Blockchain Interoperability Could Significantly Reduce Crypto-to-Crypto Transaction Costs

Blockchains might soon be able to communicate with each other because of projects like Metronome and Cosmos. According to a recent Bloomberg report, both Metronome and Cosmos have reached key “developmental milestones.” Lucas Nuzzi, lead technical analyst at Digital Asset Research, stated:

“We are very close to achieving interoperable blockchains, and this has the potential of changing the entire cryptocurrency market."

Lucas Nuzzi

Per the New York based researcher, the development of interoperable blockchains could pave the way for the emergence of numerous blockchain-powered apps. Additionally, it could potentially increase the value of cryptocurrencies as more people and businesses begin to adopt them, Nuzzi added. 

Cryptocurrency Exchanges Might Lose Business

Cryptocurrency exchanges might also be affected due to the development of interoperable blockchains. Recent data shows that the top 10 digital currency exchanges will earn approximately $1 billion from transaction fees annually. Currently, traders who want to buy Ethereum (ETH) usually have to use a cryptocurrency exchange to convert their Bitcoin (BTC) to ETH, or any other crypto of their choice. When one cryptocurrency is exchanged for another, the digital funds are transferred or moved from one blockchain to another, in this case from the Bitcoin blockchain to the Ethereum blockchain.

One of the major issues with trading cryptocurrencies this way is that the process can be very slow and the transaction fees can be very high. Reportedly, once interoperable blockchains emerge, transaction fees might be significantly reduced, or even eliminated. In order to resolve these issues with current blockchains, the “built-to-last” cryptocurrency Metronome (MET) will enable users to transfer their MET coins from the Ethereum blockchain to the Ethereum Classic (ETC), Qtum, and Rootstock blockchains. 

Although this type of digital funds transfer can be done using many of the current blockchains, MET coins will not reportedly have to be converted into any other coin or token as they are moved from one blockchain to another. Meanwhile, the Cosmos project will allow crypto traders to exchange Bitcoin (BTC) for Ether through its decentralized exchange (DEX). This could potentially eliminate the requirement of having to go to a centralized exchange to conduct the transaction, which is often slow and costly. 

Slow Transition to Full-Fledged Blockchain Interoperability

The Cosmos project offers a “decentralized network of independent parallel blockchains” and is called the “internet of blockchains.” Developers of Cosmos claim that their DEX will be as fast, if not faster, than the current centralized exchanges. The Cosmos team has revealed that most of their development work is done, and the beta version of their network will be launched some time this summer. 

The project leaders of both Cosmos and Metronome have acknowledged that to achieve full-fledged blockchain interoperability will take time. Lex Sokolin, fintech director at Autonomous Research LLP, has attributed the expected slow transition to interoperable blockchains partially due to the different approaches by regulatory authorities to regulating cryptocurrencies throughout the world. Sokolin noted:

“Perhaps building interoperability into the protocol at this stage is a useful solution, but until economic activity actually shifts into public crypto, it’s a battle for the merely imagined future. Real economic activity cannot shift into the chains until regulation is settled.”

Lex Solokin

'Bitcoin Type' Privacy Enhancing UTXO Transactions Now Available on EOS

Omar Faridi

The developers of pEOS, a project focused on enabling private and “untraceable” transactions on EOS, one of the largest platforms for building decentralized applications (dApps), have noted that they intend to provide tools which will allow users to conduct efficient token transfer transactions while maintaining their financial privacy.

“Accelerating Any Aspect of EOS” in Direction of Providing Greater Privacy

As explained in pEOS team’s Medium blog post, published on May 16, 2019, the privacy-enhancing crypto project is "much larger than just delivering pEOS.” The development team wrote:

We consider part of our mission to help educate, provide support, provide tools, and accelerate any aspect of the EOS blockchain in the direction of providing privacy enabled features and technologies. We strongly believe in the multiplicative effect this can have to every aspect of the EOS ecosystem.

Bitcoin Type UTXOs for EOS

In order to add more functionality to the EOS blockchain, while promoting economic privacy, the developers of pEOS have introduced a new smart contract which “implements bitcoin type” unspent transaction outputs (UTXOs) for EOS-based tokens.

As mentioned in pEOS team’s blog, UTXO was first used by the developers of the Bitcoin protocol, and it is “one type of output which can be either unspent (UTXO) or spent.” The outstanding balance of a UTXO-enabled wallet can be calculated by adding up all its spendable UTXOs, pEOS’ blog noted.

A UTXO Needs to Be Spent “as a Whole”

Transactions are processed by spending a certain number of UTXOs while producing new UTXOs for the recipient (of a transfer) and for any change that is returned to the sender, pEOS’ blog explained. The pEOS team clarified that “amounts in UTXOs don’t mutate.” This means users cannot “spend only some part of a UTXO.” In order to conduct such transactions, users must spend the UTXO “as a whole.”

According to pEOS’ team, these “constraints on what a UTXO is and how it is immutable, is what allows for privacy algorithms to be built on top of them.” For instance, the privacy-centric CoinJoin algorithm can be used with the smart contract-based UTXO code released for EOS, pEOS’ developers revealed.

On May 17, 2019, Block.one, the Cayman Islands-registered developer of EOS, released new software development kits (SDKs) for both Swift and Java developers. The latest SDKs for EOS aim to provide more support for native smartphone applications in order to offer “richer, more engaging experiences.”