QUEST FOR INTEROPABILITY
Cryptocurrencies are a digital currency designed to work as a medium of exchange through a computer network. This network of computers has to be connected. The connection between these computers and networks is refered to as interoperability.
Interoperability enables blockchains to share and access their data and interoperate with one another. The ability through which blockchains share and communicate with each other is refered to as blockchain interoperability.
Briefly, a blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain.
Goals and challenges for blockchains
Like any other technology, blockchain has goals it aims to achieve.
Blockchain aims at allowing digital information to be recorded and distributed, but not edited. Thus a blockchain is the foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. This is why blockchains are also known as a DISTRIBUTED LEDGER TECHNOLOGY (DLT).
Block chain goals
Blockchains promote transparency. Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed by either having a personal node or using blockchain explorers that allow anyone to see transactions occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. This means that if any Bitcoin transaction can be tracked wherever it goes.
Blockchain technology aims to achieve decentralized security. New blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. After a block has been added to the end of the blockchain, it is extremely difficult to go back and alter the contents of the block unless a majority of the network has reached a consensus to do so.
For example, if a hacker, who also runs a node on a blockchain network, wants to alter a blockchain and steal cryptocurrency from everyone else. If they were to alter their own single copy, it would no longer align with everyone else’s copy. When everyone else cross-references their copies against each other, they would see this one copy stand out, and that hacker’s version of the chain would be cast away as illegitimate.
Succeeding with such a hack would require that the hacker should control and alter 51% or more of the copies of the blockchain so that their new copy becomes the majority copy and the agreed-upon chain. Such an attack would be extremely expensive and hectic.
However, blockchains face a number of challenges
As we now know, blocks on Bitcoin’s blockchain store data about monetary transactions. Today, there are more than 10,000 other cryptocurrency systems running on blockchain. But it turns out that blockchain is actually a reliable way of storing data about other types of transactions as well.
Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG, Siemens, Unilever, and a host of others. For example, IBM has created its Food Trust blockchain to trace the journey that food products take to get to their locations.
Blockchain Challenges
Without doubt, many top businesses, organizations, and policymakers are ready to adopt blockchain technology. But, there are still a few challenges that are responsible for the slow adoption of this technology. We shall look at some of the critical problems associated with this technology.
Scalability
Even though transaction networks are capable of processing thousands of transactions per second without any failure, when it comes to Bitcoin (roughly, 3 to 7 transactions per second,) and Ethereum ( 15 to 20 transactions), there is a remarkable slowdown in processing the transactions, making Blockchain unviable for large-scale applications. Lightning Network for Bitcoin and Plasma for Ethereum can be seen as scaling solutions in facilitating spontaneous transactions with nominal fees. For mass adoption, Blockchain should speed up to become viable.
Interoperability
This is one of the core reasons why organizations are taking long to adopt this technology. Most of the blockchains work in silos and do not communicate with other peer networks as they are incapable of sending and receiving information from another blockchain-based system.
However, to overcome this , various projects have landed up to eradicate this problem. Ark uses SmartBridges architecture to bridge the gap of communication between the networks. This project claims to offer universal transmission and transfer, offering global interoperability.
Energy Consumption
The technology works on the Proof-of-Work mechanism to validate transactions and to ensure trust to add them to the network. This mechanism requires a lot of computational power to solve complex mathematical puzzles to process, verify, and, most importantly, to secure the entire network.
To overcome this issue, the Co-Founder of Ethereum has come up with a solution to switch Proof-of-Work to Proof-of-Stake. With this mechanism in practice, participants need not solve complex puzzles, thus reducing a lot of energy consumption.
Lack of Talent
The demand for blockchain professionals is increasing without a pause, but high-quality talents can be seen as a major challenging factor in the adoption of this technology. As of 2019, the global demand for blockchain engineers was above 517% over the previous year and has gone on to soar up. Despite tremendous achievements, Blockchain is seen as a developing field by most of the crowd.
Though Blockchain developers are high in demand, an acute shortage of blockchain experts and developers is a significant concern for all organizations. The lack of professionally trained and skilled developers for managing and solving the complexity of peer-to-peer networks further leads to a sluggish rate of development.
Lack of standardization
Despite a wide variety of networks that exist, there is no universal standard that blockchain follows. The lack of standardization raises issues such as interoperability, increased costs, and difficult mechanisms, making mass adoption an impossible task. As blockchain technology follows no standard version, it is acting as a barrier for the entry of new developers and investors as well.
Apart from the challenges mentioned above, cost, security, and privacy are the other challenging factors for large scale adoption of blockchain technology.
Let's now take a look at Blockchain bridges, wrappings and native integrations.
One of the challenges faced by blockchain technology is interopability. Blockchians fail to communicate with each other.
Blockchain bridges, also known as network bridges, are applications that allow people to move digital assets from one blockchain to another.
