Crypto Executives Supporting Interoperability Standards for Blockchains to Evolve
Crypto executives are unanimously supporting the formulation of interoperability standards for blockchains. The industry experts led by Chainlink Labs’ executive lament that the absence of interoperability standards denies blockchains the opportunity to optimize their potential.
The Chainlink Labs’ executive analogizes blockchains lacking interoperability standards mirror computers lacking internet connection. By all standards, computers lacking internet connection cannot execute data and value transfer.
Why the Need for Interoperability Standards for Blockchains
Blockchain technology portrays a need to integrate benchmark communications standards to expedite smooth network integration. Similarly, benchmarking communication would prevent confusion that may hamper the Web2 transition to Web3.
Crypto executives admit that the continued emergence of multiple blockchains would ultimately clog the ecosystem. Such possibility warrants the inclusion of communication protocols that mirror the transmission control protocol utilized within the internet.
The head of capital markets at the Oracle-based Chainlink Labs, Ryan Lovell, portrayed blockchains operating without interoperability would leave the networks isolated and unable to transfer data and value. He added that integrating open communication standards would enable the ecosystem to realize scale.
Replicating the internet standards is critical to enable blockchain networks to have a seamless experience. Lovell is supporting the standardization that would enable blockchains to leverage the strength of their features.
Lovell lobbies for interoperability standards, citing the popularity of layer-1 blockchains in the recent bull market. The bull market ushered in new layer-1 blockchains that replicated the isolated operations exhibited across the industry.
Lovell explained that realizing blockchain interoperability is essential and facilitative for financial institutions tokenizing real-world assets. The interoperability is set to prevent stifling liquidity when stuck in the siloed ecosystem.
Undertaking Mandatory Authentication Necessary to Extinguish Vulnerability
In support of the chief executive of Umee, Brent Xu urged other crypto stakeholders to embrace appropriate risk management systems. The executive of the lending platform based upon the Cosmos’ Inter-blockchain communication protocol (IBC) considers the risk assessment critical to fostering interoperability.
Xu challenged financial institutions to prioritize updating the know your client (KYC) credentials. Its accomplishment would facilitate real-world assets’ authentication process before their tokenization.
The authentication of assets proposed by Xu will help ease their identification through the on-chain proof-of-reserve audit. The Umee chief decried the preference for shortcuts amongst crypto operators. Instead, enduring the lengthy and detailed process is necessary to prevent on-chain catastrophe.
Xu referred to the 2008 mortgage crisis when the global financial system suffered tremendous value erosion when the legacy system broke down. He indicated that the loss would have increased through contagion was the financial system integrated the blockchain ecosystem to integrate without due diligence.
Vulnerability of Cross-Bridges
Lovell acknowledged that blockchain interoperability solutions are achievable besides oracles through independent layer-2 sidechains and cross-chain bridges. Oracle suits off-chain data, unlike the affinity portrayed by the previous to on-chain.
Xu echoed previous sentiments by Lovell lamenting the vulnerability of cross-chain bridges. Xu outlined that most exploits witnessed within the decentralized finance (DeFi) protocol occurred within the cross-chain bridge. The notable exploit involved the March 2022 hack, where the Ronin bridge incident lost $600 million.
The Umee executive observed that the exploits often emerged when utilizing the multi-signature security settings. Also, hacks are inevitable for protocols relying upon proof-of-authority consensus mechanisms, particularly in centralized operations.
Xu warned that the interoperability solutions adopted by cross bridges often favour development speed over prioritizing security. Such cross-bridges become vulnerable as they exhibit compromised security.
Way Forward for Blockchain Interoperability
Xu challenged fellow executives for crypto firms to prioritize incorporating interoperability within the blockchain platforms. Doing so will translate to additional security while executing the end-to-end transaction compared to using third-party bridges.
Interoperability for blockchains would eliminate the susceptibility of DeFi protocols to exploitation. DeFi protocols are often targeted by hackers since they can infiltrate the two ends provided by the bridges.
The growing push for interoperability among blockchains is set to promote cross-chain protocols such as one developed by Chainlink to integrate Quant Network’s Overledge, Polkadot and Cosmos ecosystems.
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