Truly decentralized finance will go beyond isolated blockchains


Related articles

“Yahoo users will not be able to interact with Google email (Gmail) users via email” – If tomorrow’s headlines sounded like this, the earth would stand still. That headline will never come to light for all the right reasons. Blockchain technology and its favorite son, Decentralized Finance (DeFi), however, are headed for this rabbit hole.

Isolated blockchains without windows for external communication dominate the emerging space. Interconnectivity is elementary and synonymous with the primitive human quality of being social. Since the days of the exchange system, transfer and exchange have been the two core practices on which the world is built.

Networking between blockchains and the need for IBC

Currently, blockchain applications and the DeFi juggernaut are nothing more than a balkanized group of solutions that fail to realize their true potential. To overcome this problem, blockchain networks must shake hands with other networks and be open to a sovereign network of interconnected blockchains.

The Inter-Blockchain Communication (IBC) protocol is designed to make this handshake easier. It forms the platform that can transfer data over various networks and facilitates the cross-chain transfer of assets and tokens. And since IBC is a blockchain independent protocol, it has no native network and offers an unbiased solution for the whole world of blockchain solutions.

Large blockchains like Bitcoin and Ethereum are isolated without a transport layer. This limits their capabilities. Imagine Bitcoin being able to run Ethereum-based smart contracts without permission. Had this been the case, users would have been able to use the limitless functionality of Ethereum’s smart contract alongside the globally popular currency Bitcoin (BTC).

Related: A multichain approach is the future of the blockchain industry

Ethereum’s scalability concerns are also evidence of why silo blockchains need inter-blockchain communication. By making networks interoperable, transactions can be parallelized to avoid network congestion. With IBC, Ethereum can validate transactions quickly with fewer gas fees and get more people to use the network and its applications.

Additionally, blockchains that want to be enterprise-level solutions require IBC and interoperability to serve their customers on a large scale. By enabling cross-chain transactions, networks like Ethereum and Bitcoin can enjoy institutional acceptance. As? To this day, these networks work on the probabilistic execution of transactions, i.e. the finality of blocks. But with IBC, chains and peg zones can be used to guarantee finality.

With blockchain technology aiming to reshape the work of large industries like supply chain and healthcare, IBC is bringing a potion of reliability to the technology and its solutions.

Previous efforts at IBC were uniformly fragmented

Inter-blockchain communication and interoperability are not new concepts in the blockchain world. Efforts to achieve them have been under discussion for years and there have been several projects working towards connecting different blockchain networks. But the projects advocating interconnectivity were themselves fragmented as their approaches, designs, and use cases varied.

Related: Professional traders need a global ocean of crypto, not hundreds of lakes

Protocols like Cosmos with its Tendermint core, Polkadot and Chainlink have advocated IBC and interoperability in their solutions. The emergence and adoption of these solutions is a huge step towards an interoperable future.

Blockchain agnostics and omnichain are the way forward

In the future, exclusivity will be the biggest enemy of blockchain technology. In times of decentralization and community-first approaches, exclusive networks are treading a dangerous path. Protocols must encompass IBC and provide large-scale solutions.

In addition to the integration of IBC, blockchain-agnostic and omnichain are two weapons that future protocols can equip themselves with. This would remove the element of exclusivity and open them up to limitless utilities across networks. It would also improve the feasibility and reliability for institutions, corporations, and perhaps even governments, to adopt blockchain-based solutions.

The DeFi juggernaut catalyzed the growth of the blockchain and crypto space in 2021. Interoperability and IBC are the ones to look out for in the future.

This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.

Jared Moore is Director of Marketing at Sifchain, the omnichain solution for decentralized exchanges. Jared has extensive experience in the crypto space, particularly with exchanges.