This transcript discusses the topic of interoperability in relation to central bank digital currencies (CBDCs), focusing on retail CBDCs. It highlights the concern expressed by central banks regarding the potential encumbrance of progress on CBDC issuance due to interoperability challenges. The divergence in standards across countries is identified as a limitation to achieving the full potential of CBDCs.
To understand the importance of interoperability, the transcript provides an example of Bitcoin and Ethereum, two popular blockchains with different functionalities. Users of Bitcoin may desire to access decentralized applications (DApps) on the Ethereum blockchain, which requires bridging between the two chains. Two options for bridging are discussed: a trusted option and a trustless option.
In the trusted option, users exchange their Bitcoin for tokens (ERC-20 tokens) that can be used on Ethereum. This relies on a small group of trusted entities to verify the validity of the tokens. Projects like Wrapped Bitcoin (WBTC) and T BTC are mentioned as examples of this approach.
The trustless option eliminates the need to trust any specific entity. Instead, the protocol verifies the state of the chain being connected to, ensuring transaction accuracy and legitimacy. This option is preferred for retail CBDCs but presents challenges due to resource constraints on devices.
The size of blockchain data presents challenges for bridging between chains. The transcript highlights the growth of Bitcoin and Ethereum blockchains, making it difficult for resource-constrained devices to perform full sync and verify chain states. The increasing number of smartphones exacerbates this issue. Additionally, the resource constraints and costs associated with smart contracts pose further difficulties.
To address the data requirements and enable trustless bridges on resource-constrained devices, the Celo team has developed an open-source light client called Plumo. Plumo utilizes innovations such as epoch-based syncing, BLS signature aggregation, and snarks to reduce the amount of data needed to verify the blockchain’s state. These technological advancements significantly reduce data requirements, making bridging between chains more feasible.
Considering CBDCs, the transcript acknowledges that most central banks envision issuing CBDCs on private networks that may not produce many decentralized applications like those on Ethereum. However, CBDC users may still desire a bridge to public blockchains like Ethereum for accessing useful applications. It is likely that retail CBDCs will require trustless bridges, but there may be limits to trust between governments in wholesale CBDCs.
To enable successful bridges between CBDCs and other blockchains, the transcript emphasizes the importance of developing best practices and industry standards based on Plumo’s design principles. The innovative use of epoch-based syncing, BLS signature aggregation, and snarks can serve as a starting point for addressing data requirements and ensuring interoperability.
The transcript concludes by highlighting the potential of Plumo’s light client solution for achieving interoperability between CBDCs and other blockchains. It encourages further exploration of topics such as synthetic CBDCs and invites viewers to reach out for more information and technical details through other available resources.