How to accomplish blockchain interoperability

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For years blockchain interoperability has been a buzzword and a top priority in the crypto and web3 industry. Despite the multitude of platforms, protocols, and projects dedicated to solving the lack of cross-blockchain communication, widespread interoperability within the expanding ecosystem remains unattainable.

Despite the volatile crypto price swings we’ve seen recently, 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 numerous industries, including supply chain management, which increases efficiency by eliminating the need for multiple intermediaries thanks to its transparent and traceable features.

We cannot discount the progress blockchain has made in the last year or two, both on web3 and with its spread into other industries such as real estate and healthcare. Despite advances in areas like decentralized finance, decentralized physical infrastructure networks, and tokenized real-world assets, if assets can’t be transferred seamlessly between major blockchain networks like Solana (SOL) and Ethereum (ETH), how can we expect mainstream adoption?

Whether it’s cross-chain bridges like Wormhole, layer 2 solutions like Arbitrum, interoperability-focused blockchains like Polkadot (DOT), or interoperability protocols like Chainlink (LINK), each of these solutions tends to solve only one aspect of the problem.

Vulnerabilities associated with cross-chain bridges and sidechains are well documented, as they rely on complex smart contracts and often use centralized custodians to hold funds during transfers. This creates a single point of failure that hackers can exploit and exploit. All we have to do is examine the Ronin Bridge hack from 2022, where a hacker made off with approximately $625 million in cryptocurrency via a hacked private key to understand the risk they pose.

Blockchains like Polkadot or Cosmos have implemented innovative and complex mechanisms to try to solve the interoperability puzzle. However, Polkadot’s interoperability is limited to its ecosystem and is not scalable. Cosmos offers a little more flexibility, but it suffers from security vulnerabilities and has failed to fulfill its mission of being the “Internet of Blockchains.”

The main problem with today’s limited blockchain 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 being able to transfer assets and data between blockchain networks like Ethereum or Binance would be much more beneficial for the entire web3 space.

Solving this will enable seamless asset transfers by making them faster, cheaper, and more secure, and even increase the use of stablecoins, altcoins, and tokens across multiple chains. Moreover, interoperability will greatly enhance the role of DeFi protocols by enabling the creation of unified liquidity pools that will create deeper and more stable markets and reduce slippage in larger transactions.

Overcoming these liquidity hurdles doesn’t just mean a smoother flow of funds and higher token values. This could also mean reduced reliance on centralized exchanges that essentially act as risky bridges, improved scalability, a more user-friendly experience, and greater innovation potential across web3.

While interoperability seems to be less and less of a priority as other web3 developments and trends make headlines, there’s still a lot of R&D taking place behind the scenes. Various projects are developing their own solutions, but no single framework has emerged as a universal standard.

Kima, for example, represents one of the most promising interoperability protocols currently developing a solution to unify the entire blockchain ecosystem. Kima, an asset-agnostic, peer-to-peer money transfer and payment protocol, has developed a flexible, decentralized solution for moving assets across blockchains without using smart contracts. Backed by a decentralized payment layer, universal payment system, and liquidity cloud, Kima has undergone three years of intense R&D in preparation for its upcoming mainnet and token launches.

Kima has provided pre-launch support for all major blockchains and is developing partnerships with a wide range of web3 and TradFi players as its protocol was also built to connect digital assets to fiat systems such as bank accounts and credit cards. Kima positions itself as a key piece of infrastructure at the intersection of both DeFi and finance by facilitating seamless transfers between fiat and crypto.

Promoting true blockchain interoperability is certainly a challenge, but progress is being made. It requires broad collaborations between competing networks and adherence to a universal standard. Standardizing communication protocols, facilitating the highest level of security, and maximizing decentralized management is a good starting point. Continued investment in research combined with a thriving community of dedicated developers provides sufficient optimism that true interoperability can be achieved.