What is Blockchain Interoperability and Why Does it Matter for DeFi
Truth be told, blockchain is not the solution to every human problem.
Not very far away from the buzz and boom of blockchain and cryptocurrencies, one may find a long list of challenges blockchain faces. For instance, the scalability of the Ethereum network was a major concern before the project announced its plan to switch to the proof-of-stake protocol.
That is how it works even with the revolutionary technology blockchain. It has its own drawbacks. But we find them and we try to fix them.
Okay, but Talk About Interoperability
Interoperability, or rather the lack of it, is another major challenge for blockchain networks that many projects are still trying to effectively solve.
In simple terms, the lack of interoperability means that blockchain networks such as Bitcoin and Ethereum cannot communicate or share data with each other. Or, users on an Ethereum-based decentralized application cannot pay using Bitcoin. This stands true for any two blockchain networks.
Each blockchain’s data, information, and transactions thus remain ironically siloed within its own “open” network, not allowing for inter-communication.
The co-founder of the second-largest blockchain network, Vitalik Buterin, went so far as to call it embarrassing that it was still not possible to move between two of the largest blockchain ecosystems.
But Why Pay Heed to It?
One simple word: adoption.
Competition in the blockchain and crypto space is crucial for the industry to innovate and evolve. However, most projects are developing their networks to rival their opponents. If that remains the case and blockchain networks, and applications built on them, rival against each other, it would be next to impossible to further the adoption of blockchain.
For example, the traditional financial system would be completely broken and inefficient if banks did not allow their customers to transfer payments to customers of other banks. It would make a lot less sense to use emails if it weren’t possible to send emails from a Gmail account to a Yahoo or Hotmail account.
On a more complex level, suppose that application specific interfaces (APIs) did not exist. It would have been impossible for one system to interact with outside systems, databases, and information. The internet and its applications as we know today would never have been so seamlessly connected. And the adoption of the present-day internet would be significantly limited.
Similarly, if two applications built on two different blockchains fail to interact with each other, it would restrict the adoption that blockchain applications may gain.
How Hybrid Bank’s DeFi Solution Becomes Better with Interoperability
As of now, most of the DeFi projects like Hybrid Bank are built on top of Ethereum and they only support ERC standard tokens. While Hybrid Bank proves effective solutions for instant loans to cryptocurrency mining firms, individuals, and blockchain companies, it is still not possible for people to take loans in Bitcoin or other cryptocurrencies not supported on Ethereum.
If we make blockchains and DeFi applications interoperable, anyone seeking instant loans in any cryptocurrency will be able to do so through Hybrid Bank. At present, however, Hybrid Bank’s solution allows users to take loans in cryptocurrencies supported on Ethereum.
Being actively involved in the DeFi space, it would be a great opportunity for Hybrid Bank to expand its lending and borrowing services for cryptocurrencies other than that of ERC standard.
Besides, blockchain interoperability can considerably impact the adoption of blockchain on a global level.
