Why Blockchain Interoperability Matters for Web3 Adoption
Disclaimer: The Industry Talk section features insights by crypto industry players and is not a part of the editorial content of Cryptonews.com.
Web3 is currently one of the hottest buzzwords flying around tech circles across the globe, with billions of dollars of venture capital pouring into the space. There are endless news headlines about how 2022 will be the year that we start taking control of our own data and assets using decentralized applications running on blockchains.
Except, there’s a core problem with this thesis – or at least, the timeline. The underlying infrastructure still has fundamental problems to address – mainly, dependence on legacy architecture. Consider that there are over 4.5 billion internet users, and yet crypto has only around 300 million users. Yet scalability is still an issue that’s debated endlessly, as blockchain core developers strive to meet the transaction speeds to which users have become accustomed on Web2.
Ethereum’s dominance over the blockchain ecosystem is now undeniable. The platform had a first-mover advantage like no other. After launching in 2015, there was a boom in development as innovators latched onto the new economic opportunities of token minting. While the heady days of the ICO era are long behind us, many projects still zoom in on Ethereum as a development platform simply because of the network effects.
From There to Here
How did this happen? After all, the idea of “Ethereum-killing” blockchain platforms has been around almost as long as Ethereum itself. But the earliest competitors to Ethereum made a huge mistake. They attempted to compete on Ethereum’s main weak point – lack of scalability – often by compromising on decentralization. Operating fewer network nodes meant they could process transactions faster. Of course, this also meant they could compete on price and undercut Ethereum’s fees by having nodes process many more transactions.
The problem was that the developers of these platforms vastly underestimated the network effect of Ethereum. So their platforms struggled to gain adoption. Only a small handful of projects at that time – most notably, Cosmos and Polkadot, identified that interoperability was a critical success factor in gaining blockchain adoption. Platforms that could interoperate with one another offer huge advantages over those that can’t. Most notably, they can tap into Ethereum’s vast active network of developers and users.
However, there are other advantages to interoperability. When platforms and projects can send assets and data across networks, the value of those assets and data actually becomes greater. Consider the value of a small national currency compared to the might of the US dollar or the euro, which derive their global value from the fact that they are much more widely used. This same principle explains the explosive growth in DeFi – once developers started building apps and services that communicated and allowed the free transfer of assets, those assets became more valuable, and more liquidity began to flow into the space.
Cosmos – The First-Mover in Interoperability Reaping Rewards
Now, the projects that recognized this early on are showing evident signs of success in terms of adoption and token price. Cosmos was the first interoperable ecosystem for blockchains, and there are now an impressive four projects in the top twenty ranking cryptocurrencies, currently holding a combined market cap just short of USD 70 billion. There’s Cosmos’ native ATOM token, Terra’s stablecoin UST and its native LUNA token. Then there’s Cronos (CRO), the blockchain started by the digital asset behemoth Crypto.com that’s since broken away to become its own open-source project maintained by Crypto.org.
From the perspective of interoperability, Cronos is the most interesting project because it’s built using Tendermint and is part of the Cosmos interoperable ecosystem. It’s also interoperable with Ethereum, meaning it’s the only platform so far that bridges the Cosmos and Ethereum dApp ecosystems and, as such, can facilitate the flow of liquidity between both. It’s also compatible with other EVM-compatible blockchains, which includes BSC, Polygon, Avalanche, and many others.
A Platform for Scaling Web3
As a result of this unique position, Cronos is now positioning itself as the platform that’s able to massively scale the DeFi and Web3 user community by providing developers with the ability to instantly port apps and assets from other chains. Thanks to its proof-of-authority consensus, it also offers low fees and very high throughput with fast finality, capable of supporting 50 million transactions in a single day.
The mainnet has been in beta since late November, and the project now ranks #9 among all public blockchain in total value locked. It has over 10 million users and over USD 2.5 billion locked in applications.
As it’s still relatively soon after the mainnet launch, Cronos is actively encouraging development on its platform with an accelerator program that’s awarded over USD 100 million in grants to support the ecosystem.
Circling back to the idea of Web3 becoming dominant by the end of this year – the fact that interoperability is now more than a buzzword will certainly help to speed up adoption. However, if Web3 is to gain over a billion users or more by the end of this year, developers need to reduce the dependence on legacy architecture and begin unleashing the true benefits of blockchain interoperability.
