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Blockchains need to switch to standards for interoperable asset transfer

10 min reading

As Blockchain is developing at a rapid pace it needs to have a compatible form of source which would help in the process of development.

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The transfer of assets from the cross-chain has been going on for several years. This concept almost developed when several blockchains were developed and adopted. In its original application, the transfer focused on the exchange between the assets and the token chain itself, which then resulted in several decentralized exchanges. While there are benefits to exchanging assets, simply transferring and moving assets and other data cleanly through the blockchain without changing their identity is just as important and becoming more common.

There are currently 400,000 Bitcoins (BTC) in existence and being used and increasing in transactions outside the Bitcoin blockchain. Good Ether (ETH) is also carried over to other networks. Some of these are called packaged tokens to differentiate them from similar assets while on your home network. The transfer of assets themselves from older, more established blockchains to newer ones occurs through what is called a bridge.

However, the developed process is not uniform, focusing mainly on one-way transmission in newer networks, can be associated with significant deviation or loss of value and is generally not easy to navigate for the end user.

Ongoing efforts to transfer net worth between blockchains

Apart from the bridges created by newer blockchains to facilitate the transfer of local assets from older chains, there is some other work in this direction. This includes some blockchains that have established protocols between blockchains but focus more on alternative versions of the same blockchain created by their users.

While they may have their justifications, they are unlikely to be the ultimate solution, and most companies are unlikely to break the chain on their own, nor is it possible for companies to set up their own small banks to gain access to quality financial services. A solution where the blockchain acts as a custodian of the blockchain to transfer value between all other blockchains is also unlikely to work.

The role of standards in the development of blockchain technology

The creation of standards and protocols among practitioners of each technology typically leads to field-wide advancements, easier-to-use and better applications, and benefits end users by providing consistent functionality across multiple vendors. Blockchain standards are well known.

The whole spirit of a decentralized blockchain network is the implementation of the standard itself: an agreement by a group of independent nodes to decently apply the exact same code or standard so that they can reach consensus on a common registry. Other blockchain standards have resulted in significant growth in several applications. Two examples are the ERC-20 and ERC-721 standards. These two standards have accelerated the great growth of technological developments in the manner described below.

  • ERC-20 standard-This standard was developed on the Ethereum network for token definition and contains the methods that these tokens must define in order to conform to the standard. The standard is adopted outside the Ethereum blockchain. The effects of this standard are manifested in very clear and in some less obvious ways. The ease with which tokens can be used with less technical skill than without standards is clearer. This led to an initial growth in the supply of coins that peaked in 2017 but are still used today to create tokens, some of which are more useful than others. Less clearly, this standard demonstrates the benefits of the ease of exchange that can list tokens following the standard, and also that users can transfer these tokens to a standard-compliant multi-blockchain wallet application. 
  • ERC-721 standard- This standard was developed to define an irreplaceable token (NFT) or, more simply, a unique digital element. As with ERC-20, compliance with this standard allows for a uniform interpretation of unique asset tokens across devices and applications, regardless of the blockchain on which they are created. Since then, the standard has seen NFT grow in 2021. In addition to its use for digital token arts, the current adoption of this standard is driving the growth of NFT in the gaming industry and leading the pay-to-pay gaming phenomenon. This use case is a growing segment of the gaming industry and seems to be attracting new players from different countries in the industry.

The two examples above demonstrate the impact of standards widely used in the blockchain industry on consumer growth and perception. Blockchain value transfer standards will also benefit end users.

For example, consider the current state of payment systems implemented on the blockchain. For payments with their own blockchain tokens to other countries on a different network, these parties must set up an address on the payer's blockchain and receive the token, or the payer converts his own token into the recipient's over-the-counter blockchain token. This process is in most cases very inconvenient for users and fraught with fear of losing funds and many users resort to initial trial payments. Sometimes users also need to save the transaction amount to ensure that the recipient gets the expected value in case of negligence, instability, or fees.

