Blockchain needs to move towards interoperable asset transfer standards
Cross-chain asset transfer has existed for several years. This concept developed almost when multiple blockchains were developed and started to be adopted. In the initial application, the focus of the transfer was the exchange between the original assets of the chain and the tokens, which led to several decentralized exchanges later. Although asset exchange has its utility, without changing its identity, the pure transfer and movement of assets and other data on the blockchain is equally important and becomes more and more frequent.
Currently, 400,000 Bitcoins (Bitcoin), and continue to increase, exist and be used for transactions outside the Bitcoin blockchain. A lot of ether (Ethereum) Has also been ported to other networks.Some of them are called Wrapped token When they exist in their local network, distinguish them from the same assets. The transfer of local assets from the more mature old blockchain to the new blockchain is done through so-called bridges.
However, the processes developed are not uniform and tend to focus mainly on one-way transfer to the new network, which may involve significant slippage or loss of value, and is usually not easy for end users to navigate.
Current efforts to transfer pure value between blockchains
In addition to the bridges created by the newer blockchains to facilitate the transfer of local assets from the old chains, there are other work moving in this direction. These include some blockchains that define cross-chain protocols, but are more suitable for alternative versions of the same blockchain generated by their users.
Although these may have advantages, they are unlikely to become universal solutions, and most companies are unlikely to spin off their own chain stores, just as companies build their own small banks to obtain high-quality financial services. Solutions that involve one blockchain as a custodial blockchain to transfer value between all other blockchains are also unlikely to prevail.
The role of standards in advancing blockchain technology
Establishing standards and agreements between practitioners of any technology usually leads to advancements in the entire field, easier to use and better applications, and benefits end users by providing consistent functionality between different providers. For blockchain, the standard is very familiar.
The whole spirit of the decentralized blockchain network is to adopt the standard itself: a group of independent nodes run the same code or standard agreement in a decentralized manner so that they can reach a consensus on a shared ledger. Other standards in the blockchain have led to a significant increase in certain use cases.Two such examples are ERC-20 with ERC-721 standard. These two standards have contributed to a massive increase in technological development in the following ways.
ERC-20 standard. The standard was developed on the Ethereum network to define tokens and include the method by which such tokens must be made public to comply with the standard. This standard has been adopted outside the Ethereum blockchain. The effect of this standard is reflected in many obvious and less obvious aspects.
What’s more obvious is that tokens can be easily deployed with fewer technical skills than there is no standard. This led to the peak of ICO growth in 2017, but it continues to be used to create tokens today, some of which are more useful than others. What is less obvious is that the standard shows the benefits of exchanges being able to easily list standard-compliant tokens and for users to transfer these tokens to standard-compliant multi-blockchain wallet applications.
ERC-721 standard. The standard aims to define non-fungible tokens (NFT), or more simply, to define unique digital items. Similar to ERC-20, compliance with this standard allows for a unified interpretation of unique asset tokens on devices and applications, regardless of the blockchain on which they are built.
This standard has spawned the growth of NFT in 2021. In addition to marking digital art, the application of this standard is currently leading the growth of NFT in the gaming industry and leading the phenomenon of paid games. This use case is a growing part of the gaming industry, and it seems to be bringing new gamers from different countries into the industry.
The above two examples demonstrate the impact of widely accepted standards in the blockchain industry on growth and user adoption. The standard of value transfer between blockchains is also beneficial to end users.
For example, consider the current state of the payment system implemented on the blockchain. Using local blockchain tokens to pay another party on a different network involves the party setting an address on the payer’s blockchain and accepting the tokens, or the payer converts the local tokens into the recipient’s capital on the exchange. Regional blockchain tokens. In many cases, this process is not user-friendly and is full of fear of losing funds. Many users resort to the initial trial payment. Sometimes, users must also buffer the transaction amount to ensure that the recipient obtains the expected value in the event of slippage, fluctuations, or fees.
Another option is to denominate their transactions in fiat stablecoins, as many major blockchains have also created stablecoins on them. However, the use of stablecoins across blockchains will encounter some of the same obstacles and will also benefit from uniform standards. Interoperable asset transfers between chains will also allow the establishment of payment aggregators, providing end users with simplified options when it comes to mobile assets and cross-blockchain payments.
