Sidechains & Cross Chain Tech to Play Important Role in Crypto Future, Says OKEx Partner in Report

An OKEx partner released a report speculating on what it calls "Blockchain 3.0," asserting that sidechains and crosschain interoperability will fuel the future of cryptocurrencies.

OK Blockchain Capital, a blockchain investment and financial institution partnered with OKEx, recently released a report on the technical limitations of current mainstream blockchain implementations and the future of what it refers to as “Blockchain 3.0” in a press release on Saturday.

The research published by the company touches on sidechain and cross chain technologies, asserting that both of these would “play a key role” in the future development of blockchain technology, including its features and performance.

In its paper, OK Blockchain Capital explained in detail the limitations of blockchain 1.0 (Bitcoin) and blockchain 2.0 (Ethereum) in terms of performance issues and the dichotomy between said performance and decentralization.

“Performance enhancement [in this particular context] refers to expansion in capacity… Assuming an average of one new block generated every 10 minutes, the Bitcoin network can handle seven transactions per second at peak, far from the hundreds of thousands of TPS required by centralized systems. There are two essential factors limiting Bitcoin trading performance. The first is the size limit of each Bitcoin block at 1 [megabyte]. Secondly, it takes up to 10 minutes on average to calculate a qualified random number to establish a new block,” the company wrote in its study.

In addition to the performance issues, OK Blockchain Capital adds that Bitcoin has a very limited capacity for innovation at its core level. Scripting doesn’t have any “for” loops, limiting it to a token that has become a store of value.

This is not the case with Ethereum, a blockchain that the researcher said, “focuses on solving the insufficient functional extensibility of the Bitcoin blockchain.” However, the ecosystem itself continues to suffer the same performance issues of its older cousin.

The solutions, according to OK Blockchain Capital, have been largely effective at improving transaction flow, but have “come at the expense of decentralization, failing to accord with the core blockchain concept.”

The performance vs. decentralization dilemma is a similar problem faced by decentralized exchanges. Huobi Canada general manager Ross Zhang said about as much at the FinTech Canada 2018 conference when he pointed out that traders favor centralized exchanges with transaction fees because they process orders at a faster pace.

This is where blockchain 3.0 comes to the rescue, introducing certain solutions to the problem that supplement current implementations.

“Sidechain solutions such as the Lightning Network and ‘cross chain’ solutions such as building multiple sub-chains for distributed consensus have created new ways to improve blockchain system performance. It is expected that better maintaining the concept of decentralization will greatly improve blockchain transaction performance,” the company wrote.

By this logic, Ethereum’s work on sharding might actually enhance the network’s performance as it gets broken up into multiple sub-chains, each performing independently but still part of the overall ecosystem. Whether or not this actually leads to real adoption is another question entirely.