This blockchain finally fixes cross-chain bridges

Disclaimer: The Industry Talk section contains insights from crypto industry players and is not part of the editorial content of Cryptonews.com.

Much has been written about the importance of blockchain interoperability, which refers to the ability of two or more independent networks to exchange data and value. It’s a fairly simple concept, but it’s one that has proven extremely elusive in the real world. However, it is absolutely necessary to implement if blockchain is ever to live up to its full potential.

Blockchain’s open and decentralized nature has resulted in an explosion of networks. Today, there are easily more than 100 blockchains up and running, and they all exist independently of each other without any way to communicate. Because these networks cannot communicate, it is impossible for a user on the Bitcoin blockchain to interact with someone on the Ethereum network, and vice versa.

In a interview with Bitcoin.com News, Flare Network co-founder and CEO Hugo Philion highlighted the problems this lack of interoperability causes and how it puts a major barrier in the way of mass adoption. He explained that although DeFi has become the biggest use of blockchain today, it is severely handicapped by the lack of communication between networks.

“The lack of adequate communication across chains has limited the size, participation and effectiveness of the Defi market,” Philion said. “Not only have existing designs resulted in the loss of billions of dollars in capital, but they are also difficult to use, limiting the participation of more sophisticated users. As a result, market size, liquidity and returns have been limited.”

With users unable to exchange Bitcoin for Ethereum without going through a centralized exchange service, decentralized finance has a major problem, because possible use cases are significantly reduced. And with only a few, limited applications, adoption remains stagnant.

“Furthermore, use cases leveraging communications that can drive adoption have remained undiscovered,” Philion added. For example, a simple use case might involve buying assets on a smart contract chain while paying in Bitcoin, he said. If this were possible, he believes it could potentially revolutionize applications around digital ticketing, gaming and payment gateways and more.

Why can’t blockchains talk?

Philion explained that blockchain’s lack of interoperability is really by design. Quite simply, blockchains were created as distributed ledgers whose job is only to process native transactions.

“They are not designed to relay information between themselves, so the Bitcoin chain cannot tell you what happened on the Ethereum chain in block #1083438,” Philion said. “This creates a communication problem: how can information about different chains be reliably collected and validated with decentralization analogues of the chains themselves? Furthermore, how can this be achieved while taking into account the risk of rolling back the chain?”

A number of solutions to this problem have already been implemented, but the majority of them have failed miserably. As Philion points out, existing blockchain bridges have emerged as one of the biggest targets in the crypto ecosystem, with hackers constantly probing them for vulnerabilities, and very often discover them. During 2021 and 2022, we saw a number of experiments with new cross-chain bridging protocols, and the results were nothing short of disastrous for thousands of users.

“Ultimately, many performed admirably with more than $2 billion in funds leveraged over the past 12 months,” noted Philion.

The failure of these experiments shows us that the industry has not yet provided a sufficiently secure and decentralized mechanism to obtain and verify the state between two separate blockchains, Philion said. And this lack of a reliable solution greatly hampers the development of the entire crypto space.

Cross-chain communication based on consensus

To protect against bridge exploits, Philion says it is necessary to integrate decentralized cross-chain communication similar to the actual consensus mechanisms used by blockchains themselves. Doing so would make them significantly safer, he argues, because it would allow cross-chain communications to benefit from the same underlying security that protects every blockchain transaction.

He explained that Flare has been able to achieve this by creating two unique protocols, the Flare State Connector and Flare Time Series Oracle, which is naturally integrated with the network. “They are native because they are built directly into the blockchain using the FLR token to incentivize data delivery, and they use the network itself to ensure accurate data delivery,” Philion said.

These protocols enable two general models known as “payment triggers” and “bridging” that can be used to upgrade non-smart contract chains, Philion said.

Payment triggers refer to a smart contract function on one chain that is triggered by a transaction on a separate chain. It will enable simple but important functionality, such as paying for an NFT on Ethereum with Bitcoin or an alternative token. To do this, the Flares State Connector taps into a decentralized data collection protocol involving a number of participating validators who are incentivized to prove that a transaction on a specific chain has taken place. The validator’s job involves querying and obtaining transaction data, and then reporting it to the other chain. Once an event is reported, the smart contract on the other chain can be triggered.

In terms of bridging, this provides full smart contract functionality to tokens like Bitcoin, similar to how existing bridges work. The Flare State Connector enables secure data retrieval, while the Flare Time Series Oracle uses a similar, validator-based mechanism to provide decentralized prices accessible on-chain. Flare can then create synthetic versions of assets such as Bitcoin on smart contract chains with no additional security. This is better than existing bridges as the user only needs to provide the underlying token.

“This removes the requirements for overcollateralization and eliminates the direct market risk from the user, meaning they do not need to actively manage the position,” Philion said. “These 1:1 representations of assets like bitcoin can then be deployed in DeFi and other decentralized applications.”

In simpler terms, the Flare State Connector and Flare Time Series Oracle can be thought of as “sensors” that enable a blockchain to see what is happening on other networks. They can then note these transactions and base their own decisions on that.

“This is similar to how our senses allow us to see what’s going on around us and interact with the world,” Philion explained.

Why this matters

If Flare is indeed able to solve blockchain’s interoperability problem, it will have massive implications for the wider DeFi industry, Philion believes. He points out that around 70% of today’s total market value of digital assets is composed of non-smart contract assets such as Bitcoin, XRP and Dogecoin.

If we are able to bridge these assets to smart contract protocols, it will provide a clear and massive liquidity boost to the DeFi market. Decentralized applications will have access to a much larger accessible market, Philion said, while token holders will have decentralized access to these dApps. Also, by forwarding non-smart contract tokens to chains like Ethereum, it creates an alternative payment rail for these assets.

“We believe that Web3 needs greater scale, utility and consumer appeal through sufficiently decentralized and reliable communication protocols between blockchain and non-blockchain networks,” Philion said. “We want to make it possible to use tokens like Bitcoin with these applications.”

Flare believes it has solved the problem of blockchain interoperability, and it is a project that is now being taken seriously. Later this month, Flare will reach a major milestone with the initial token distribution eventand the project has received the support of a number of cryptocurrency exchanges that will distribute the FLR token within two weeks of its launch. It’s a serious solution that’s gotten some serious support, and makes Flare one to watch in the months ahead.