Blockchain Interoperability…or lack thereof
I’ve been asking the question, “Are blockchains interoperable?”, and come to the conclusion that today, no they are not. I recently read this article and decided it’s time to weigh in on the debate https://towardsdatascience.com/blockchain-interoperability-33a1a55fe718.
There are at least two sides to this argument which I shall refer to as “currency” and “non-currency” use cases.
From the currency use case, there are many traditional currencies and many ways to invest that are highly fragmented. In currencies alone, each nation has a national currency, or has an agreed standard (e.g. the Euro). There is no viable plan to consolidate these into a single global currency. Likewise of other investments, even in sectors there differences. For example, in the energy sector, there is oil, natural gas, wind, and solar to name a few. Then there are tangible valuable assets like gold, silver, and other metals. To the investor, diversity can be good.
Apply that to Blockchain, specifically to cryptocurrencies, and perhaps it is best to have variety. There are currently more than 1500 cryptocurrencies (https://coinmarketcap.com/all/views/all/), and the number is steadily increasing. In fact, there is nothing preventing anyone from launching their own cryptocurrency. While these all fall under a single umbrella with common benefits and risks, there is an opportunity for investment diversity. And while I have not studied each in particular, my working assumption is that these are each unique and not interoperable. The way to convert from one crypto currency to another is through “exchanges”, similar to the way you convert fiat currency (e.g. US Dollars to Euros or Pesos, etc).
To the investor, diversity and lack of interoperability is good and desirable. However, from the non-currency use case, silos are often not desirable and the lack of interoperability is a shortcoming.
In 1980s and early 1990s, networking was fragmented with multiple competing protocols. As an example, there was Appletalk, Xerox XNS, Banyan VINES, and Novell’s IPX/SPX to name a few. This lead to scenarios where device A could not “talk” to device B due to lack of protocol standardization. But slowly a standard emerged, TCP/IP based on the OSI model. Once all nodes adopted TCP/IP, the Internet revolution took off. Standardization occurred across individual Local Area Networks (LANs), Companies could then connect their multiple LANs into standardized, routable, interoperable Wide Area Network (WAN) topologies. While LDAP had previously existed, Microsoft’s introduction of Active Directory with its implementation of networking services based on TCP/IP further solidified TCP/IP’s standardization and dominance. Today it is a given.
Today Blockchain technologies are in this same space as the early 1990s. Bitcoin is not interoperable with the next largest network, Ethereum, which is not interoperable with other networks of emerging popularity such as Hyperledger Fabric. Companies are having to pick and choose, others are having to adopt to multiple.
Consider the case of Walmart partnering wiht IBM and adopting Hyperledger Fabric (https://cointelegraph.com/news/walmart-ibm-blockchain-initiative-aims-to-track-global-food-supply-chain). If I want to do business with Walmart in this space, I must adopt the Hyperledger Fabric blockchain and ensure my systems can read / write to this blockchain.
Consider Amazon, a competitor to both Walmart and IBM (who heavily contributes to open source Hyperledger and gains business by helping companies integrate the technology) likely would not adopt Hyperledger, but rather may adopt Ethereum or some other blockchain. Assuming they did, and assuming I also want to do business with Amazon, I must now also adopt their blockchain flavor since the two are not interoperable.
Assume my business also accepts payment via cryptocurrencies, but because they are not interoperable, I am again integrating to multiple blockchains (or an exchange in this case).
The point is, from a non-currency use case perspective (consider the example of accepting payment not as an investment scenario), integrating to multiple systems, platforms, and standards creates cost overhead, technical fragmentation, and is not ideal for long-term interoperability.
In the currency use cases, perhaps there will always be many cryptocurrencies- I suspect only a few will emerge as leaders. For the non-currency use case, while there may never be “one” blockchain platform, there needs to be only a “few” that have some level of interoperability in order to promote wide-scale adoption, scalability, and ultimately viability.
