How Blockchain Interoperability Opens the Mainstream Adoption Floodgates

Jeremy Epstein
Dec 13, 2017 · 7 min read

In the beginning, it was “one chain to rule them all.”

The so-called “Bitcoin Maximalists” made the case that the Bitcoin blockchain would serve as the trust layer for the Internet. Everything would rest upon that. That’s all you would ever need. It’s not a terrible idea, but given the contentiousness of the way that the Bitcoin protocol evolves and, for now, the cost and time of engaging in a transaction, it has proven to be sub-optimal for most use cases outside of the “Digital Gold” one (which is very valuable in its own right).

Though others came before it, I would argue that the launch and excitement around Ethereum brought us into the multi-blockchain world, financed by tokens driven by crypto-economics.

One of the the key doctrines of this era was Joel Monegro’s seminal “fat protocols” post. Joel showed in a clear and simple way that value creation in a protocol world happens in a very different way than the application world of Web 2.0.

His post, in some ways, helped provide the fuel and justification for the protocol/ICO excitement that we have witnessed over the past 6–8 months.

The explosion of protocol ICOs (as well as ICOs that claim to be protocols) and the “fat protocols doctrine” has accelerated the timetable for a new layer of innovation for the decentralized economy.

This new layer has been on the minds of many in the industry for quite some time, but on the proverbial backburner in terms of broader awareness.

That is beginning to change.

The layer? Blockchain interoperability.

Fat Protocols, Thin Protocols, and Interoperability

Joel’s core thesis is now coming under scrutiny. Teemu Paivinen argues in “Thin Protocols” that: “protocols in aggregate will continue to capture most of the value, individual protocols will in fact be quite thin and tend towards capturing minimal value, due to the combined effects of forking and competitive market forces.”

Meanwhile, Evan van Ness says “There’s no such thing as ‘fat protocols’” for a few reasons. First off, he says that Joel doesn’t clarify what is an app and what is a protocol. Second, he points to examples like Gnosis and Steem and reasonably asks: are they apps? Protocols? Or both?

Evan then refers us to a post by Stephan Tual, a leader within the Ethereum community who now is at Slock.it (and who has as much first hand experience with decentralized innovation as anyone around because he was at ground zero of “DAO-gate”). Stephan challenges conventional wisdom further by sharing his Web 3.0 Abstracted Stack.

You do not have to be a seasoned blockchain architect to see that these are not, in fact, fat protocols. Rather, they are a series of thin component protocols that work in harmony to deliver decentralized applications.

All three of these authors are far more technical and knowledgeable than I am, but the basic gist as I read it is as follows:

The combination of the speed of innovation within the decentralized world, the ability to fork open source projects at will, and the economic incentive to serve more niches as the overall market opportunity grows is going to lead to an explosion of blockchains.

We are already seeing this occur.

Given the strengths of each team and their vision, each blockchain-based protocol is going to do something really, really well, but no one blockchain can do EVERYTHING really well.

Creating a trust layer as strong as Bitcoin is near impossible, creating a storage layer that is works as well as Storj, Sia, or FileCoin is going to take a lot of time and get become redundant, and there is the well known adage “don’t roll your own crypto,” when it comes to security.

So, as a blockchain developer, wouldn’t you want to be able to take the best of everything and then put it all together so you can build the absolute best application possible?

That’s why interoperability is critical and why the market for it is starting to heat up.

Interoperability and the Standard Gauge of the Railroads

One of the key enablers of the Industrial Revolution and the growth of American and European economies was the standardization of the width of railroad gauges. We don’t think about this too much right now, but think about how, for example, you see the same containers on railroad cars in most place. They go on railroad cars in one country, on a ship to another, and then back onto a railroad (and some cases onto a truck).

This unleashes value creation because manufacturers do not have to waste time or money coordinating efforts across systems. What’s more, the people making cranes, trucks, service vehicles and everything that goes into supporting the movement of railroad cars can now serve more markets more effectively.

