Today, it no longer seems that paying for the purchase of a cryptocurrency is something unusual. Many online stores accept bitcoin (BTC) and other coins along with traditional currencies, while cryptocurrency holders can pay at some terminals in some cafes.
However, there is one thing that differentiates traditional financial systems from cryptocurrencies: extended interoperability. Compatibility allows cardholders to make payments anywhere in the world without worrying about device compatibility and currency exchange.
Interaction in cryptocurrency
The owner of a cryptocurrency wallet could only dream about it, but a sign on the restaurant door that says “cryptocurrency is acceptable here” does not guarantee that customers will be able to pay for the candy with ether. Instead, a seemingly unexpected server will say that the restaurant terminals only work with bitcoins.
However, if the visitor’s blockchain wallet and the restaurant’s terminal are compatible, the client does not need to remember the cryptocurrency available. All that is required is simply to scan the QR code and the system will convert the currency to the accepted currency.
For users to be able to pay with ETH at stores that accept BTC, their blockchain systems must be network-wide interoperable. The question remains: why is it still a problem even 11 years after the first decentralized systems appeared? The truth is, until recently, each type of blockchain was created as a separate autonomous ecosystem, and it seems that developers are more concerned with competing with each other than working on things like interoperability.
However, with the rise in popularity of decentralized finance in 2020, the issue of cryptocurrency compatibility is becoming more important than ever. The point is that the DeFi industry itself was conceived as a simple economic ecosystem, whose products can be compatible with each other. “By their very nature, smart contracts are small, customizable building blocks that can be combined to reduce complexity and provide a smoother customer experience,” Jonathan Schimall, founder of Aleph.im DApps Network, told Cointelegraph.
Today, DeFi is a more than $ 10 billion locked-in marketplace that has become an alternative to banking for thousands of users due to the attractive loan and deposit rates offered by DeFi products. An important factor contributing to the popularity of this sector is the successful attempt by the DeFi developers to partially address the compatibility issue. As a result, users can easily exchange different tokens or refinance a loan from one asset to another.
However, despite these big ambitions, the DeFi sector still lacks bank card compatibility. While fiat currencies can be exchanged anywhere, it is still difficult to link cryptocurrencies to fiat currencies, and even difficult to link cryptocurrencies to cryptocurrencies. To appreciate the progress that industry players have made in this direction, it is important to understand how the concept of interoperability has evolved from the first attempts to bridge the gap between the two blockchains to the transfer of DeFi across the chains today.
Few people know about this, but the first attempt to make cryptocurrencies compatible was made in 2012 by Joseph Chow. The developer created the BTC-Relay system with the aim of collecting information from the bitcoin chain and using it in Ethereum smart contracts. The money sent in BTC will then be transferred to the ETH address through a special smart contract that received information about the Bitcoin blockchain in Ethereum after the transaction was confirmed.
In 2017, the very first nuclear exchange took place between the Decred, Litecoin and Bitcoin networks. In the same year, Lightning Labs completed a nuclear exchange between bitcoin and Litecoin without registering a transaction on both blockchains. Atomic exchanges allow the exchange of cryptocurrencies from different blockchains without the involvement of third parties and today are the basis for peer-to-peer trading on decentralized exchanges. However, not all networks can work with this solution. For cross-platform payments, the network must support Lightning Network and Segregated Witness.
Bancor took the next big step towards engaging with cryptocurrencies in 2018 with its BancorX solution, which allows transfers between any Ethereum-based asset and EOS without the need to deposit money on the stock exchange and the need to fulfill orders between buyers and sellers. Any Ethereum-based token can be converted to other EOS-based tokens with one click without any conversion fees.