What is a cross-chain protocol? (Cosmos, Polkadot, Interledger)

– Let’s talk about cross-chain protocols.

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– Hi there. It’s Jackson.  Thanks for watching.  I’ve been getting a lot of questions lately  from people about cross-chain protocols  they’ve heard of,  such as Cosmos,  Polkadot, and Interledger.  Today, I’m going to walk through some of those,  explain their differences,  and hopefully give you a better understanding  of what they’re trying to achieve.  Now, before I continue, I must preface this by saying,  this stuff does get pretty technical,  but that’s just because it’s inherently  a very complex subject.  I’ll do my best though  to try and break it down to simple concepts  that anyone can understand.

So back in the day,  and by back in the day,  I only mean about three or four years ago,  there was this real kind of Maximalist belief  that everything on a Blockchain should be done  on the one chain.  And this is how we ended up with solutions  such as Bitcoin or Ethereum,  where all the transactions,  and in the case of ethereum,  all the smart contracts,  are executed on the one network.  Now as long as all this is secured  through decentralized consensus,  that works out pretty well,  because you can verify everything cryptographically,  all through this one, decentralized Blockchain.

But over the last few years,  we’ve seen this  “One Blockchain to rule them all” ideology,  kind of fall apart.  Part of this has been all the scalability issues  that these networks have run into,  as they’ve tried to increase the number of users  and transactions.  But also, if everybody is operating on this one Blockchain,  with a set of pre-defined rules they have to follow,  it also kind of hampers innovation in this space.  You can’t quickly sub something out or change a rule  and experiment with it,  because you have to maintain consensus across  that one Blockchain.

As such, many leaders in this space,  over the last couple of years,  have decided that one Blockchain Maximalism  isn’t the right solution,  and actually  we should have multiple Blockchains out there,  all serving different kinds of purposes.  What we need to make sure of though,  is if there is multiple Blockchains out there,  is that they can all talk to one another  in a standardized way,  and transfer value from one chain to another  with relative ease.  This is what cross-chain protocols  are seeking to do.  They’re looking to standardize the way  that Blockchains are written and secured  just like the way we use the internet today  is standardized itself.

As such, you’ll often hear these cross-chain protocols  referred to as an “Internet of Blockchains”,  because it’s really a network of Blockchains  which are all inter-operable,  and that they can speak to one another  because they’re all built in a standardized way.  If technology can achieve this goal,  it means that you’re going to be able to speed up innovation  with people innovating on individual Blockchains,  but it also means that they can talk to one another  and scale together. This means that the technology won’t rely on  third-party connectors or exchanges  in order to transfer value from one chain to another.  It’ll be built into the protocol itself.

The cross-chain protocols

Let’s step through some of the cross-chain protocols  that are being developed right now  and talk about what they do differently,  and what their futures look like.  Let’s start with Cosmos.  Cosmos started out being developed  by a developer called Jae Kwon,  here in San Francisco,  and it’s a network of Blockchains  which all ladder up to “hubs”,  which helps them all connect to one another.  The key goal here is to allow  for the transfer of value, e.g., “tokens”  from one chain to another,  with low transaction fees,  and in a scalable way.

The Blockchains built on top of Cosmos  use “Proof-of-Stake” for their consensus  and I recommend you go and watch my previous video  on “Proof-of-Work” vs. “Proof-of-Stake”.  But the key motivation here was to reduce  the wastefulness of “Proof-of-Work”  by going with a “Proof-of-Stake” model.  In Cosmos’s case,  they follow a “Proof-of Stake” model  where there’s a security deposit  that validators have to lay down.  Bad actors are then penalized  if they try to lie to the network. All the codes for Cosmos and it’s components  is open-source under the APACHE 2 license.  So Cosmos is made up of several key components  which glue it together into this network,  so let’s run through those now.

The first component is called “Tendermint”,  and you might have heard of this before.  It’s a low level, general purpose, Blockchain engine  which is based on a  Byzantine Fault Tolerant consensus protocol.  In a nutshell, it’s kind of a development kit  for building Blockchains on top of.  It’s been around for a while,  first being created back in 2014  before it morphed into and became part of Cosmos.  So building on top of Tendermint  you have the Cosmos network itself,  and this is simply a network of Blockchains  which are all operating on a similar  “Proof-of-Stake” model,  and they can easily communicate with one another  because of the standardized protocol they’re built on.

In Cosmos,  the Blockchains that make up the network,  are referred to as “zones”.  Sitting above the zones, you have something called  the Cosmos “hub”,  which is the glue that ties together  all these zones.  It’s actually a block chain itself,  but it kind of acts as the coordinator,  which manages the communication between all of the zones  which plug into it.  Initially,  Cosmos will operate their own hub  which a bunch of zones will plug into,  but you should keep in mind  that anyone can run a hub in the future.

