The evolution of digital ledgers: from siloes to seamlessly interconnected ledgers

The future of blockchain isn’t about walled gardens, but optimal communication between services, as explained by Anurag Arjun, Co-Founder of Avail.

Financial technology has come a long way from the days of isolated mainframe systems and proprietary ledgers. The world runs on ledgers – from banking systems to government records, from ecommerce platforms to supply chains, ledgers form the backbone of how we track and transfer value. Traditional banks use ledgers to manage accounts, central banks use them for inter-bank settlements, and payment processors like Visa maintain complex ledger systems for transactions. Beyond finance, ecommerce platforms maintain ledgers for commerce data, shipping companies for logistics, and governments for everything from land records to identity management.

Before the advent of blockchain technology, these digital ledgers were primarily maintained in databases controlled by central authorities – companies and governments that owned the ledgers and controlled write access based on predefined rules and logic. While APIs enabled communication between these systems, the fundamental challenges of trust, transparency, and interoperability remained.

The blockchain revolution: beyond central control

The breakthrough innovation of blockchain technology lies in its ability to maintain ledgers without central control. Through Byzantine Fault Tolerance (BFT), blockchains enable multiple validators – sometimes hundreds or thousands – to maintain and cross-verify the same ledger. This first generation of blockchain technology demonstrated that secure, transparent ledger systems could operate without centralised authority.

The technology has evolved significantly beyond this initial approach. Modern solutions like zero-knowledge rollups enable single parties to maintain ledgers while providing mathematical proof of correct operation. These advances, though not widely known outside the blockchain industry, represent fundamental improvements in how we can structure and scale digital ledger systems.

The rise of modular architecture

The blockchain landscape has evolved through distinct generations. The first generation consisted of monolithic blockchains like Bitcoin, Ethereum, and Solana – each operating as an independent Layer 1 network with its own validator sets and crypto-economic security. The second generation introduced a more modular approach, with specialised ‘rollup’ chains (Layer 2s) building on base layers like Ethereum or Avail.

This architectural shift mirrors the evolution of cloud computing, where complex operations are broken into specialised components that can scale independently. Just as Amazon Web Services enables auto-scaling of specific services during peak events like Black Friday, modular blockchain architecture allows different aspects of the system – execution, settlement, and data availability – to scale as needed.

Instead of hundreds of independent Layer 1 networks, each requiring its own validator set and security infrastructure, the modular approach enables thousands or even millions of Layer 2 chains to ‘roll up’ to a secure base layer. This dramatically improves scalability while maintaining security.

The challenge of fragmentation

While the modular approach solves scaling challenges, it introduces new complexities around system coordination. Users must navigate multiple networks, understand bridging mechanisms, and manage assets across different systems. This fragmentation creates friction, not just for developers but for everyday users, becoming a fundamental barrier to mainstream adoption through convoluted user journeys.

Traditional solutions like APIs, while useful, are limited by one-to-one communication contracts and complex governance requirements. This has led to the proliferation of purpose-built systems that struggle to interact – for instance, the challenge of enabling mutual fund trading on stock trading platforms.

Building the unification layer

The solution sounds simple – we need a unified layer to coordinate between different blockchain systems and ledgers. However, such a unification layer must maintain the independence and security guarantees created in the first place by this constellation of very different blockchains. Any solution must address three core requirements:

1. Data availability: as blockchain networks scale, ensuring that transaction data remains accessible and verifiable becomes increasingly critical. This requires advanced data sampling techniques and efficient proof systems that can handle growing volumes while maintaining decentralisation.
2. Proof verification: different blockchain systems use various approaches to verify transactions – from simple signatures to complex zero-knowledge proofs. A unified system must handle these different proof types while maintaining security guarantees.
3. Coordination mechanisms: perhaps the most challenging is enabling communication between different blockchain systems without compromising their sovereignty or security models. This requires careful cryptographic design and consensus mechanisms that can bridge different security assumptions.

Real-world applications 

The transformation of traditional ledger systems through tokenization and seamless interconnectivity is revolutionising how businesses operate. In finance and commerce, where isolated ledger systems have long created friction, the impact is particularly significant. Consider cross-border payments, traditionally managed through a complex network of separate ledger systems at multiple intermediary banks. JP Morgan’s pilot programmes with the Monetary Authority of Singapore and Banque de France demonstrate how interconnected digital ledgers can transform this process, reducing settlement times from 3-5 days to near-instant completion while maintaining the security and auditability that businesses require.

