Besides scalability, there are several other dimensions in which blockchain technology is evolving and upgrades are being developed.
Interoperability is a very important area, which is the focus of many research and development efforts. Various mechanisms for building bridges between different blockchain protocols are currently being tested. These include the so-called atomic swaps, decentralized exchanges, and inter-chain communication protocols, as shown in the following diagram:
Atomic swaps represent a direct trade of cryptoassets belonging to one blockchain, such as Bitcoin, to cryptoassets belonging to another blockchain, such as Litecoin. This is done on-chain, as opposed to the majority of popular cryptoasset exchanges, which match and settle transactions off-chain, such as standard financial exchanges. This or other direct cross-chain transaction mechanisms are being deployed in the emerging decentralized exchanges, which are expected to become the main trading venues in the future.
Another important new development comes from Rootstock, which is building a smart contract platform for Bitcoin. The Rootstock platform is connected as a side chain to the main Bitcoin blockchain. It introduces smart contract tokens called Smart Bitcoins, which are pegged to the original Bitcoins. They are also compatible with Ethereum, as they use the same programming language, Solidity, and are compatible with the Ethereum virtual machine (EVM). So, this can provide a level of interoperability between the Bitcoin and Ethereum networks. Rootstock also implements a version of the lightning network, called Lumino Network, which can increase its transaction throughput to thousands of transactions per second.
As we discussed previously, privacy is also very important for businesses and individuals alike. One of the most powerful new privacy-enhancing technologies are the zero-knowledge proofs (or zk-SNARKs) pioneered by ZCash. Ethereum recently integrated this technology into its own protocol. This should create a privacy layer for Ethereum, which could greatly enhance its functionality. For example, it can enable decentralized voting applications on Ethereum, which inherently require privacy. Anonymous Ethereum tokens can have many other applications as well.
Actually, many of the new emerging blockchain protocols plan to include privacy features and consider zk-SNARKs as one of the best options for this. Such projects include Tezos, Polkadot, and Rootstock, among others.
Governance is another pressing issue that needs to be addressed in the blockchain space. Most solutions in that area revolve around Proof-of-Stake and various voting and staking mechanisms. Also, new blockchain architectures with different protocol layers, instead of just one protocol in charge of everything, are being designed to address the issue. In this way, transaction validation rules can be decoupled from network protocol rules, for example, and each dimension can evolve separately. Stakeholders can vote on upgrades of different parts of the blockchain protocol independently, which would promote more flexibility in its decentralized governance.
Next, we'll look into some emerging projects aiming to deliver third generation blockchains.