Cross-Chain Protocols

Cross-Chain Protocols

The landscape of digital currencies and related blockchain technologies has changed significantly since Bitcoin was first introduced in 2008.

Bitcoin was the first generation of Blockchain Technology. It led the way in the creation of numerous alternative currency platforms as the first generation of blockchain technology. These first-generation blockchains provided a solution to conventional transaction limitations by implementing cryptographically-secure, peer-to-peer, digital transactions that are verified by a decentralised global network and recorded into an immutable public ledger, resulting in a platform that leverages the advantages of being digital, while preserving the economics of scarcity.

In late 2013, Vitalik Buterin proposed what would later be known as the second generation of blockchain: Ethereum, the project came to life in July 2015. Ethereum introduced the ability to build application-specific logic upon a blockchain network. This enabled new capabilities beyond transactions to incorporate state, business logic, and multi-party contracts to be stored and executed on a blockchain and written to an immutable ledger. The emersion of blockchain-based applications confirms the technology’s ability to evolve beyond just a means of transferring value.

As technologies evolved, the problems got more complex. Here is a list of some of the issues that started to emerge:

In the beginning of 2017, many leaders in this space realised that one blockchain maximalist protocol wasn’t the right solution. The world should have multiple blockchains serving different kinds of purposes. While specialised blockchain networks will and should be developed, being able to communicate on chain to other networks offers significant benefits, particularly if privacy and scalability can be maintained. A mechanism for joining disparate networks will unlock enormous value for every participating network.

The importance is that connectivity between blockchains should happen in a standardised way so they could transfer value to one another with relative ease. This is what cross-chain protocols are seeking to do: standardise the way in which blockchains are written and secured.  The same way that once the internet developed its own set of rules and standards, cross-chain protocols are willing to do the same. It is also common to hear the term “the internet of blockchains” for the cross-chain protocols.

Cross-chain protocols are a network of blockchains which are all interoperable, and they can connect to one another, because they are built following the same standards.

If this technology achieves these goals,  people will be able to speed up innovation. Applications will be able to connect to one another and scale together. Value will be transferred from one chain to another, without relying on 3rd party trusting. Everything will be built into the protocol itself.

Our project describes some of the cross-chain protocols being developed right now and how they differ or complement one another.

Blockchain designing involves many tradeoffs, and much debate has focused on tradeoffs related to scaling parameters such as blocksize. The DCS triangle was first introduced by Trent McConaughy back in July 2016. It consists of showing how Blockchains can have Decentralization, Consensus and Scale, but not all three properties simultaneously.

Some months later, in January 2017, Vitalik proposed the Scalability Trilemma suggesting that blockchain protocols can only operate well with two of the three following properties: Decentralization, Scalability and Security.

Decentralization

Vitalik’s definition: the system being able to run a scenario where each participant only has access to O (c )resources (ex. A regular laptop or small VPS) -

MultiCoin Capital: It can be quantified as the number of block producers.

Scalability

Vitalik’s definition: as being able to process O(n) > O (c ) transactions and finally,

MultiCoin Capital: It can be quantified as the number of transactions per unit of time that the system can process (TPS).

Security

Vitalik: defined as being secure against attackers with up to  O(n) resources

MultiCoin Capital: safety can be quantified as the cost of mounting a Byzantine attack that affects liveness or transaction ordering. Note that safety DOES NOT refer to the integrity of cryptographic signatures, or the ability of a 3rd party to derive a set of private keys from public keys

c = being the size of the computational resources (including computational power, bandwidth and storage) available to each node

n = the size of the ecosystem (ex. total transaction load or total market cap of a cryptocurrency)

 

Bitcoin and Ethereum were built first and foremost to be decentralised and secure, but sacrificed scalability (Bitcoin supports 3 transactions per second (TPS) and Ethereum supports 12 TPS). That has proven to be an effective way to bootstrap a network to date, but has limitations as the network grows.  Decentralisation is valuable to ensure that any given party cannot alter the database. More decentralisation means it is harder to collude to alter the database.

 

To date, NO ONE has found the combination of decentralisation, scalability and security necessary to create a fully functioning cryptocurrency network at scale. And as we can see...a lot of thought and development was being put into place more than a year before the first cryptokitty was born. Cryptokitties was an example of a massive usage of a Decentralised Application (DApp), which slowed down the processing time of the whole Ethereum blockchain network. The importance wasn’t on raising cute kitties, but on how the blockchain would scale. Just like Walmart and Amazon on the Black Friday sales, networks MUST scale. Scalability is in the center of attention for a while bringing value to cross-chain communications. It became an issue as blockchains tried to increase their number of users and transactions.

Innovation got hampered as it became difficult to operate and conduct experiments in single blockchains with sets of predefined rules and consensus. And as the number of networks grow, the more disconnected and sparse the cryptocurrency industry becomes. Just as in the early days of the internet, disparate blockchains networks have yet to truly realize the benefits of being connected.

They are able only to transfer data off chain or transfer value through centralised exchanges. Blockchains become disparate as they are isolated, that's why interconnectivity matters so much.

On the next blog post, some examples of projects that are working to solve Inter-Blockchain Connectivity. The foundation for the Web 3.0

Juliana Passos

08.04.2019

Web 3.0