Another option is to name your transactions in fiat stablecoins, as stablecoins have also been created on many major blockchains. However, the use of stable coins on the blockchain also experiences some of the same obstacles and would also benefit from a single standard. Transfer of interoperable assets between chains will also enable the creation of payment aggregators, which will provide a simplified way for end users to move assets and make payments via the blockchain.

Also read: Balancing social and financial capital to create better money

Possible standard elements for asset transfer

A review of some of the existing bridge implementations can help understand what the standard can do for asset transfers between chains. This bridge mostly uses the property of a collision-free private key hash method to allow blockchain assets to skip chains that use a similar algorithm to generate addresses. This means that if a user has a private key that can access a blockchain address, the same user will be able to access the same address with the same key on another blockchain using the same private-public hashing method, unlock and access it. This technique is used to generate bridges to transfer ether to other networks with similar address systems, such as Binance Smart Chain, Avalanche C-Chain or Toronet Chain. Oracle's decentralized system monitors the blockchain, and when value moves from one address to a specific exit or portal address (or smart contract), Oracle moves the asset to the same address in another chain, knowing that the owner of the first chain also has the access key at the same address. and thus, an asset of another chain.

This basic process can be extended to define a common token transfer standard, even if the blockchain does not use the same private public key algorithm. Basically, the transactional part of the blockchain contains encrypted elements in addition to the specifications for the input and output of transactions. This message can be formatted in a protocol that includes a destination block chain identifier and destination address. The same Oracle that scans portal or contract addresses with homogeneous address linking methods will digest, decrypt, and deliver assets using target chain information and target address information.

Another aspect of the standard would be to leverage the unique blockchain transaction ID to ensure that all transfers match and are only logged once in the Oracle target chain. In addition, portal addresses can be implemented keyless, so only signed and verified transactions can trigger transfers to and from them. This ensures that the system is automatically consistent and does not perform any manual processes that could compromise the integrity of the portal address or the retention of the standard values on which the process is based. The above describes a framework that highlights the fact that standard setting functionality is already in most chains and an agreed protocol can only be the next step in defining such a standard.

A new economy emerges

Blockchain and the assets created on it continue to grow and will likely be here for the long term, although more innovations and technological advances are yet to come. The evolving asset and payments ecosystem will likely include multiple blockchains, blockchain assets, digital tokens and cryptocurrencies, stable coins, and central bank digital currencies (CBDCs).

The need for an interoperable blockchain standard is somewhat suppressed by the belief of some technology practitioners that their chain of choice will somehow become the only one. This is a maximalist concept and probably won't be the end point. Experts in this field will serve technology and consumers well, rather than seeing chain success as a zero-sum proposition. Existing traditional financial institutions, especially those adapting to rapidly changing technology, are not doing this either. There is a lot of potential that only non-bankers and low-key bankers can achieve blockchain applications to enable multiple chains to succeed in an emerging economy.

Moreover, no major human technology solution evolves into a single vendor platform or ecosystem. There is no traditional financial or payment system; Telecommunication provider or platform; The motor vehicle industry, including more recently, the manufacture of electric vehicles; social media networks; and even private space travel, which is so capital intensive: only geopolitical considerations and the development of CBDCs are likely to lead to emergencies consisting of a combination of multiple platforms, providers and technology variants.

There is currently no application for blockchain where its use completely dwarfs other technologies previously used in the same application. In the case of a fast cross-border payment system, some glimpses of potential can be observed; decentralized financing; Provide digital art or digital valuables including music and video; Game system to record in-game assets and prices; Fans and symbols of loyalty; a transparent and accountable system of grants and charities; Applications for agricultural subsidies and credit tracking; and to some extent the payment system.

 The development and implementation of standards for asset transfer between blockchains will make the technology more useful in many of the listed application areas, including payment systems. It will also help keep the technology away from the current growth trend after the four-year cycle of Bitcoin halving, not because of mass adoption or massive economic and financial activity in the real world.

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