Integrating Decentralized Cross-Chain Communication Makes Bridges ‘Significantly More Secure’ – Flare Networks CEO – Interview Bitcoin News

Although they attracted less media attention than the collapse of centralized organizations, the so-called bridge exploits in 2022 proved once again that the decentralized financial (defi) ecosystem still does not have enough secure solutions, Flare Networks co-founder and CEO Hugo Philion , argued did Philion insists that the lack of such secure solutions has limited the growth and use of defi products.

Lack of connection between chains

In written responses to News, Philion claimed that large-scale, cross-chain experimentation, seen mostly in 2020 and 2021, potentially explains why more than $2 billion has been lost in so-called bridge exploits over the past 12 months. . However, according to Flare Network CEOWhile risks to users cannot be completely eliminated, bridges can be “made substantially safer”.

In addition to addressing security issues, Philion also offered his thoughts on many other issues, from the possible use of non-smart contract digital assets on defi and Web3 to insuring digital assets when they are transported on chains.

Below are Philion’s responses to submitted questions. News (BCN): Can you explain why no one has been able to connect the ecosystem securely yet?

Hugo Philion (HP): Blockchains have historically been designed as distributed ledgers that process local transactions, i.e. the movement of local asset bitcoin for bitcoin from address A to address B. They are not designed to pass information between themselves, meaning the Bitcoin chain cannot tell you. Here’s what happened on the Ethereum chain at block 1083483. This creates a communication problem: how to reliably collect information about different chains and verify it with the decentralization counterparts of the chains themselves? Furthermore, how can this be achieved given the risk of chain backtracking?

Until now, apart from collections, there are no sufficiently secure and decentralized mechanisms to obtain and confirm the state between different blockchains. A single solution is unlikely to exist. Instead, potentially multiple, different solutions will suit different use cases.

BCN: How does the lack of efficient communication mechanisms between chains affect dapp (decentralized application) developers?

HP: The biggest use case for blockchain today is decentralized finance (Defi). Lack of adequate cross-chain communication has limited the size, participation and efficiency of the Defi market. Current designs not only result in billions of dollars in capital loss, they are also difficult to use and limit the participation of more sophisticated users. As a result, market size, liquidity and returns are limited.

In addition, no cases of communication use that could lead to adoption were found. A simple example would be assets bought or sold on a smart contract chain with direct payment in bitcoin. For blockchain engineers, this could enable a range of protocols that could revolutionize digital ticketing, gaming or payment gateway technologies, for example. This simple example with high integrity communication between chains is just a starting point.

BCN: Do cross-chain activities pose systemic risks to the industry? If so, how?

HP: Yes. One example is how a lack of cross-chain communication can destroy an entire downstream blockchain ecosystem. We have seen this recently with many bridge exploits. Without sufficiently secure and decentralized mechanisms to access and securely transport data between deleted blockchains, false information can be provided and asset movements can be reported. Once transactions are confirmed and assets are subsequently redistributed to more established chains, if the information is found to be incorrect, risk enters the entire system.

BCN: What do you think will make cross-chain bridges popular in 2022, and are there any innovations that will help restore user confidence in bridges? Also, can bridging solutions provide users with a fair degree of protection against the risk of losing their assets?

HP: [The years] 2021 and 2022 witnessed large-scale cross-chain testing. As a result, cross-chain bridges received their first real stress tests. Ultimately, many failed with more than $2 billion in funds used in the past 12 months. The inability to securely move assets across chains has likely hindered growth in the space.

I believe that by incorporating decentralized cross-chain communication in line with the underlying blockchain consensus mechanisms themselves, bridges can be made significantly more secure. Additionally, additional risk can be mitigated if assets are insured at the protocol level as they move across chains.

Thus, protection is a two-step process. First, risk must be minimized at the protocol level. Second, use should be insured whenever possible. Risk in any complex financial system will never be zero, but users should be protected where possible.

BCN: How can non-smart contract chains be interconnected, and is it possible to adapt or improve crypto-assets like bitcoin to the world of defi?

HP: Blockchains are public databases that cannot read or report external transactions locally. At Flare, we work on two general models for improving non-smart contract chains: payment triggers and bridging.

A payment trigger involves a smart contract function on one chain that is triggered by a transaction on another chain. It provides a simple and useful functionality like paying for a collection on a smart-contract platform with bitcoin or any other token. To do this well requires a fairly decentralized data acquisition protocol that requires a number of participating validators to prove a transaction on a given chain. At this point, data can be queried, retrieved, and communicated securely to another chain. Then other blockchain events can be triggered. Such a mechanism can be applied to multiple non-smart contract chains so that they can be referenced and combined.

In contrast, bridges bring full smart-contract features to a token like bitcoin. With secure data access and locally available on-chain decentralized pricing, it becomes possible to create synthetic versions of these assets on a smart-contract chain. Importantly, in the model proposed by Flare, unlike previous synthetic models, the user is only required to present the base token itself, such as bitcoin. This eliminates excessive collateral requirements and removes direct market risk from the user, meaning they do not need to actively manage the position. These 1:1 representations of assets like Bitcoin can then be hosted on Defi and other decentralized applications.

BCN: So what new opportunities and use cases do you foresee where non-smart contract assets can be used for defi and Web3 activities?

HP: About 70% of the total market capitalization of digital assets consists of bitcoin, XRP and dogecoin. The widespread use of non-smart contract assets in Defi would mean more liquidity for the market and less dependence on centralized services for users.

There will be a wider market for creators and decentralized access to this market for token holders. In addition, the powering of non-smart contract tokens on a scalable chain also allows for alternative payment rails outside of efforts like Lightning. We also believe that Web3 needs greater reach, utility and consumer appeal through sufficiently decentralized and reliable communication protocols between blockchains and non-blockchain networks. We want to ensure that tokens like bitcoin can be used with these applications.

BCN: Can you explain, in very simple terms, what local interoperability protocols are?

HP: Flare has two unique protocols built natively into the network: State Connector and Flare Time Series Oracle. They are local because they are directly inserted into the blockchain using the FLR token to incentivize data provision and use the network itself to ensure accurate data provision.

In simpler terms, to an actual five-year-old, these protocols are Flare’s sensors, allowing him to reliably “see” what’s happening on other blockchains, record it for future reference, and make decisions. It’s similar to how our senses allow us to see what’s going on around us and communicate with the world.

Tags in this story

Blockchain, blockchain ecosystem, bridge operation, crosschain, decentralized finance, DeFi, Flare Network, Flare Networks, Hugo Philion, Smart Contract, Web3

What are your thoughts on this interview? Let us know what you think in the comment section below.

Terence Zimwara

Terence Zimwara is a Zimbabwean award-winning journalist, writer and author. He has written extensively on the economic woes of some African countries, as well as how digital currencies can provide Africans with a lifeline.

Image credits: Shutterstock, Pixabay, Wiki Commons

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