As L1s become mainstream, the blockchain ecosystem will eventually become more centralized

There is no question that there is a strong element of centralization that has increased blockchain adoption. But is there some potential to collaborate the activity between various L1s?

As the number of blockchains & dapps grows, the need for interoperability increases. Interoperability allows blockchains to “talk” and exchange value or information.

• Imagine being told that you can use your BoA account to send money to someone else's account in the same bank and not to someone else whose account is in another bank.

• Imagine having the freedom to simultaneously use the benefits of the network effects of TikTok and the brand partnership model of Instagram without having to create two separate accounts.

Within the crypto ecosystem, the individual L1s act as silos. They lack interoperability. Users can’t move their native coin from one chain to another.

Hence, the most obvious step after Decentralization is Distribution. This would stabilize the thesis of centralization in web3.

Here Comes the Bridge

A bridge protocol allows a blockchain to interact with other blockchains.

A bridge protocol improves the overall ecosystem by:

• Allowing interoperability between chains

• Increasing usability

• Enabling easier access to a broader set of users

• Reducing costs

• Improving security

• Enhancing user experience

• Improving interoperability between protocols

• Enabling better data portability

• Enabling easier access to data (for example, uploading data to the host, downloading data from the backend)

• Enabling applications to reduce the cost of transactions (for example, by decreasing the need to query individual blockchains)

• Enabling blockchains to compete with existing payment networks (for example, by decreasing the cost of exchanging value/information in/between (e.g., PayPal, PayTM, wire, bank, etc.))

Also, it's important to note that, despite the recent hype, these bridges are still in early development. The teams behind these projects improve the technology and user experience. However, as money changes hands, users need to be confident that this technology will work.

I have personally seen (dApp) founders test their tech in two ways:

1. Integrate the technology directly into their products: Users can then buy and use the service within the dApp between different L1s or L2s that prove the value of the technology,

and/or

1. A technical white paper with some degree of "white box" analysis can be used to prove the value of the underlying concept if the protocol works on a consensus mechanism.

Here’s an example of a bridge protocol in action:

A bridge protocol is like a smart contract that enforces the rules of payment and data sharing between them.

1. First, a user needs to send some $USDC from Solana to Ethereum. A bridge protocol allows users to use their Solana (Phantom) wallet to broadcast a transaction to the Metamask wallet.

2. The Phantom wallet signs a transaction that includes information like:

3. The transaction's destination address (wallet address). Other metadata about the transaction (for example, the transaction's quantity, price, gas price, etc.)

4. Before sending the transaction to the wallet, the Solana chain requires the Ethereum chain to satisfy the conditions specified in the smart contract. These conditions can be anything: data or money.

5. Above, this relates to the transaction's destination address and gas fees.

6. The receiving blockchain (Ethereum) checks that the transaction's destination address matches the issuer's address. For example, if the addresses match, the receiving blockchain signs the transaction and broadcasts it to the relevant blockchain.

7. The wallet receives the signed and completed transaction and issues its own transaction (similar to the original transaction on Solana) to the new blockchain wallet to complete the payment.

8. In this way, the bridge protocol enforces the rules of payment between the chains to ensure the transaction is valid.

Try it out here: portalbridge.com/#/transfer at Portal from Wormhole

Conclusion

In essence, the protocols need to make data that matches your situation available to the other blockchain. The protocol must be confident that the smart contract won't be exploited to provide the data for the wrong blockchain.

There is no question that there is a strong element of centralization that has increased blockchain adoption. Bridge protocols could be used as a method to aid the consensus mechanism for sharding and other concurrent solutions. It’s only a tiny fraction.

Not to mention that Bridges are the most vulnerable dApps out there. It’s still a long way to go. But I still believe there are many opportunities for this type of collaboration, especially between those with excellent engineering talent and backend infrastructure.

Thank you for reading through. I’d appreciate it if you shared this with your friends who would enjoy reading this.

You can contact me here: 0xArhat

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My previous research:

1. Decoding & Democratizing web3

2. P2E: A shift in gaming business models

3. Stablecoins: Is There Hope?

4. Unlocking the Potential of Decentralized Data

5. Primer on L2 Scaling Solutions

6. Understanding User Dynamics in DeFi