A blockchain bridge or a cross-chain bridge, connects two blockchains and allows users to send cryptocurrency from one chain to the other. Basically, if you have bitcoin but want to spend it like Ethereum, you can do that through the bridge.
Here are some of the most popular blockchain bridges you can use to transfer crypto;
Binance Bridge
This decentralized bridge offers one of the largest selections of tradable cryptocurrencies. It supports popular blockchains like Ethereum, Solana, TRON, among others.
cBridge
Similar to any trustless bridge, there’s a variety of blockchains and cryptocurrencies you can interact with. Though with cBridge you need to connect a wallet before doing anything.
AnySwap
This platform is popular for having features other than transferring crypto. Once connected to a wallet, you can see all of your balances across different types of coins. You can also freely transfer balances from one place to another. However, there are certain blockchains where, if you want to transfer from, you can only go to a specific destination.
This brings us to "Wrapping" in Crypto
Just like we wrap gifts for our loved ones during festivals. Crypto coins can also be wrapped!
Cryptocurrency users/investors complained that their coins or tokens from one blockchain cannot be simply moved to or used on another blockchain. Basically, bitcoins or ether cannot be easily used outside their respective blockchains.
Wrapped tokens were therefore introduced to overcome this limitation.
Wrapped tokens allow interoperability. This means they act as a bridge between blockchains allowing users from one network to use their crypto coins on another network.
This poses a question, what are wrapped tokens?
Wrapped tokens are tokens that are pegged to a particular cryptocurrency but can operate on another blockchain network.
Wrapped bitcoin or WBTC, for example, derives its value from bitcoin prices but can work on the Ethereum network.
Wrapped tokens can be thought of as siblings of stablecoins. The only difference is that a stablecoin is pegged to fiat currency (traditional currency), whereas a wrapped token is pegged to cryptocurrency. Wrapped tokens can also be traded on exchanges just like any other cryptocurrency.
How they work
Let's use this example to understand this. Wrapped Bitcoin (WBTC), is a tokenized version of Bitcoin on Ethereum. WBTC is an ERC-20 token that’s supposed to hold a one-to-one peg to the value of Bitcoin, allowing you to effectively use BTC on the Ethereum network.
Wrapped tokens typically require a custodian – an entity that holds an equivalent amount of the asset as the wrapped amount. This custodian can be a merchant, a multisig wallet, a DAO, or even a smart contract. So, in WBTC’s case, the custodian needs to hold 1 BTC for each 1 WBTC that is minted. Proof of this reserve exists on-chain.
How the wrapping works
A merchant sends BTC for the custodian to mint. The custodian then mints WBTC on Ethereum according to the amount of BTC sent. When the WBTC needs to be exchanged back to BTC, the merchant puts in a burn request to the custodian, and the BTC is released from the reserves. You can think of the custodian as the wrapper and unwrapper. In WBTC’s case, adding and removing custodians and merchants is performed by a DAO.
How can users access them
Users can buy crypto and wrap it through merchants like DeversiFi, Kyber or Ren.
For example, if you want to wrap BTC, the merchant forwards your BTC to a custodian wallet holder who mints new WBTC in exchange for your BTC, which gets safely stored at the merchant’s end.
When you wish to reverse the transaction and return to owning BTC, the merchant takes your request and tells the custodian to burn your WBTC in exchange for the BTC being held. This minting and burning modus operandi ensures that there is one BTC for every WBTC, thus maintaining the 1:1 peg.
OR
You can also simply buy wrapped tokens over other exchanges. Both centralized, as well as decentralized exchanges, allow such transactions.
Native integrations (ICP w/BTC and ICP w/ETH)
ICP W/BTC
Internet Computer (ICP) is a utility token that allows users to participate in and govern the Internet Computer blockchain network.
Any smart contract platform must include bitcoin if it wants to be competitive with other chains. It stands to reason that the platform that has the best integration with bitcoin will outcompete the rest. Right now, that is Ethereum because of its first-mover advantage. However, some people argue that Ethereum has a capital advantage, not a technical one. In fact, Ethereum is susceptible to attacks that could drive holders of WBTC to move their bitcoin elsewhere.
The actual implementation of how a smart contract platform handles bitcoin is very important. With wrapped bitcoin (WBTC), actual BTC is held in a multisig wallet, and WBTC is issued at a 1:1 rate against it on the corresponding blockchain. That may be Ethereum’s WBTC, or Binance’s BTCB. The user must trust that the entities holding the keys to the multisig wallet will not collude with one another and run off with the bitcoin.
The Internet Computer has developed a novel system that interfaces directly with the Bitcoin blockchain. It allows developers to build canister smart contracts that can run code that speaks directly to the Bitcoin blockchain. Canisters can hold bitcoin, read bitcoin transactions (UTXOs), and send bitcoin transactions. The difference is that users can retain access to their private keys while using bitcoin on the Internet Computer. So if someone builds a DeFi dapp that allows users to lend their bitcoin to other users, they are able to lock real bitcoin into a transparent smart contract in a trust-minimized way.
