Everything You Need To Know About Blockchain Interoperability

There isn’t a single standard for blockchain and industry experts think there will always be various types per vertical.

As industries start maturing with the use of blockchain and evolving the solutions for each industry, we will see interoperability and common protocols come into play.

“We are probably three to five years away from that in the financial domain and much more than that in other industries like healthcare,” said Tal Elyashiv, founder and managing partner of SPiCE VC.

The concerns around the lack of interoperability are a false flag by the bears, according to VanEcks’ head of digital assets research Matthew Sigel.

“It may be difficult to link various blockchains together but when you’re talking about the open-source platforms that underpin many of the larger and more liquid cryptocurrencies, these are open source projects…anyone can write code to these and anyone can theoretically make them operable with another blockchain. That is more of an opportunity than a threat,” said Sigel.

This may mean that early interoperability mechanics are more complex or that the benefits accrue to those who write the coder earlier, but just in the past year, there’s been a large number of layer two networks that help the layer one networks like Bitcoin and Ethereum scale.

“There are millions of transactions taking place on these layer two networks right now and those are scaling as we speak. There are several different blockchains that can enable these peer-to-peer microtransactions without a centralized intermediary taking 10-30% of the cut as we see with Google (GOOGL) – Get Report, Booking.com (BKNG,) – Get Report and Spotify (SPOT) – Get Report,” Sigel added.

With Ethereum transactions taking place at 50 basis points, there’s a lot of room to add some additional functionality, even if it’s charged for, and still end up with a solution that is much cheaper than the status quo.

“I think that we’re making progress on that interoperability question, I agree with Tal that we don’t know yet necessarily who the winners are going to be, but because this is opensource code and anyone can write their own solutions, I see the interoperability question as more of an opportunity than a headwind,” said Sigel.

Many of the implementations of blockchain technology are going to dig deep under the hood and will not require interoperability in the way we think about it, according to Elyashiv.

“As an example, HSBC (HSBC) – Get Report just moved last year $20 billion worth of private offering securities that it’s holding in custody for its clients…it moved them to the blockchain. The reason is that it was much easier for them to manage ownership and settled transactions using blockchain. Now, there is no interoperability question there right now because they’re doing it for internal purposes and for efficiency purposes…later on, as more of the industry adopts these, we will start talking about interoperability of settlements between institutions and so on,” said Elyashiv.