Blockchain: now and in the future. Cosmos and Polkadot
My last article all about blockchain, Bitcoin and Ethereum in the historical view promised a look at the future / current state of affairs. A Code Poet always delivers – today we’ll take a thorough look at the newest blockchains. Without further ado, let’s do it!
Blockchain and its further use cases
The aforementioned Bitcoin and Ethereum are the most popular (and public) implementations of blockchain technology. But to notice and talk just about those two would be a very limiting approach. Blockchain, with its constancy of data (due to distributed and unmodifiable transactions register) and high safety profile (owing to the best known cryptography techniques or the BFT consensus algorithm) is surely extremely useful and boasts a huge potential. Walmart, together with IBM have created a private blockchain to follow their food supply chain – enough said. As you can see, this technology doesn’t have to be limited to financial or currency aspects.
That’s why the blockchain industry moves fast and hasn’t stopped at the point of Ethereum. There are new ideas for further improvements which will allow us to use this technology even more universally, in some unexpected ways and places. I’ve selected two interesting examples which should hopefully prove this point: Polkadot and Cosmos.
Polkadot and Cosmos – the better Ethereum?
While Ethereum introduced the possibility of writing applications dedicated to this blockchain, Polkadot and Cosmos take it a step further. Here we write apps that actually are blockchains themselves, and all the blockchains within one of these systems are connected to one network and able to communicate with each other. In other words, we have everything we already know from Ethereum, except on a different layer, since the applications are in fact whole blockchains.
Taking the comparison further, in Ethereum the tokens are tied to the app, while in the case of the two presented solutions we’re talking about tokens per blockchain. Due to the inter-blockchain communication the apps can talk to each other and the tokens are subject to exchange between them (between the blockchains in fact), which allows for realization of the latest DeFi trend.
Both these systems also account for the scalability issue with the use of a consensus algorithm based on proof-of-stake (PoS), as opposed to PoW (to be fair, Ethereum 2.0 is planning to make the switch as well), which is fundamentally different. Instead of using high-consuming cryptography problem solving, proof-of-stake focuses on integrity incentivized by the profit and loss account. Each of the so called Validators connected to the network with a full copy of the entire blockchain has the right to add new blocks (which is what the miners do in PoW) by simply submitting them. The other Validators verify it and if the majority of them vote in favor it goes straight to the registry.
The whole issue isn’t however so uncomplicated (if that’s what you thought). First of all, the Validator adding a next block is chosen at random. Secondly, not everyone can become one – only entities with staking tokens (mostly tokens of a given chain, eg. ATOM in Cosmos or DOT in Polkadot) can act as a Validator. The Validator’s strength lies in the size of their stake compared to all the staked tokens. Therefore, the consensus isn’t based on the number of entities, but rather the number of tokens (with a weight of the vote depending on the weight of the staked pool).
What makes Cosmos and Polkadot so safe?
If you’re wondering what the motivation behind becoming a Validator (and blocking your funds) or not cheating (eg. by double spending) as one is – I applaud your thinking process and rush with an answer.
Basically, it’s the old and trusted profit / loss account. Each Validator makes money on fees and newly minted tokens. The total reward in a given block is then distributed to The Validators (there are various strategies for this for every blockchain). Meaning, the more we give to the pool, the more money we make. The cheating attempts, on the other hand, are quickly discovered by the other Validators and penalized by taking the stacked tokens away from the mischievous Validator. For the attack to be successful you’d need over ⅓ of the pool which is hardly achievable financially speaking. Additional security is introduced by a special role for hacker-like people who spot bad validators' behaviours and get rewarded for any finds. In Polkadot’s case, for instance, such a role is called “the fisherman”.
An uncovered act of vandalism can end in the rejection of a faulty block and zeroing out of the pool belonging to Validators who voted for it. Therefore, the BFT theory as well as economic motivators make PoS a safe blockchain algorithm which is why it’s getting more popular, all the while not contributing to any climate issues or being as expensive as PoW. It is also way faster and enables a much better transaction-per-second rate that PoW blockchains.
Refer to this whitepaper to read a good description of one of the most popular PoS algorithms – Tendermint.
Similarities and differences between Polkadot and Cosmos
The next new blockchain development step is the governance issue as well as making decisions regarding changes and improvements. So far, like in Bitcoin’s or Ethereum’s case the entity behind them were organizations (eg. Ethereum Foundation) and its users didn’t really have much say. When it comes to Cosmos or Polkadot the decision making power lies within the community. All the protocol changes are under Validators’ vote, so again, the staking issue comes to play. The more you stake the more you can influence the development of the entire blockchain.
Cosmos and Polkadot are in fact quite similar in other regards: both are going in the DApp-as-blockchain direction rather than smart contracts (although both allows you to write smart contracts for an app created as a blockchain) and therefore create a blockchain network architecture which allows for communication (and transactions) between the individual blockchains.