Bitcoin integration on the Internet Computer is made possible by Chain Key Cryptography (a set of cryptographic protocols that orchestrate IC nodes) and Canisters (an evolution of smart contracts).
Also, Internet Computer nodes, which are run by independent parties in independent data centers around the world, have a minimum standard of technical specifications for each machine to ensure a minimum level of computational efficiency.
ICP nodes will interact themselves with Bitcoin nodes and collect blocks.
The networks will then directly integrate , without bridges. Finalised blocks will be included in Internet Computer blocks. The nodes only accept valid finalised blocks that aggregate sufficient work and are buried by sufficient additional confirms.
If you must wrap bitcoin, a version of wrapped bitcoin is planned for the Internet Computer that involves a ledger-based implementation. It won’t be wrapped like WBTC, but similar to tBTC/renBTC while being more secure.
ICP W/ETH
The Internet Computer is providing solutions to the scaling challenges experienced by Ethereum while maintaining decentralization and security.
The Internet Computer and Ethereum will be integrated to utilize novel Chain Key cryptography and the integrated smart contracts.
Ethereum smart contracts will directly call Internet Computer smart contracts, and vice versa. If those smart contracts can interoperate directly, it is possible to create secure decentralized loops, which are end-to-end blockchains. Furthermore, the entire system can be made autonomous, and placed under the control of governance tokens, such that the operators of DeFi websites do not become legal "owners" of such open services.
The integration will also provide a route for Ethereum dapps to solve their usability challenges through the application of Internet Identity.
Pros of ICP W/BTC and ICP W/ETH integrations
Pros
ICP holders will be able to hold, send and receive bitcoin, without the need for private keys
Users won’t need to use bridges for bitcoin and ethereum’s assets. and also keep the network secure from hacking and attacks.
ICP acts like a lightweight Bitcoin node deployed on-chain
Signatures are computed using a cryptographic multi-party protocol
Cons
Currently, the Internet Computer relies on BLS cryptography for threshold signatures. However, this technology does not extend to ECDSA, which Bitcoin and Ethereum utilize. As a result, Chainkey will need to be upgraded to support both cryptographic techniques.
The Cosmos announcement on interchain accounts
Cosmos is a network connecting many independent distributed ledgers (e.g, Ethereum, Bitcoin) to achieve interoperability across blockchains with ATOM as the native token of Cosmos. By the time of this article, ATOM was then trading at $24.33.
The Cosmos team announced on Twitter recently that interchain accounts are available on its network. The interchain accounts will reportedly allow blockchains to control entire accounts on other chains. It will also bring composability and interoperability to the Cosmos DeFi ecosystem.
The main objective behind Interchain Accounts is to enable one blockchain to access the application characteristics of another, which can be in the form of stake, vote, swap tokens, among others.
Leveraging Inter-Blockchain Communication (IBC) should help in providing a straightforward way to create application composability, similar to the interaction of smart contracts on the Ethereum Virtual Machine (EVM).The core architecture is – sovereign, interoperable blockchains. Hence, Interchain Accounts’ composability does not remove the existing advantages of application-specific blockchains.
Having come this with me, let's finally say something about Rune and how it can be a multichain Dex
RUNE is a popular cryptocurrency that is available for purchase and trade on a large number of both centralized and decentralized exchange platforms. The most prominent of these are Binance (centralized) and SushiSwap (decentralized). As of this article, the vast majority of RUNE trading pairs are crypto/crypto pairs.
MultiChain is an extended open source fork of Bitcoin. It can be used to launch custom blockchains, both private and public and is easy to configure. Multichain is the ultimate Router for web3. It is an infrastructure developed for arbitrary cross-chain interactions.
RUNE token is the native reward token of the THORChain network. Because of THORChain's Cosmos Tendermint PoS consensus mechanism, network validators bond (i.e., deposit) RUNE to secure and validate transactions in return for rewards. Each THORChain network validator or node must stake a minimum of 1 million RUNE (about $100,000).
The RUNE token is used as a base pair for other tokens in liquidity pools, and as a settlement asset. All other assets are paired against the RUNE at a 1:1 ratio. Also, RUNE serves as collateral for THORChain nodes in the THORchain ecosystem.
Simply put, THORChain node operators must deposit at least twice the amount of RUNE staked in the liquidity pool. This is a security measure to protect the network from attacks: If a node operator attempts to steal assets, the mechanism also punishes them by slashing their bond value.
According to CoinMarketCap, the RUNE token price was $8.32 as of 23/4/2022 and had a live market cap of $937,307.49. The circulating supply is 330,688,061 RUNE tokens from a total supply of 500,000,000.