The evolution of supply chain ledgers shows a similar transformation. Walmart’s implementation of interconnected ledger systems through Hyperledger Fabric has fundamentally changed its ability to track products. Their legacy system, which required reconciliation across multiple isolated databases, took 7 days to trace mangoes from farm to store. Their new interconnected ledger system accomplishes this in 2.2 seconds. The system now seamlessly tracks over 25 products from 5 different suppliers, with plans to expand across their fresh produce supply chain.

Ecommerce platforms are discovering new efficiencies through tokenized assets and interconnected ledgers. Traditional ecommerce relies on isolated databases that can’t easily share information or value. Through tokenization, online marketplaces can now operate seamlessly across platforms. A customer’s digital wallet becomes a portable store of value and identity, enabling purchases across any connected marketplace while the underlying ledger systems handle data verification and settlement automatically.

Supply chain management demonstrates the power of tokenized assets in interconnected ledger systems. Instead of managing separate databases for each partner or region, companies can now track products through tokenized representations across interconnected networks. A manufacturer can issue digital tokens representing physical goods, enabling efficient trading and tracking while maintaining a single, verifiable record of ownership and provenance across all participating systems.

Healthcare providers are leveraging interconnected ledger systems to solve longstanding challenges in patient data management. The Estonian E-Health Foundation’s implementation for 1.3 million residents shows how sensitive data can be shared securely across different healthcare providers while maintaining strict privacy controls. Rather than storing medical records directly, their system maintains an immutable audit trail across interconnected ledgers, ensuring data integrity and appropriate access control while meeting regulatory requirements.

Traditional banking operations are being transformed through tokenization and interconnected ledgers. Trade finance, which typically involves coordinating separate ledger systems across multiple banks, insurers, and shipping companies, becomes streamlined when these various parties can interact through interconnected ledger systems. This infrastructure resolves traditional friction points – from asset type discrepancies to conflicting banking hours – through automated coordination between different institutional ledgers.

The evolution extends to merchant services, where interconnected ledger systems enable new possibilities for payment processing and settlement. Merchants can now accept any tokenized form of value while receiving settlement in their preferred currency, with the underlying ledger systems handling conversions and settlement automatically. This builds upon traditional payment processing systems but adds the benefits of programmable assets and transparent, interconnected ledgers.

By enabling seamless interaction between different ledger systems while maintaining security and privacy, this technology allows businesses to achieve new levels of operational efficiency without sacrificing the reliability they expect from traditional systems. The key lies not in creating new unified systems, but in enabling existing ledgers to interact seamlessly through tokenization and sophisticated interconnection protocols.

The power of tokenization

The true potential of unified blockchain infrastructure extends far beyond traditional financial applications. At its core, tokenization represents a fundamental shift in how we represent and transfer value in digital systems. Tokens aren’t merely financial instruments; they serve as digital representations of any form of value, including data, identity, assets, and even user attention. This broad applicability makes tokenization a powerful tool for breaking down traditional silos between different systems and enabling new forms of value exchange.

Consider how ecommerce data currently exists in isolated databases. A customer’s shopping history on Amazon, for instance, remains locked within Amazon’s proprietary systems. Through tokenization, this shopping data could be transformed into a portable digital asset that the customer controls. Combined with tokenized identity credentials, such as a digitised driver’s license, customers could securely present their shopping history to competing platforms to unlock personalised discounts or services, all while maintaining privacy through zero-knowledge proof technology.

The financial sector demonstrates another powerful application of tokenization. Traditional mutual funds, which often lack efficient trading infrastructure in many markets, could be tokenized to instantly leverage existing blockchain trading systems. This enables immediate trading capability without building purpose-specific infrastructure, dramatically reducing time to market and operational costs. The same applies to various financial instruments, each becoming programmable and interoperable through tokenization.

Tokenization also transforms how we handle identity and personal data. Rather than storing multiple copies of identity information across different services, individuals could maintain tokenized identity credentials that can be selectively shared with service providers. This approach not only enhances privacy but also reduces the risk of identity theft and fraud. Users could prove their age for restricted services without revealing their entire birth date or verify their credit-worthiness without exposing detailed financial records.

