Blockchain Is Stuck in the 80s

First it was LUNA. Now, it’s Celsius. These are the types of projects that seem to make sense on the way up but less so on the way down. That they got so large and out of hand is a reflection of blockchain’s ongoing pain point: So much of the space is still built on hype and speculation rather than value-adding use cases.

It’s easy fodder for the growing chorus of skeptics—yet another example that the blockchain emperor has no clothes.

What these skeptics (myself included) are pointing out are limitations inherent in the architecture of blockchain technology today. But what's preventing both wider adoption and progress toward better architectures is one fundamental missing ingredient:

Interoperability

At the most basic level, it means I can’t send Ethereum to my friend’s Solana wallet. It’s sort of like not being able to call your friend from your iPhone because she has an Android. Curious about a next generation blockchain project? You’ll need to download another wallet for that. Would smartphones be ubiquitous today if you needed one phone to access Ebay, and another for Airbnb?

While there are companies like Coinbase that are repackaging DeFi access into centralized and easy-to-use products for their customers, they are always going to be limited to a small subset of what the ecosystem has to offer. What we're left with is a patchwork of incomplete offerings that more resembles the fragmented age of Bulletin Board Systems (BBS) than it does the universal World Wide Web.

The elegance of the internet was that it was open and interoperable. Rather than dialing one service at a time, anyone with an internet modem and a browser could now directly access thousands of websites with just one connection.

The result was dramatic:

The introduction of inexpensive dial-up internet service and the Mosaic web browser offered ease of use and global access that BBS and online systems did not provide, and led to a rapid crash in the market starting in late 1994-early 1995. Over the next year, many of the leading BBS software providers went bankrupt and tens of thousands of BBSes disappeared.

Source: Wikipedia

This was the fertile ground that allowed the internet to grow into what it is today.

Replacing BBSes was just the beginning. Before long, we were enthralled with dancing hamsters, social media communities, and ordering taxis from our phones. With the pandemic, the entirety of our daily lives from work to play shifted, at least for a while, completely online.

It all started with interoperability.

Until we solve that fundamental problem, blockchain will continue to be clunky, inefficient, and unnecessarily complex.

With internet access and a wallet, you should be able to access any blockchain app in the world as simply as visiting a website.

Not another blockchain

Frameworks for tackling interoperability already exist, but prominent proposals such as Cosmos involve yet another blockchain.

Another blockchain means another native token, which brings with it contentious decisions around token distribution, economics, and governance—decisions any programs developed on these platforms must then inherit.

This might be a tough thing to hear for many token holders, but it is a fact that we will have to accept before the blockchain industry can evolve to the next stage. When accessing a system requires the use of a specific token that is owned by a specific group of people, it can never truly be an open standard. This lack of openness might be perfectly fine for individual blockchain apps and products but it has prevented any widely-accepted interoperability standard from emerging.

Instead of a lightweight abstraction layer like the Internet Protocol (IP), we end up with a rigid and prescriptive architecture and bitter political battles over which interoperability solution should be used. The end result is more clunkiness.

Imagine trying to build a virtual economy for an online game with millions of players. Would you want to build that on the modern equivalent of HyperCard or on the open internet?

What we need is a scalable, economically neutral, and technologically agnostic approach—a universal protocol that seamlessly allows value and data to be exchanged from one chain to another, much like how users and servers communicate with each other over SMTP, HTTP, and TCP/IP.

That’s the Interledger approach to blockchain interoperability:

• Scalable—Since Interledger isn’t tied to any underlying system, transaction volume can scale infinitely and transactions complete in milliseconds for significantly lower fees. Interledger’s economies of scale mean that those costs continue to get even lower at scale.

• Universal—Interoperability protocols should be technology agnostic. They shouldn’t be confined to any particular blockchain. And rather than relying on complex functionality introduced via hardforks, any network should be able to integrate its open standards without changes to their platform. Interledger can connect to any blockchain as well as any legacy system, allowing it to serve as a bridge between web2 and web3.

• Simple, accessible, and convenient—Interoperability should reduce friction across all ecosystems while maintaining cost effectiveness. It should be cheap enough such that you can interact with the protocol on an on demand basis, no matter how micro the transaction. With Interledger, developers can mix and match building blocks from their chosen blockchains to build a truly vibrant ecosystem that matches the high expectations for web3. Interoperability also simplifies the user experience. With a single wallet, you should be able to access the entire blockchain universe at the click of a button.

• Neutral—In order to transition from the current speculation-dominant environment to a truly dynamic ecosystem full of real usage, we need to separate economics from interoperability. This will encourage competition among many diverse approaches and reward the most flexible, nimble, and efficient solutions. The blockchain space has always been inherently tribal, with each ecosystem trying to siphon developers from the others. Imagine, instead, if all the tribes united and we all built on a common standard. But for the ecosystem to reach that consensus, our standards for interoperability need to be fundamentally neutral. Interledger isn’t a blockchain and isn’t tied to any particular blockchain. It doesn’t have a native token. Instead, it's merely a simple language for describing payments, similar to the way the Internet Protocol describes communication.

Interledger enables a new ecosystem that best matches the spirit and architecture of the open and decentralized internet. When we’re able to quickly, conveniently, and cheaply exchange value in any form, of any amount, and across any system, we can start to address blockchain’s inherent clunkiness and activate real usage.

Beyond blockchain

Bulletin Board Systems laid the foundations for the rapid growth and development of the mainstream internet starting in the mid-90s.

We quickly realized the limitations of these closed systems, opening the door for an open internet powered by interoperable protocols. Users could now access the entire Web with a few quick clicks. Developers and businesses could build products and services that any customer anywhere could instantly access. Creators could share their work with a global audience.

Anyone could make something and plug it directly into the global, decentralized internet.

And they did. A lot.

As the ability to transfer data became cheap, convenient, and infinitely scalable, our world became evermore interconnected, enabling the emergence of the once science fiction wonders we now take for granted—from Wikipedia to the iPhone.

Blockchains, today, are like the BBSes of the ‘80s. Closed, complex, and clunky while still unlocking the door to something bigger. As a developer, I find that there is something magical about building decentralized marketplaces and software that can autonomously manage its own funds.

But much of this capability remains inaccessible to mainstream users just as the early internet was restricted to university researchers, hobbyists, and hackers. It’s why the average person still isn’t sure what to make of blockchain outside of pure speculation.

History suggests a proven solution to help decentralized technology reach its true potential.

All of which brings us to the million dollar question: How do we get there?

One of the more compelling approaches, today, comes from the Layer-2 Lightning Network. In our next piece, we’ll look at what Lightning is already doing, as well as some of the gaps that still need to be addressed to get to a universal interoperability protocol for the blockchain ecosystem and the world at large.

Special thanks to Alec Liu for his editorial contributions to this piece.