This technology is all open source  and so the kind of desire in the future  is that multiple people are running these hubs  with multiple zones, then plugging into them.  The Cosmos network also has a token  which is used for participating in the network.  They did an ICO for this earlier in the year  and raised $17,000,000.00,  which is how a portion of the token will be  initially distributed.  The “Atom” tokens are used for two purposes.

Firstly, they’re used by validators on the network  which I’ll talk about in a minute,  in order to maintain consensus on the network.  Secondly, they’re also used to pay transaction fees  by anyone interacting on the network and transferring value  from one chain to another.  Again, I recommend you go and watch my  “Proof-of-Stake” video, for a better understanding  of how validators work in that eco-system,  but in Cosmos,  validators are essentially the miners,  the people who get to write into the Blockchain,  and they can write into the Blockchains of the  individual zones,  or they can actually write into the Blockchain  of the hub itself.

In order to become a validator,  you have to “stake” a bunch of the Atom token,  to get that privillage.  Initially, there will actually be a hard cap  of 100 validators per zone or on the hub itself,  and this is to guarantee the speed of the network.  If you have too many validators, things can get slower.  But as the technology improves, obviously,  they’ll be able to up this limit.  Additionally, anybody that’s just holding Atoms,  can delegate those tokens to a validator  and for the work that validator is doing,  they end up getting some transactions fees back,  so making money.

Some people have criticized the 100 validator limit,  but I don’t really think that’s an issue  if you look at the centralization of Bitcoin mining  right now.  There’s far less than 100 people in charge  of mining and securing the Bitcoin network right now.  And because it’s not an arms race  with all this hardware involved,  validators can come and go,  bad actors can be weighted out  and banned from the network.  Zones on Cosmos  have to be built on top of the Tendermint technology,  but they’re free to do whatever they really want  with their protocol,  and they can build all sorts of interesting applications  by plugging into the kind of development kit  that the Cosmos team have provided.

This will ultimately allow innovation to flourish,  while also maintaining the ability  to transfer money between the different zones  if they’re all connected into the hub.  In addition to all these new “zones” or new Blockchains  which are being built on Cosmos,  Cosmos is also going to allow users to interact  with existing Blockchains such as Bitcoin or Ethereum,  through peg derivatives.  These pegs will be set up as zones as themselves,  and there will be a little bit of trust involved  in trusting the people running the zone,  but it’s pretty cool  because at the end of the day,  you might be able to trade money from a Cosmos zone  over to Ethereum relatively seamlessly.

As I said,  Cosmos just did their ICO earlier this year,  and they’re still in active development.  There’s a bunch of code on GitHub though,  and they’re building something called “Basecoin”  which is kind of like a blue print  or a development kit, which you can go and build  other cryptocurrencies on top of.  I haven’t seen a Cosmos Blockchain released yet,  but I anticipate we’ll see something come out  in the next six to 12 months, or maybe even sooner.

Next up, lets talk about Polkadot.  Just like Cosmos,  Polkadot is a network and protocol  for connecting ledgers.  Development of the Polkadot protocol was pioneered  by Gavin Wood,  who is actually one of the main minds  behind Ethereum, and now the Parity Wallet.  Polkadot is actually a Parity project,  but it’s released open source  and under the Creative Commons license.  It’s similar to Cosmos,  in that it allows value transfer  across chains,  but in additon to that  it also focuses on the ability to transfer data  between the chains as well.

So we’re talking smart contracts, sending data on one chain  to smart contracts on another chain.  While Cosmos refers to their chains as “zones”,  Polkadot instead refers to them as “Parachains”.  The one catch is the participating currencies  or “chains” on the network,  do need to plug into Polkadot’s security model  and consensus engine.  What this means is that each “Parachain”  actually has to give up it’s sovereignty  in terms of consensus and tap into the overall  Polkadot network.  The argument is that this actually helps reduce wastefulness  because it’s all the one consensus protocol  while also allowing for the efficiency  of cross-chain transfers.

It’s important to know that the Polkadot protocol  doesn’t specify any sort of true and complete  virtual machine itself.  What it’s simply doing is “connecting the dots”  as the Polkadot team would like to say.  So just to confuse us,  Polkadot have gone and used  a whole bunch of different terminology  which is different to Cosmos.  So let’s walk thorough those components right now.  First up, you have Parachains, which I’ve already mentioned,  and these are simply those sub-blockchains on the network  or the zones in Cosmos.

