Scalability and Interoperability: what are Crypto’s real problems?

The world of Cryptocurrencies and Blockchain is constantly evolving. In the 12 years since the invention of Bitcoin, the ecosystem in the world of digital currencies has developed exponentially, creating an infinity of projects for the most disparate use cases. We have moved from Blockchain 1.0 (Bitcoin), 2.0 with Smart Contracts (Ethereum) and 3.0 with DApps and the resolution of some structural problems (Algorand).

Despite the enormous efforts made by computer scientists and engineers to solve the major problems in the world of cryptocurrencies, a definitive solution has not yet been reached. The first problem we tried to solve was that of asset volatility: if we think of Bitcoin in the early years, volatility rather than price was really the focus of any positive or negative reasoning. Thus the Stable Coins were invented, coins anchored to the value of an underlying asset which in most cases is represented by a fiat currency or a precious metal (gold or silver). Although at first glance this solution may be positive in the mass adoption of this technology, on the other hand it does not eradicate traditional finance, remaining connected to the dollar which today as never before is devaluing to keep the economy afloat.

Another problem that has been tried to solve in the world of crypto is the privacy. As we all know, Bitcoin and Ethereum are not anonymous but rather pseudonyms. This means that by saving any transaction on a public Blockchain, anyone can check and trace the person behind the public key if they have a fair amount of transactions to analyze. Thus were born the privacy coins, such as Monero, ZCash or Dash. Although to all intents and purposes, and with different methods, these coins solve the above problem, they are not frowned upon by external people who see them as a tool for illicit purposes.

If on the one hand, the problems just described are those that are receiving better solutions, on the other there are two other problems in the world of cryptocurrencies that in recent years have been putting human creativity to the test. The first of these is scalability: since the discovery of the Blockchain, the problem of the number of transactions per second (tps) has been one of the thorns in the side of this technology. If we think about Bitcoin, 7tps is nothing compared to the hundreds of thousands made by centralized systems like Mastercard and Visa. For this reason, layers (or levels) have been developed above some cryptocurrencies to try to solve these problems: the most important examples are certainly Lightning Network (Bitcoin), Loopring Pay and Celer Network (Ethereum). Despite these attempts, the real answer will only be there when these projects face a mass adoption that will test all the features to improve the user experience.

The last problem that cryptocurrencies are facing is interoperability. As we said earlier, there are hundreds of Cryptocurrencies in the world with related Blockchains and intrinsic characteristics. All these, when viewed from the outside, are nothing more than networks of people or nodes that communicate with each other within the same protocol, without however having the ability to acquire data or exchange it with others in the sphere of Blockchains. The interoperability problem is therefore the problem of connecting different cryptocurrencies, with different consensus algorithms and with different internal dynamics, to create a decentralized network in which it is easy for the user to switch from one to another. Although this is one of the most difficult problems to solve, in the last period several projects have been trying to solve the riddle by proposing solutions that are attracting a lot of interest in the world of cryptocurrencies.

Specifically, projects such as Polkadot and Cosmos are proposing very interesting solutions to solve at the same time, scalability and interoperability of Blockchains. In the next articles we will go into detail to understand how these projects can revolutionize the world of digital currencies.