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November 19, 2020
6 minutes of reading
Opinions expressed by Business owner the contributors are their own.
Blockchain technology has captured the world’s attention as the technology that would revolutionize the way we do business and finance. The fascination of blockchain has prompted entrepreneurs, developers and blockchain enthusiasts to discover how far the power of the blockchain can be extended.
With the emergence of more blockchains, the world began to see that blockchains could have different consensus protocols, algorithms, and create and use different tokens.
But there was a problem.
With all of these blockchain technologies, there was no way to interact with each other. Therefore, a transaction that took place on a blockchain or a smart contract that was initiated on that blockchain could not be transferred to a completely different blockchain in the network.
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This was bad news especially for decentralized finance (DeFi). According to Binance, decentralized finance refers to “an ecosystem of financial applications built on blockchain networks”. In other words, DeFi is not controlled by a central authority such as the central bank.
Its nature creates a more transparent financial ecosystem where users are in control of their financial assets. Financial resources in DeFi are easier to access than the financial system we are used to. It does not need intermediaries like banks or even courts to resolve disputes. This is because the blockchain, on which decentralized finance is based, records all transactions that take place on the blockchain and protects them from tampering by third parties. Hence, reducing the possibility of disputes because all parties, including the blockchain itself, are intimate with the details of the transaction, thus making the whole process transparent.
As impressive as decentralized finance is, adoption in the ecosystem is rather slow.
The lack of an interoperable solution affects the mass adoption of decentralized finance. This means that blockchains’ inability to connect with another blockchain on the network made this innovation unattractive. There was no way to transfer assets from blockchain to blockchain.
To illustrate the problem, let’s take a look at our centralized financial system. Financial transactions in a centralized system are hardly limited to one financial institution. Someone with a bank account can easily transfer money to another person who has an account with a different bank. Imagine how difficult it would be if financial transactions were limited only to the bank you have an account with.
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So, something had to be done to bridge the gap between blockchains. Many people have tried to undertake the daring quest to connect all blockchains, but very few have been able to make it happen. It seemed that the journey to interoperability was not going to be easy.
Role of interoperability in the mass adoption of decentralized finance
So what is interoperability?
It simply means the ability of various blockchain systems to communicate with each other. The ease of communication would allow users to share, view and access information across blockchains in the network. This free flow of information would help expand your reach and influence regardless of the blockchain system you use. It would create a sense of freedom to choose a blockchain on the basis of merit and prevent the need to be part of several blockchains just to carry out transactions.
Interoperability in the blockchain helps create an ecosystem that will forever eliminate the need for intermediaries not only within the blockchain but also in blockchain networks. Without interoperability, users would be forced to resort to intermediaries to carry out transactions, totally defeating the purpose of blockchains to decentralize control.
The world depends on collaboration to ensure sustainability and expansion, thus making interoperability critical. Without it, blockchains and, by extension, decentralized finance, will not experience the full potential of what they were originally created for.
The simple and fluid sharing of information and the execution of transactions would be just a mirage and the so-called “decentralized system” would be just another copy of what we experience in our familiar centralized space.
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No one would ever be pushed to use decentralized finance if only they experienced a virtual version of the challenges they face with centralized finance. Under such conditions, there is nothing to attract them to adopt DeFi.
The light at the end of the tunnel
Several blockchain solutions have been developed to solve the interoperability problem. However, those solutions had their flaws. While these solutions addressed the problem of interoperability, they came at a cost. Due to the complex nature of these solutions, it has led to low operational speed and increased transaction costs.
Libonomy was among these companies that attempted to create a solution to connect blockchain. This platform interconnects several protocols into a single ecosystem. Made up of a team of three Swedish co-founders – Richard Haverinen (CEO), Fredrik Johansson and Therese Johansson – they thoroughly investigated the errors of the solutions before them. With their knowledge of decentralized technology and hands-on experience running startups, they realized they needed to adopt a different medium through consensus protocol that could work in a decentralized network. They found the missing link was Artificial Intelligence (AI).
Libonomy creates an AI-powered self-learning system that adjusts network parameters. This is what helps interconnect blockchains and allows for the easy exchange of transactions from one blockchain in the network to another.
All the drawbacks encountered by the previous interoperability solutions such as low speed and high transaction cost have been recorded in history. This means that Libonomy has made interconnection between blockchains much faster, more secure, more energy efficient and scalable.
The new journey for the adoption of decentralized finance
The world is growing more and more interconnected and it was only a matter of time before our different blockchains needed a solution that matched our need for collaboration.
The road to interoperability was certainly not a straight one. Many have had to venture down the same path so that those who came after them would learn from their mistakes and find better solutions to achieve interoperability.
Now that interoperability is no longer an issue, we must embark on a new journey: the journey to mass adoption of decentralized finance.
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