These Parachains tap into the overall consensus  of the Polkadot network,  instead of having to maintain  their own stand-alone consensus systems.  Just like Cosmos’s hubs,  in Polkadot you have something called,  “The relay chain”  and the relay chain is the glue,  it’s the central Polkadot chain,  which helps coordinate between the Parachains.  Lastly, you have something called, “bridges”  and bridges are a way to tap networks  that don’t want to operate  on the Polkadot consensus system,  into the Polkadot network.

An example of this might be a bridge  over to the Ethereum network.  Just like the Cosmos’s pegs that I mentioned earlier,  this does involve writing connectors and some degree  of trust with those connectors,  so ultimately,  I imagine for the Polkadot network to work,  they want everybody to switch over  using their “pooled” consensus.  Pooled consensus is actually pretty cool  because it’s a lot less wasteful than “Proof-of-Work”  or even having individual “Proof-of-Stake” chains.

It reminds me a little bit of merged mining  which is something that Dogecoin and Litecoin do right now,  but again,  without any of that “Proof-of-Work” wastefulness.  Consensus in Polkadot is reached  via a “Proof-of-Stake” mechanism,  that relies on an intrinsic network token called “Dot”.  Just like Cosmos and it’s Atoms,  ownership of “Dot”,  allows people to become validators  and participate in the consensus on the network.  This essentially gives them a validated role in the network.  In addition to the Dot tokens  being staked for validation,  they also give people voting rights  about adding, modifying or deleting Parachains  which are hooked up to the relay chain.  In addition to that, people holding Dot can also vote  on where the protocol is evolved into the future.Polkadot are actually running an ICO right now  to help with the distribution of the Dot tokens.  You should go to their website,  Polkadot.IO  if you want to find out more.

The Polkadot roles

So within the Polkadot network, there are many roles  that different types of users can play.  Let’s walk through some of those.  First up there are validators, who just like in any other  “Proof-of-Stake” network,  are the ones who validate the blocks  and write them into the chain.  In this case,  they’re writing transactions  for multiple Parachain candidates.  Again, these are kind of just like Bitcoin miners,  but with “Proof-of-Stake” instead  where they’re staking the Dot token.

The validators receive transaction fees  in exchange for protecting the network.  Next up, you have collators.  Collators gather Parachain transactions  across all the Parachains  and bundle them up into a  “Proof of Validity” block.  As a reward for doing so,  they also receive transaction fees.  These are kind of like Bitcoin full nodes  who receive a bunch of transactions  and then keep broadcasting them to all their peers.  It’s kind of neat if there’s an incentive  for full nodes to be rewarded in a network,  because that’s currently not the case  with something like Bitcoin.  And lastly, there’s something called “Fisherman”.

Kind of a weird name.  These users “fish” in the network,  and try to weed out bad actors.  As a reward  if they find somebody that is trying to lie  to the network, they receive part of the staked bond.  That staked “Dot” token that was put down  by the person who was trying to validate.  So far, you’re probably thinking,  “Well, Polkadot and Cosmos sound pretty similar”  Right?  The key difference between Cosmos and Polkadot,  is that Cosmos is a much simpler system,  and it doesn’t require the individual zones in it’s network  to sacrifice the sovereignty of their consensus  in order to participate.

Polkadot on the other hand,  requires that all the Parachains adopt it’s pooled consensus  to take part in the protocol.  There’s arguments for and against both of these things.  On one hand,  it’s nice to have the flexibility  that a simpler protocol like Cosmos offers.  But on the other hand,  something like Polkadot,  allows new coin and cryptocurrency developers  to just focus on the new functionality  they’re trying to build,  instead of having to worry about  peer-to-peer consensus, which is really hard.

If you think about that, both approaches could actually  stimulate more innovation.  It’s going to be interesting to see how that pans out.  I will say that ultimately,  Polkadot is a lot more complex in it’s implementation,  and that’s partly due to the fact that it does  not only value transfer across chains,  but it also seeks to do data transfer  across different chains.  As a result,  I think there’s probably going to be  a much longer tail on the development of Polkadot,  and it’ll probably be a good 12-24 months  before we start seeing some of that stuff  hit the prime time.  The cool thing about these protocols  is that they can actually work together.

If the Cosmos zones start adopting the Polkadot  pooled consensus,  then you can actually have a connection there  between the Parachains on the Polkadot network,  and the zones in the Cosmos network,  and transfers going between them.  The last protocol I wanted to mention today,  because I think it deserves an honorable mention,  is called “Interledger”.  If you’re not familiar with what  cross-chain atomic swaps are,  go and watch this other video I have.  Essentially, Interledger is cross-chain atomic swaps  on steroids.

