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For years, blockchain interoperability has been a buzzword and top priority within the crypto and Web3 industry. Despite the numerous platforms, protocols, and projects dedicated to solving the lack of inter-blockchain communication, broad interoperability within an expanding ecosystem remains elusive.
Despite the cryptocurrency price fluctuations we’ve seen recently, the foundations of the digital asset industry, which includes blockchain, are much more mature, stable, and focused on solving real-world problems. We have also seen the adoption of blockchain technology across many industries, including supply chain management, where it has improved efficiency by removing the need for multiple intermediaries with its transparent and traceable features.
We cannot diminish the progress blockchain has made over the past couple of years, both within web3 and with its expansion to other sectors such as real estate and healthcare. Despite advances in areas like decentralized finance, decentralized physical infrastructure networks, and real-world token assets, how can we expect widespread adoption if assets cannot be transferred smoothly between major blockchain networks like Solana (SOL) and Ethereum (ETH)?
Whether it’s cross-chain bridges like Wormhole, layer 2 solutions like Arbitrum, interoperable oriented blockchains like Polkadot (DOT), or interoperability protocols like Chainlink (LINK), each of these solutions tends to solve only one aspect of the problem.
Security vulnerabilities associated with cross-chain bridges and sidechains have been well documented as they rely on complex smart contracts and often employ centralized custodians to hold funds during transfers. This creates a single point of failure that hackers can and have exploited. All we have to do is look at the Ronin Bridge hack of 2022, where a hacker made off with around $625 million in crypto thanks to a hacked private key, to understand the risk they pose .
Blockchains like Polkadot or Cosmos have implemented innovative and sophisticated mechanisms to try to solve the puzzle of interoperability. However, Polkadot’s interoperability is limited to its ecosystem and is not scalable. Cosmos offers a little more flexibility, but it suffers from security flaws and has not fulfilled its mission of being the “Internet of blockchains.”
The main problem with the limited interoperability of blockchains today is that it fragments the space into disparate ecosystems, essentially transforming the industry into an increasing number of isolated islands of liquidity. Polkadot parachains can communicate with each other, but being able to transfer assets and data between blockchain networks such as Ethereum or Binance would be immensely more beneficial to the entire web3 space.
Solving this problem would enable seamless asset transfers by making it faster, cheaper, and more secure, even improving the utility of stablecoins, altcoins, and tokens across multiple chains. Additionally, interoperability would significantly strengthen the role of DeFi protocols by enabling the creation of unified liquidity pools, which would create deeper, more stable markets and reduce slippage in larger transactions.
Breaking these liquidity barriers does not only equate to smoother flow of funds and higher token values. It can also result in reduced reliance on centralized exchanges, which essentially serve as risky bridges, improved scalability, a more user-friendly experience, and greater potential for innovation on Web3.
Although interoperability seems less and less of a priority as other Web3 developments and trends make headlines, there is still a lot of R&D going on behind the scenes. Various projects are developing their own solutions, but there is no single framework that has become a universal standard.
Kima, for example, represents one of the most promising interoperability protocols, currently developing a solution to unify the entire blockchain ecosystem. As an asset-agnostic peer-to-peer money transfer and payment protocol, Kima has developed a decentralized and flexible solution for moving assets between blockchains without the use of smart contracts. Powered by its decentralized settlement layer, universal payment rail, and liquidity cloud, Kima has undergone three years of intense research and development as it prepares for its upcoming mainnet and token launches.
Kima has secured pre-launch support for all major blockchains and is developing partnerships with a wide range of Web3 and TradFi players, as its protocol is also designed to link digital assets to fiat systems such as bank accounts and cards credit. By facilitating seamless transfers between fiat and crypto, Kima positions itself as a crucial piece of infrastructure at the intersection of DeFi and finance.
Enabling true blockchain interoperability is certainly a challenge, but progress is being made. This requires broad collaborations between competing networks and a commitment to a universal standard. Standardizing communication protocols, facilitating the highest level of security and maximizing decentralization is a good place to start. Continued investment in research along with a thriving community of dedicated developers provides enough optimism that true interoperability is achievable.