The same is true in the blockchain world (as it was in the Web 2.0 world and before that). Interoperability standards free up capital and time to drive value. What’s more, it offers the possibility to pool security (making the whole system more robust against attack) and enable trust-free transactions across chains.

The multi-chain world has created a lot of value and excitement, but moving between them can be challenging. The simplest example are currency exchanges. If you have Numeraire for example and you want to get Bitcoin for it, you have to use a tool like ShapeShift or sell it on an exchange. You can’t just send Numeraire to your Bitcoin address without, at the moment, going through someone else. (Well, you can, sort of through something called cross-chain atomic swaps, but it’s still immature. Still, Decred and Litecoin pulled it off recently).

Another example might be identity. Say you want to log into EtherDelta to trade your tokens. You’ll need a MetaMask extension for your identity. But what if you want to use Civic instead? You can’t.

On the other hand, if you want to log into Prism, you need Civic and can’t use MetaMask.

Now, you need to have two “Identity Wallets.” Frustrating.

This is where standardization fits in.

In an interoperable world, EtherDelta and Prism both set up an Identity requirement layer that can accept either Civic or MetaMask…or UPort or PeerMountain or any of the others that are created.

As an end user, you can use whatever Identity provider you want and the decentralized App doesn’t have to code for 10 different log-in possibilities. That’s value.

The Interoperability Players and their Approach

Make no mistake about it, we are really early in this next phase of development.

One of the key players, Polkadot has a roadmap that puts its own genesis block in 2019. In the meantime, they have already raised $140 million to make it possible, so unless they are ordering caviar and Dom Perignon every day for their team, they should have enough cash to deliver.

While the future may seem far off, what should get you excited, however, is the fact that there are a number of projects out there that are aggressively making their case for becoming an interoperability standard. All of the innovation happening now may be a bit murky, but the arrival of hardened technology is going to enable public blockchains to work with each other and for private-public blockchain bridges to work better while affording each organization the flexibility to choose the set of blockchain protocols best suited for its needs.

Not only will you be able to transfer value, but also you will be able to transfer data across blockchains. This drives further value creation and innovation. Without it, we spend too much time connecting the dots.

If you want to get really deep on the tech side of cross-chain protocols, check out Jackson Palmer’s great explanatory video. He does a really nice job.

We’ll use Polkadot as an example, but as Jackson points out, the general framework is similar across many of the big players, with Cosmos being one with a good reputation (they call themselves the “Internet of Blockchains” and new entrants like Aion, Lamden, Metronome (more focused on cross-blockchain currency), and a totally open protocol put forth originally by Ripple called the InterLedger Protocol.

Polkadot has three main components.

  1. Relay chain- to coordinate consensus and transactions between separate chains
  2. Parachains- these are the constituents (let’s call them the chains that have “bought into” the interoperability solution offered)
  3. Bridges- which offers links to blockchains, like Ethereum, that have their own consensus mechanism

This system requires the same type of game theory and mechanism design that a regular blockchain would and needs to account for ways to:

  • Cryptographically secure a new block to the chain
  • Ways to ensure that members of the network are honest
  • A process to uncover and remove dishonest actors

It is not too difficult to foresee an academic or professional discipline that studies “blockchain interoperability protocol design” and certifies them as “circular” or, more easily said, “this thing should work.” We are definitely going to need that.

When Will We See It and What Will Be the Impact?

My crystal ball is as bad as anyone else in this industry, but the one thing that consistently surprises those of us in the middle of it all is the pace of innovation.

If the Polkadot roadmap is any indication, we are about 18 months out from the first deployment. That gives all of us plenty of time to think critically about what the components are of a solid interoperability standard and which one is most likely to emerge victorious.

At the same time, it provides the opportunity to think and begin developing plans for even more robust, dynamic, and powerful decentralized applications that leverage the “best of the best.”

Finally, it provides a warning sign to the establishment that decentralized technologies are maturing and, led by interoperability, are going to get closer and closer to mainstream use cases and adoption.

Committed to Crypto since 2015. Linkedin.com/in/jer979 @jer979

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