Blockchains need to move toward standards for interoperable asset transfers
Today’s nascent economy, comprising proprietary blockchain tokens, digital tokens, stackable coins, and CBDCs, dictates the operational standards for blockchain. The system of transferring assets through the network was born a few years ago. The concept took shape almost immediately after a large number of blockchain technologies were founded and launched. Initially, asset transfers focused predominantly on transactions between assets and tokens of the chain itself, leading to the emergence of several other decentralized exchanges. Although asset exchanges are useful, the ease of exchanging and transferring assets and other information between blockchains simultaneously without disrupting their ownership is no less relevant and much more actively applied.
Currently, there are 400,000 bitcoins ( BTC ) involved in transactions beyond the bitcoin blockchain, and this number is continuously expanding. A significant portion of ether ( ETH ) has also been transferred to other networks. Some of these assets are commonly referred to as ‘wrapped tokens’ to distinguish them from a similar asset held on a separate network. The process of transferring assets from more established older blockchains to more modern ones is done through some so-called bridges. Besides bridges, there are other ways of working in this vein. In particular, there are certain protocols between blockchains, but these are oriented more towards creating alternative versions of the same blockchain that are created by its owners.
In principle, bridges incorporate the principle whereby private and public keys are hashed without conflict, making it possible to transfer blockchain assets to one another between chains that apply similar address generation algorithms. This effectively means that if a user has obtained a private key with the ability to enter an address on a blockchain, they will be able to access the same key to the same address on another blockchain that operates on the same private and public key hashing principle. A similar way has been made possible to create ether bridges in other networks operating on a similar address system, such as Binance Smart Chain, Avalanche C-Chain, or Toronet.
What about the role of standards in the development of blockchain technology? The creation of standards and protocols by technology practitioners generally improves the entire system, makes it easier and enhances the quality of applications, and ensures consistency of functionality across providers. In the case of blockchain, the standards are known. The general essence of a decentralized blockchain network is the adoption of a standard: a decentralized agreement between an independent series of nodes to implement the same code or standard, so that they can come to a consensus on a common registry. The use of other standards in blockchain in certain use cases has already contributed to serious development. ERC-20 and ERC-721 are two such examples.
Blockchain technology and the assets created from it are evolving and appear likely to persist into the future, but there are still some innovative and technological projects to be developed. The asset and payment development ecosystem is likely to encompass multiple blockchains, blockchain assets, digital and cryptocurrency tokens, stablecoins, and central bank digital currencies (CBDC). The development of interoperable blockchain standards is hampered to some extent by the belief of individual technologists that the latter’s chosen blockchain will end up being the only one. This is a maximalist idea that is difficult to follow through on.
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Tatiana Leverya, Team bit4you.