Regulatory considerations and compliance

The intersection of unified blockchain infrastructure with existing regulatory frameworks presents both challenges and opportunities. Rather than viewing regulations as obstacles, forward-thinking jurisdictions are creating frameworks that enable innovation while maintaining necessary oversight. Successful implementations demonstrate how this can be achieved while maintaining compliance. The European Union’s regulations around blockchain technology, particularly MiCA (Markets in Crypto-Assets), provide a framework for how unified systems can operate within regulatory bounds. For example, the European Blockchain Services Infrastructure (EBSI) shows how a unified blockchain network can facilitate cross-border services while adhering to GDPR and other EU regulations.

In the financial sector, Singapore’s Project Guardian offers an instructive example of regulatory-compliant blockchain unification. The Monetary Authority of Singapore (MAS) has created a controlled environment where financial institutions can test blockchain-based asset tokenization and DeFi protocols while maintaining compliance with existing securities laws. This demonstrates how regulatory bodies can work proactively with blockchain technology rather than against it.

Japan’s Financial Services Agency (FSA) has also taken significant steps in creating clear regulatory frameworks for blockchain-based financial services. Their approach to stablecoin regulation, implemented in 2023, shows how traditional banking regulations can be adapted for blockchain technology while maintaining security and stability.

The future of blockchain regulation is likely to move towards harmonised international standards, similar to existing financial regulations. Organisations implementing unified blockchain infrastructure today should build with this evolution in mind, creating systems that can adapt to changing regulatory requirements while maintaining their core efficiency and transparency benefits. The goal is to create an infrastructure that not only meets current regulatory requirements but is positioned to evolve alongside the regulatory landscape, ensuring long-term viability and compliance.

Looking ahead

As we move toward 2025, the market is increasingly rewarding the value of infrastructure-focused solutions that seamlessly interconnected ledger systems and tokenized assets. The future of blockchain infrastructure isn’t about building walled gardens but creating services that communicate seamlessly behind the scenes – much like how microservices power modern web applications, plus the immense benefits unlocked by highly efficient, transparent, and permissionless infrastructure.

Traditional financial institutions are increasingly moving beyond pilot programs to full implementation of blockchain-based systems. By 2025, we expect to see major banks operating interconnected ledger networks for cross-border payments and settlements. This transition will likely be accelerated by the development of Central Bank Digital Currencies (CBDCs) in addition to stablecoins and other tokenized assets under custody.

The focus is shifting from building individual blockchain networks to the need to have seamless connections between them. There has been a growing demand for cross-chain applications and the need for unified user experiences. The development of standardised protocols for cross-chain communication will be crucial for this evolution.

As interconnected blockchain systems handle more valuable transactions and sensitive data, security models are evolving to meet these challenges. The trend toward multi-asset staking and shared security, as demonstrated by Avail’s Fusion’s partnership with Symbiotic, indicates how security models will become more sophisticated and interconnected.

Looking forward, organisations should focus on building or adopting scalable infrastructure that can handle increasing transaction volumes while maintaining security. This includes implementing robust data availability solutions and developing efficient proof verification systems.

Focus should be placed on abstracting complex blockchain interactions behind easy-to-use interfaces. The goal is to make unified blockchain services as easy to use as traditional digital services while maintaining the benefits of decentralisation.

As we move toward 2025, the success of interconnected blockchain infrastructure will depend on how well these trends are understood and incorporated. Organisations that can balance innovation with compliance while maintaining focus on user experience will be best positioned to leverage these developing technologies.

This requires ongoing collaboration between technology providers, businesses, and regulators to ensure that interconnected blockchain infrastructure continues to meet the needs of all stakeholders while enabling new forms of value.

 

This editorial piece was originally published in The Paypers’ Web 3 Payment Acceptance Report 2025. The report highlights the current landscape of Web 3 payments, including their rapid growth, high adoption rates, and underlying drivers. It also explores key players in the field, regulatory advancements, the role of AI in crypto and blockchain, and more.

 

About the author

 

Anurag Arjun is the Co-Founder of Avail, a Web 3 infrastructure layer designed to allow modular execution layers to scale and interoperate in a trust-minimised way. He entered the blockchain industry in 2017, founding Matic Network, which evolved into Polygon Labs. By 2020, he launched Avail within the Polygon ecosystem, utilising his background in research, economics, and engineering. In March 2023, he led Avail's development from Polygon to focus on developing a more modular and scalable blockchain stack for the Web 3 community. You can reach out to him on X and LinkedIn.   

 

 

About Avail

Avail is a horizontally scalable, trust-minimised infrastructure network enabling seamless cross-chain interaction, transaction validation, and native liquidity interoperability.