art Malkov is a Blockchain Accelerator Advisor to Columbia University.
The blockchain revolution is upon us. What started as an experiment in finance and technology initiated by Bitcoin has now spawned a complex blockchain ecosystem with numerous independent networks. These networks form the infrastructure of Web3, the next generation of Internet development.
Simply put, Web3 is the blockchain-based future of the web, in which essential internet services currently dominated by tech giants (Google, Facebook, Amazon, etc.) will instead be managed in a decentralized manner, with financial and managerial powers in place. hands of the users themselves. Traditional tech companies are likely to adopt aspects of blockchain technology, while new Web3 companies will rise to compete with existing ones.
Blockchain networks, the building blocks of Web3, continue to grow and introduce unique innovations, but currently lack the capacity to easily integrate with each other. As each blockchain has its own capabilities and specialties, it is becoming increasingly clear that a mature version of Web3 will depend on the integration of all chains, enabling mutual growth and easy accessibility for users. Let’s take a look at how the blockchain industry has evolved and what that means for businesses as a whole.
Bitcoin and the Blockchain Revolution
The launch of Bitcoin in 2009 was the first step in a revolution in blockchain technology. Bitcoin was established as a currency and store of value that acts as an alternative to national currencies. Rather than relying on a centralized entity (state, company, or individual) to process and verify transactions, Bitcoin runs on a distributed, decentralized network of independent computers around the world. With the invention of Bitcoin, for the first time in history, individuals were able to transfer money freely without being dependent on a centralized authority.
In March 2022, Bitcoin surpassed 40 million addresses worldwide. What does this mean for mainstream businesses? Let’s investigate.
The Blockchain Evolution: Ethereum and Alternatives
The next big step in blockchain development was Ethereum, which went online in 2015. Ethereum built on Bitcoin’s innovations by creating a blockchain network that supported decentralized apps (dApps) and smart contracts, expanding the principles of blockchain technology to cover a wide variety of use cases. These ranged from unique digital assets known as non-fungible tokens (NFTs) to decentralized finance (DeFi) to other Web3 applications, such as social networking and gaming. All current Web2 apps can now be redesigned as dApps, with no central authority to run a network or manage users’ assets and data.
Ethereum also opened the door to the development of a slew of other blockchain alternatives such as Polkadot, Solana, and Cardano, each supporting their own autonomous blockchain network. There are now left 10,000 active cryptocurrencies based on blockchains, with hundreds more non-cryptocurrency blockchains.
The next frontier: the multi-chain challenge
Each blockchain network has its own strengths, weaknesses, specialized applications and communities. For example, Ethereum is one of the most secure blockchains because of its decentralized structure, but it is expensive to transact with, making it better suited for high-value NFTs and high-performance DeFi protocols. Solana, on the other hand, offers low transaction costs and fast speeds, but with the downside of stability issues that have caused it offline on multiple occasions, making it more practical for gaming and experimental NFTs.
Each blockchain network also has its own independent language and unique device for validating transactions – an NFT on the Ethereum network cannot be transferred directly to the Solana network. The current world of blockchain technology and Web3 is highly fragmented. Imagine if you had to use a unique operating system to access every major website. Imagine if every website required its customers to use the website’s own currency for purchases or paid features. Such a system would be cumbersome to say the least and have been a major obstacle to the mass adoption of Web2.
In the world of blockchain technology, we face an analogous problem. Until a truly interoperable multi-chain system is developed and widely adopted, Web3 will remain a limited, experimental domain rather than playing a major role in our digital lives.
The stack of interoperable solutions
Interoperability is key to the future security, development and mass adoption of blockchain technology and Web3. Each blockchain has its own strengths, innovations and communities, so rather than adopting a winner-takes-all mentality, we should see each chain as a valuable part of a larger, richer Web3 ecosystem.
Other Web3 entities are exploring more fundamental solutions to the challenge of blockchain independence. single layerfor example, is a network that tries to solve the multi-chain challenge from scratch by linking its validator nodes (the lifeblood of a blockchain network) with those of other blockchains, enabling communication and transactions between all parties.
Blockchain companies adopting this new, integrative approach will play a key role in enabling existing Web2 companies to access Web3 resources without cumbersome technical infrastructure or expensive transaction costs.
The benefits of interoperability for businesses
Major Web2 companies are already taking a serious interest in blockchain technology. Paypal now supports Bitcoin payments and cryptocurrency transfers, and Amazon and Facebook have built out departments that focus solely on blockchain research and implementation. It is only a matter of time before these companies further integrate blockchain into their business models.
Just to name a few possibilities, a sporting event company can sell tickets or collectibles as NFTs and also offer links to a blockchain-based online sports game. Social networking sites can offer digital currency rewards for organic interactions and also peer-to-peer lending and borrowing. The possibilities are endless.
However, to take advantage of everything Web3 has to offer, from blockchain gaming and collectible NFTs for DeFi services (loan, borrow, save and more), businesses need easy access to all blockchain networks, as each has its own strengths and specialties. Interoperability will be the key to unlocking the potential of Web3 for both businesses and consumers.