Getting Blockchain Ready For Next Wave of Adoption

Who knows the exact reason behind current bull run? It may be the upcoming halving, or the Chicago Mercantile Exchange’s introduction of institutional-level crypto-backed options, or even coronavirus. Whatever the reason, we may state that we are already out of the crypto winter phase. If the trend continues, we will see wider blockchain adoption with new users flocking to crypto industry, ready to capitalize on its growth.

Since the end of 2017 the crypto space has changed significantly. At that time, Binance was in a startup mode, fiat-to-crypto conversion was not that easy, and liquidity was a tough issue. Today everything is different. Newcomers to crypto have many ways of entry, and the influx of institutional and professional traders means that most of the top assets display high liquidity.

Same old tech problems

However, there have not been many signs of swift evolution in terms of technology. If we look at cryptocurrency rankings from December 2017, the month when Bitcoin (BTC) reached its all time-high, the top-ranking coins are almost the same ones today as they were then.

There have been some significant changes. Now Bitcoin is processing the same transaction volume as it did at the peak of the 2017 bubble, but without the eye-watering $50 and higher transaction fees of that time. However, when it comes to speed and scalability, it still shows low performance which hinders it from becoming an everyday medium of exchange.

Back in 2017, Ethereum (ETH) was the second after Bitcoin and most popular smart contract developing platform. Today it is still true, however, Ethereum’s 2017 scalability issues persist today. The most widely known example showing the platform’s lack of capacity was CryptoKitties.

At the verge of the crypto hype in December 2017, the craze for digital cats increased Ethereum’s transaction volume sixfold, causing network congestion and pumping up transaction fees for all users. The incident was significant enough to make it to mainstream media.

Currently, Ethereum is in a similar situation due to stablecoin transaction volume. Tether (USDT) is now the most traded cryptocurrency by volume, overtaking even Bitcoin. Tether began to wrap its tokens — i.e. issuing Ethereum-based USDT — at the beginning of 2018, and has been increasing the amount issued over time. In July 2019, the transaction volume of ETH-based USDT outpaced that of USDT for the first time. By September, there were more than four and a half times as many ETH-based USDT transactions as USDT.

As with CryptoKitties, the steep increase in Ethereum-based USDT’s transaction volume caused network congestion and higher transaction fees. One estimate showed that Tether transactions alone were imposing $21,000 in transaction fees daily, with all users seeing a 152% increase in gas fees compared to three months before.

Centralization is not a solution

Nobody can be sure that Bitcoin and Ethereum will maintain its positions in the blockchain space in the future. The long-promised ETH 2.0 upgrade could still be years away. However, Ethereum remains a central point for developers due to its abundant ecosystem of decentralized apps, or DApps, which provide a huge value to the crypto and blockchain communities.

So, in order to hasten blockchain adoption, we need to find a solution for these scalability issues, at least in the short term. EOS, Tron and other blockchains state that they have developed this solution in the form of delegated proof-of-stake. The problem with that is that scalability is addressed with giving up decentralization and eventually the security of the network.

This is where interoperable bridges can help. There are many blockchains which are faster than Ethereum and Bitcoin but don’t sport the same user numbers, making them less attractive as a development platform. However, bridges allow developers on Ethereum and other platforms to leverage the speed and processing capacity of their faster siblings.

How bridges work

A bridge allows to send tokens from one blockchain to another for processing. The token’s supply is kept constant within both networks with a burn-and-mint protocol, which means that the token can be sent through the bridge several times without impacting the circulating supply.

The bridge traffic is supervised by nodes in a way similar to that of proof-of-work miners. Bridge transactions are collected into blocks, validated by nodes and forwarded to each blockchain to keep records of token movements. The nodes receive rewards as participation incentives.

Assuming that blockchains working with a bridge are decentralized, scalability is not achieved by giving up decentralization. Moreover, it benefits all network participants. If USDT transactions were processed with an interoperable bridge with a high-speed blockchain, USDT users would enjoy quicker processing and lower fees, which is important for active traders.

Enhanced processing capacity and reduced Ethereum gas fees will also attract developers and users. DApp developers could also leverage the bridge to provide their users with the same super-fast, low-fee experience. Nodes will also have a new revenue perspectives by taking part in validating bridge transactions, which is in concord with the hardware and validation activities they are already engaged in.

Maybe the best thing about it is that none of these benefits damages the current Ethereum ecosystem. As the long-awaited upgrade may be years away, bridges provide a solution for speed and scalability issues in the meantime without any drawbacks.

Blockchain interoperability is still in its infancy. Wanchain were the first to introduce a bridge between Bitcoin and Ethereum in 2018, but it has not gained wide adoption yet. In January 2020 Syscoin Bridge joined the trend, bringing its high throughput Z-DAG architecture to Ethereum. Most recently, RSK introduced a bridge between Bitcoin and Ethereum.

History shows that each time the crypto market sees a bull run, the general public waits and watches, which leads to better awareness and adoption of blockchain. With interoperable bridges, the next wave of crypto adopters can enjoy a user experience without tough problems experienced by their predecessors.