-of-authority (PoA) or proof-of-stake (PoS) consensus mechanisms with high entry barriers. The bridge’s integrity depends on the trustworthiness of a few chosen validators, which means the system has a higher chance of failure. The validators can also be politically aligned. This means that they can be influenced or coerced into censoring some transactions or other actions that are antithetical to the principles of decentralization. Most bridges are also not bridges going by the true sense of the word. An actual cross-chain bridge, in our view, should allow users to receive a canonical, or most commonly used, form of the token on the destination chain, not a proprietary wrapped version.
Analog Is a Trustless Omnichain Interoperability Platform
At Analog, we believe the most significant challenge that current cross-chain bridges face has to do with centralization and associated insecurities that we see with PoA- and PoS-based consensus mechanisms. In our view, a truly decentralized consensus mechanism — backed up by sufficient security guarantees — is the single most essential attribute of any interoperability process.
That is why we have built Analog as a trustless omnichain interoperability network. At the core of the network are two critical technologies that achieve complete decentralization and security: proof-of-time (PoT) consensus and threshold cryptography. We have built PoT from the ground up, using the ranking score as a variable to determine who becomes a validator.
Through PoT, we are creating a consensus mechanism where all users have an equal opportunity of participating in the interoperability consensus, as opposed to typical PoS- or PoA-based bridges that have high barriers to entry. We have also incorporated threshold cryptography with very high thresholds where a group of tesseracts partially signs the fetched transaction. For example, over 90% of the tesseracts must partially sign a transaction for it to be validated on the Analog’s network through PoT.
The network we are building will help unlock new value in the entire web3 ecosystem, increase asset mobility and liquidity, simplify user experiences, and connect diverse communities through cross-chain DApps. To learn more about Analog, read through our Timepaper here and let us know what you think on the following social media channels:
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