Yes, cross-chain tech is the next big thing and the exciting thing is nobody knows where it leads.
In 2017 anywhere from US$3.8 billion to US$5.6 billion was raised through the issuance of ICOs. It is incredible to think that the majority of those ICOs were issued on the Ethereum blockchain. The really scary thing is that this trend may not get reversed. It could grow bigger over time and maybe even threaten the existence of Ethereum or bitcoin.
Only those most adaptive to change survive, or so says Darwin, in his origin of species. And nothing could be more correct in the domain of the blockchain. The current state of play is that 2017 was the year of the ICO. 2018 is shaping up to be another big year for ICOs but regulatory hurdles have put a dampener on some of the excitement.
As the cryptocurrency market manages to catch its breath for a couple of seconds the competition for cross-chain operations is about to be hotly contested. This competition is likely to place blockchains like bitcoin, Ethereum, Neblio, Eos and others on a direct collision course.
Some important questions this article will look at is: cross-chain protocols, what are they and why are they important for things like commerce or finance? Where is the industry with cross-chain protocol research and development, and also what is the future direction of cross-chain protocols?
Understanding cross-chain protocols
There is a large consignment of excitement around the ongoing and rapid development of cross-chain protocols. Some of the talk around the issue is that these cross-chain protocols and the power of the blockchain are developing a new internet, internet 3.0.
The trouble is that there are few, if any, genuine experts in the field. Information regarding cross-chain developments is in Github repositories and Slack channels. Both information hubs are neither easily available to the public or particularly useful.
Although that is true, it must be kept in mind that a new era of digital commerce and society is being shaped by blockchain as well as cross-chain research and development. The applications for those areas of expertise are as broad as all functions that computers are now, and in future, could be used for, according to some.
OK, so the blockchain is going to be a big deal in the future and cross-chain protocols are apart of that. But what is not understood well is where the industry is at in terms of development. For example, there are many open-source blockchain projects (bitcoin) and there are many that are not published (Ripple).
What does it mean for a blockchain to survive?
What is clear is that the competition in the space is only just arriving. With it are concerns whether both types of blockchain and cross-chain development projects can survive, or even co-exist, as they presently do. There are those that believe only open-source blockchain projects will survive.
The trouble with that kind of statement is that it is hard to even understand what survive means in the sense of a blockchain. In a relatively simple example, Edward Snowden claimed that for a protocol to store a permanent record of every transaction to have ever occurred is unsustainable in the long run.
The implication here is that Bitcoin at some point could be impractical. Even if so, it is unclear if that mean its value drops to zero. It seems that could only happen in the case the entire bitcoin developer community and all those utilising bitcoin would choose other methods. The last bitcoin is set to mined in around the year 2140. Who knows what could happen between now and then.
But in the case of Ripple Labs., whose blockchain technology is close-source, meaning that the code that underwrites the technology is inauditable. It is supposed that those models of blockchain development will be more difficult to survive in the coming era of open commerce. But those example only consider open-source blockchain Vs. close-source. So if cross-chain protocols are the next big thing, what will they be, open-source or close-source?
It seems hard to imagine that high finance could be operating blockchain technology based on open-source code. The ironic thing is that open-source code is believed to be more secure than close-source code. It is believed that Ethereum is the most advanced blockchain in terms of its adaptability to cross-chain protocol developments.
Much ado about nothing?
The field is incredibly young. The most tangible products in the cross-chain research and development sphere has come in the way cross-chain atomic swaps. It needs to be remembered that cross-chain atomic swaps are only a part of cross-chain protocol developments. At most these protocols have only transferred value from one blockchain to another
That basically means that the most significant development in the area of cross-chain protocols has been to trade cryptocurrencies. That is not to discount its value. Widespread cryptocurrency trading could be simplified dramatically when atomic swap protocols become user friendly.
The sentiment of the blockchain industry is hardly focussed on pure token transfers. Perhaps a reason for this is that Ethereum is still to implement its Raden Network protocol. Raiden network is a protocol upgrade to the Ethereum blockchain which in theory could allow swapping of any ERC20 token. Its release was slated for March 2017, but is yet to materialise.
That has still not occurred and seems to be getting further behind competitor blockchain Neblio. Neblio is a decentralised blockchain focussing on commercial ecosystem development through the provision of decentralised apps. Its Neblio token protocol or NTP1 is functional and can swap any token generated on its platform.
Without much to write about concerning token swaps on the Ethereum blockchain attention is placed elsewhere. The Ethereum blockchain’s turing complete coding positions developers to utilise the blockchain as a platform for the development of decentralised apps. This has been the main driving force behind most ICOs.
What developments are there?
But generalising, this has mainly only brought about change with crowdfunding and headaches for federal regulators. The really interesting stuff is getting these Dapps to communicate with each other and interface with each other. That activity is called interoperability. Interoperability between blockchains is driven by smart contracts. A feature the bitcoin protocol is starkly without.
If it could be imagined that stacking one layer of blockchain technologies on top of another and then again another, but with all those stacks being linked by smart contracts that kind of structure makes dapps. Smart contracts are the microtransaction imputed on the various blockchains that are developed on the Ethereum blockchain.
There are some very useful technologies being developed on the Ethereum blockchain by this technical structure. For example, dapps have developed to the point where specialised groups of developers are partnering, like Golem and Streamr. The different function their products bring to the table are beginning to be combined in different layers supporting dapps.
Believe it or not, that is what is getting the Ethereum development community excited. But the reality is that very little has been achieved by way of cross-chain protocols. But that is not to say that the capacity does not exist for there to be good success in the future. The real trouble is knowing whether or not that is confined strictly to the Ethereum blockchain or not.
Competition in the dapps-sphere
That is to say that Ethereum is not the only smart contract empowering blockchain, there are many others who are developing rapidly like Neblio, Eos, Neo and others. Even bitcoin, which is notoriously attacked as being inferior for its non-turing complete language, is slowly developing capacity for smart contracts.
Since the development and successful deployment of the Lightning Network on bitcoin’s MainNet and Lightning apps, unsurprisingly shortened to Lapps, have continued to grow in number. Whether this could rival Ethereum’s smart contract power is debatable, but the competition is only beginning.
The future of cross-chain protocols
But these blockchains are what can be called silos. That meaning the product of those blockchains is contained completely within those blockchains. Even atomic swaps don’t interact with other blockchains, all they really do is just partner corresponding wallets in one transaction and record the transaction on the respective blockchain.
It is my guess that in the future these siloes will be broken open. What does that mean? At some point in the future blockchains will have the ability to communicate with one another and transact on each other’s blockchains. That will be an important event. It will allow seamless transfer of value across all digital avenues throughout the world.
The biggest trouble is knowing how it will get there. Some of the more publicised cross-chain protocol developers like Fusion or Polkadot seem less than adequate. Fusion, for example, are basing there cross-chain protocol on aggregating users and their private keys. The solutions in their white paper are also just problems which they admit still need solving.
Polkadot do the same. But even more troubling is that their whitepaper is hidden in their Github page away from easy access. When looking at it the way the Polkadot blockchain is incentivised is by inflating the amount of tokens by 10% each year and calling it incentivisation (see last paragraph p5-6). That does not seem sustainable in the least.
So doubtless there is a lot of work to do in the area of cross-chain protocols but their impact on commerce will be huge. Currently the competition is only just warming up and the technological developments are a long way from having economic impacts on the broader cryptocurrency market. Yes, cross-chain protocols are the next big thing, but don’t bet on Ethereum being the only horse in town.