It was originally invented by the people over at Ripple,  but now it’s completely open source and licensed under  Creative Commons.  Of all the technologies we’ve talked about today,  Interledger is actually the simplest.  It essentially defines protocol,  which allows for “trustless escrow”.  Interledger doesn’t have it’s own network  or Blockchain per se.  What it does is define a process and procedure  where by you have “connectors” which act  as these trustless intermediaries.

These connectors simply facilitate the trade  but everything is done securely and trustless  because of the cryptographic protocol used.  In a nutshell, the protocol basically standardizes  and facilitates cross-chain atomic swaps easily.  There’s no utility token involved,  there’s no ICO as far as I’m aware,  and what’s interesting is that Interledger  haven’t just focused on crypto to start with.  They’re actually working with banks and other institutions  to use this protocol to send “fiat money” across this  trustless escrow.

Now to be clear, Interledger doesn’t provide anywhere near  the toolkit or eco-system that Polkadot and Cosmos does,  but I recommend you check it out,  because they’re currently working with the W3C  on standardizing these kind of payments  on the web,  and I do think we’ll start seeing  this technology floating into our everyday soon.  Now, a question I’m sure I’m going to get in the comment,  so I’m going to try and preempt it,  is “how does this all relate to Ethereum sharding?”

So as most of you have probably heard,  Ethereum, at some point in the future, is going to switch  to a “Proof-of-Stake” model,  from it’s current “Proof-of-Work”.  Alongside this, they’re investigating doing something called  “sharding”, which essentially means,  you’d be able to have these sub-blockchains,  just like Cosmos’s zones or  Polkadot Parachains,  which don’t require all the work to be done  in the “virtual machine”, on the main Ethereum Blockchain.  They could be done in a sub-blockchain.

It’s still early days with this technology,  but it is kinda cool.  The one catch though with sharding,  is that for all that work that’s being done  in the sub-blockchain to be verified on the main  Ethereum Blockchain,  there’ll be a set of rules or protocol  that has to be followed.  And this will probably mean that the sub-blockchains  all have to run on the EVM or the Ethereum Virtual Machine.

One of the benefits of a broader eco-system like Cosmos,  is that it actually allows it’s developers to be very free  with how they implement the protocol,  and any sort of virtual machine  for processing different types of code.  They only thing Cosmos really wants to standardize on,  is how value is transferred between those chains.  So ultimately, something like Cosmos or maybe even Polkadot  in the future will give people a little bit more freedom,  in terms of how they implement,  whereas Ethereum,  the sub-block chains that are sharded,  will still have to follow the Ethereum “rulebook”.

Ultimately, it’s a bit like vendor lock-in.  It’s kind of like choosing to go with AWS  and building everything there,  instead you’re building everything on Ethereum.  In some cases, the protocols we’ve covered today  may be a bit more light-weight, and not as restricting  in terms of locking you in.  So that’s what’s going on with cross-chain protocols.  It’s still really early days and nothing is really  “production ready” or out there, ready to use.  Cosmos and Tendermint seem to be a bit further ahead  in terms of the code that’s out there,  but the challenge for both Cosmos and Polkadot  is going to be boot-strapping the network,  and getting a bunch of Blockchains built  on top of this new technology.

To help boot-strap this,  I would imagine that Polkadot and Cosmos,  are probably going to start off with  bridges and relays and pegs,  over to existing networks like Bitcoin or Ethereum.  But I think the rubber is really going to only hit the road  when we start seeing entirely new Blockchains written  on top of these new protocols.  These new Parachains or zones  are going to be able to utilize the full potential  of the new technology that’s being built.

I’ll link a bunch of resources below,  so you can go and learn more  about what I’ve discussed today,  but I think there’s the potential  for these new technologies to usher in  a whole new generation of Blockchains  and different cryptocurrency technology.  Being able to transfer value and data across chains  in a decentralized way is really going to help us  remove some of the centralized aspects  that we deal with today.

You won’t need these centralized exchanges anymore,  let alone a third party decentralized exchange.  Because it’ll be built into the protocol itself.  So its really exciting stuff, but I think as always,  “the proof is in the pudding”, and it’s going to come down  to the execution,  to see if this stuff pans out.  I hope you found this video helpful  and learned a little bit more about what’s going on  in the cross-chain protocol world.  Development in this space is really only starting,  so it’s a good time to get in  and start understanding  some of these concepts.

If you did find this video helpful,  please hit “like” below,  and if you want to get regular video updates,  hit “subscribe”.  As always, if you have any questions,  just drop them in the comments below,  and I’ll try to get back to you as soon as possible.  Until next time, thanks for watching.  See you later!

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What is a cross-chain protocol? (Cosmos, Polkadot, Interledger)