Potential elements of cross-chain asset transfer standards
Reviewing some of the existing bridge implementations can help understand what might be needed for cross-chain asset transfer standards. These bridges mainly use the non-conflicting characteristics of public and private key hashing methods to enable blockchain assets to span chains that use similar address generation algorithms. This simply means that if a user has a private key that can access an address on the blockchain, the user will be able to use the same key to unlock and access the same address on another blockchain that uses the same private-public relationship. Key hashing method. This technology has been used to generate bridges to transfer Ether to other networks that use similar address systems, such as Binance Smart Chain, Avalanche C-Chain, or Toronet chain. A decentralized oracle system monitors the blockchain. When value is transferred from one address to a designated exit or portal address (or smart contract), the oracle transfers assets to the same address on another chain, and at the same time Knowing the owner of the chain, the first chain will also have the key to access the same address and assets on the other chain. This is shown in the figure below.
Even if the blockchain does not use the same private key-public key algorithm, this basic process can be extended to define a common token transmission standard. Fundamentally, the transaction part of the blockchain includes message encryption elements and transaction input and output specifications. The message can be formatted as a protocol including the target blockchain identifier and the target address. The same oracle that scans the portal address or contract in the homogeneous address bridging method will similarly use the information on the target chain and target address to acquire, decrypt, and transfer assets.
Another aspect of the standard will use the uniqueness of the blockchain transaction ID to ensure that all transmissions are matched by the oracle and recorded only once on the target chain. In addition, the portal address can be implemented in a keyless manner so that only signed and verified transactions can trigger transmissions in and out of it. This ensures that the system is automatically coordinated and will not accommodate any manual processes that may affect the integrity of the portal address or the preservation of the hidden value behind the process. A framework is described above to emphasize the fact that the features that establish standards already exist in most chains, and the agreed agreement may be just the next step in defining such standards.
Blockchain and the assets created on it continue to grow and may exist for a long time, although more innovation and development of the technology are still in progress. The developing asset and payment ecosystem may include multiple blockchains, blockchain assets, digital and encrypted currency tokens, stablecoins, and central bank digital currencies (CBDC).
Some technology practitioners believe that their preferred chain will eventually become unique in some way, which to some extent inhibits the need for interoperable blockchain standards. This is a concept of maximization, and it is unlikely to be the end. Experts in this field will not regard the success of any chain as a zero-sum proposition, so as to provide good services to technology and users. This should not be the case with existing traditional financial institutions, especially those financial institutions that adapt to rapidly changing technologies. Blockchain applications can gain a lot of potential adoption from people with no bank accounts and insufficient bank accounts to allow several chains in emerging economies to succeed.
In addition, no major human technology solutions have evolved into a single platform or supplier ecosystem. Not traditional financial or payment systems; telecommunications providers or platforms; automobile manufacturing, including recent electric car manufacturing; social media networks; not even private space flights like the capital-intensive ones. Only geopolitical considerations and the development of CBDC may lead to a final state that includes a combination of multiple platforms, providers, and technology variants.
Currently, no application in the blockchain has completely eclipsed any other technology previously used in the same application. Some potential can be observed in fast cross-border payment systems; decentralized finance; protection of digital art or valuable digital assets, including music and video; game systems that record in-game assets and rewards; fans and loyalty tokens; Transparent and responsible grant and charity distribution systems; agricultural subsidies and loan tracking applications; and, to some extent, payment systems.
The development and adoption of cross-blockchain asset transfer standards will greatly help make the technology more useful in many of the listed application areas, including payment systems. It will also help to move the technology away from the current trend that growth follows the Bitcoin halving cycle once every four years, rather than due to mass adoption or potential real-world economic and financial activities.
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The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Ken Alabi He holds a Ph.D. in Engineering from Stony Brook University and a master’s degree in Computer-Aided Engineering from the University of Strathclyde. He is an IT professional, programmer and publishing researcher, and has published many peer-reviewed publications in various technical fields. The author also published articles related to blockchain, the decentralization of business processes similar to blockchain technology, and the interoperability of blockchains.