What are their differences then? A fundamental one lies in their architectures and actually means that they don’t have to compete with each other, but rather coexist and serve different use cases.
In Polkadot’s case all added blockchains (so called parachains) are connected to a main relay-chain and the blocks created within the parachains are actually validated by the relay-chain. We’re looking at a blockchain environment with a central element, managed by the governance (entities staking DOT currency).
Cosmos also has individual blockchains (so called zones) connected to one blockchain that validates them and enables communication between them – the Hub. The Hub itself though isn’t a central blockchain for all the zones. There could be multiple Hubs created by independent entities such as in the zones’ case.
That’s a technical detail, but how does it translate to real life you might ask? A tangible and, in fact, key difference is the Cosmos’ local security vs Polakdot’s global security.
The person who creates their blockchain or the entire blockchain network (the Hub + zones) in Cosmos is also responsible for organizing the Validators for their Hub. There’s the potential for a trust issue when it comes to the specific Hub and its Validators, but there are verified and trustworthy Validators who can take care of that (eg. Polychain Labs). On the other hand, it shifts full sovereignty onto the Hub’s creator, as they are the one making internal rules. If you don’t want to create a Validators network, which is a costly undertaking, you can latch onto existing Hubs like the one created by Cosmos’ creators (Cosmos Hub) or the second most advanced one (Iris Hub) – accepting their governance rules naturally.
Polkadot offers a global relay-chain which validates the added blocks. Therefore, when you want to launch a rather small app it is much easier to join the global safety system. The drawback is that you lose your sovereignty and the relay-chain Validator could even detach your parachain for some reasons (Polkadot even communicated that only a 100 parachains will be connected to the relay-chain on a “more DOTs – first served” rule).
Looking a these differences we can think of an interesting use case for Cosmos: the European Union wanting to create a cryptocurrency ecosystem could create a Hub (let’s go all the way and call it EuroHub) with Zones per currency connected to it, eg. EurZone, PlnZone or CzkZone). EuroHub would govern all the Zones and make the rules maintaining full sovereignty. Far away, there could be a ChinaHub, which would have no influence on the EuroHub, but there would be a possibility to exchange currencies between China and the EuroZone as the Hubs can communicate with each other.
In essence, the Cosmos blockchain could enable the creation of a new world currency system in which each country or organization would govern their own zone independently.
Another use case to imagine could be Walmart and IBM. Instead of implementing their blockchain from scratch, today these companies could create a private Hub based on SDK Cosmos. Polkadot’s use cases are similar to Ethereum’s ones as all the DApps don’t require sovereignty, eg. DeFi apps where global and transparent security is actually advisable.
Finally, it’s worth noting that both blockchains want to provide support for the communication with current dominating ones (eg. Bitcoin and Ethereum), implementing Zone or Parachain as the so called bridges between those and the “originals’. Moreover, in Cosmos you’ll find a zone which allows you to directly launch smart contracts written for Ethereum.
Is there a future for Ethereum? My thoughts on where we’re heading
Will Cosmos and Polkadot slowly push Ethereum out of the crypto space? In my humble opinion: no. On the contrary, there is a lot for them to collaborate and synergize on. Ethereum still has its own space – it’s the best choice (at least once it solves the giant fee problem) for someone who has an idea for a DApp but doesn’t want to create a network of Validators and nodes (Cosmos) or stake a lot of DOTs (Polkadot). What’s more, the developments in bridges and wrapped tokens also support the notion of multiple technologies coexisting rather than competing for limited space on the market.
Summing up, this whole issue certainly is extremely interesting as new ideas and improvements come up all the time. Developers and users are lucky to have a broad choice of blockchains for their specific needs, while its popularity makes their problems paradoxically related to their success rather than lacks (I’m referring specifically to scalability and fees). It’s worth noting that almost every technology goes through similar issues sooner or later. These problems are solvable and being solved as we’re speaking (or you’re reading :)), with the fortune already invested in the blockchain world only accelerating this process.
Being aware of the no-return-point in these developments made both banks and governments overcome their initial skepticism and dip their toes in blockchain more and more freely, with news of different adoption strategies coming up daily. Some countries, like India or China want to issue their own national cryptocurrencies, considering closing their markets to all others at the same time. Are those feasible goals or just naive attempts motivated by the lack of deeper understanding of the issue? What will be the implications of governments toying with a technology essentially meant to avoid their eyes? Time will tell.
The blockchain world has already infiltrated the daily lives of societies and there’s a reason it’s being called web 3.0. Stopping or reversing this process could be similar to reversing web 2.0 (social media) – really hard to imagine or, perhaps, impossible. My view is that this technology can’t and won’t be tamed, but rather is sure to become a significant part of our future daily life.
Dare I say I look forward to it?