For blockchain technology to fully move from Web2 to Web3, industry observers claim that there needs to be a benchmark communications standard that can be quickly adopted by all networks.
Numerous blockchains are anticipated, and an ecosystem requiring these protocols is needed, much like the Transmission Control Protocol/Internet Protocol (TCP/IP) used on the Internet.
Interoperability Solutions
According to Chainlink Labs’ Ryan Lovell, director of capital markets, blockchains without interoperability are like computers without the internet: they are isolated devices that are unable to transport information and value across networks.
This is especially significant because numerous new layer-1 blockchains emerged during the most recent bull market. But almost all of them work independently of one another.
- Needs a benchmark communications standard that can be quickly adopted by all networks.
- Numerous new layer-1 blockchains emerged during the most recent bull market.
- Financial institutions must check off KYC credentials to confirm their legitimacy.
For financial institutions wanting to tokenize real-world assets, Lovell emphasized that blockchain interoperability is “crucial” since it would prevent liquidity from being “stifled” by only existing in a “siloed ecosystem.”
Before real-world assets are tokenized on-chain, according to Xu, financial institutions must check off Know Your Client (KYC) credentials to confirm their legitimacy. They must also ensure that the tokenized assets can be recognized by an on-chain proof-of-reserve audit.
According to Xu, many of these breaches have originated from proof-of-authority consensus processes or multi-signature security configurations, which are regarded as being centralized and much more prone to attack.
He continued by saying that many of these interoperability solutions had first put “speed of development” ahead of security, which had backfired.
Chainlink’s Cross-Chain Interoperability Protocol (CCIP), the IBC, which makes use of the Cosmos ecosystem, Quant Network’s Overledger, and Polkadot are a few of the most widely used blockchain interoperability protocols.
