Is Cosmos the future of blockchain interoperability?

By Sam Glass, Listings Manager at OKX.

Crypto is a fast-evolving industry with countless narratives floating around, each offering a unique perspective on the future possibilities of crypto. However, one narrative we’ve heard quite a bit about that’s recently gained traction is interoperability: the ability for blockchains to communicate and interact with one another, allowing them to seamlessly transfer value and data across different blockchain networks, without the need for intermediaries or additional protocols.

What’s blockchain interoperability and why does it matter?

Why is interoperability important? Well think about the following ways of sharing information:

Sending an email from a Gmail account to a Yahoo account Sharing messages, reactions, and photos between iPhone and Android Transferring data from a Microsoft Word document to an Excel sheet

Sending an email between email providers is so seamless that it’s not even something we think about. But as we move through the examples, things get a bit clunkier. Most of us have seen (or been) the one Android owner in the group chat who messes up the group chat interactions and images that Apple does so well in protecting. The messages still go through, but there’s some stickiness, and often some calls to kick the “Green Texter” out of the group chat. And anyone who’s worked with data knows how difficult it is to manipulate sloppy data in text form. Entire careers are built on cleaning up data and fixing this information transfer problem.

The current blockchain ecosystem is highly fragmented, and NOT interoperable. Different blockchain networks have their own unique features, protocols, and consensus mechanisms, which makes it difficult for decentralized apps (dApps) and services to communicate and exchange information across different blockchain networks.

People want communication between blockchains to be as seamless as sending an email. And that’s where Cosmos comes into the picture, as it’s one of the many projects trying to solve the interoperability problem.

What is Cosmos?

Plug and play

Cosmos is a Layer 0 (L0) blockchain network whose aim is to create an interoperable, easy-to-use, and scalable network of blockchains. Launched by Jae Kwon and Ethan Buchman in 2019, it sees itself as an internet of blockchains that uses a unified suite of open-source tools to connect numerous Layer 1 (L1) blockchains such as Osmosis, Akash, OKC, Binance Smart Chain, and soon dYdX.

Traditional blockchains are difficult to build and can’t communicate with each other. What sets Cosmos apart from other blockchains is its “plug and play” nature: by using its open source tools, organizations can build custom blockchains that plug straight into the Cosmos network. Blockchains built on Cosmos can easily communicate with other chains in the Cosmos ecosystem, making them all interoperable.

Application-specific blockchains

This allows developers to build application-specific blockchains, which are blockchains that are designed to serve a specific purpose or application. Rather than being general-purpose blockchains like Bitcoin or Ethereum, application-specific blockchains are tailored to the specific needs of a particular use case, industry, or community.

A key benefit of application-specific blockchains is that they can be more efficient and scalable than general-purpose blockchains, which may be burdened by the need to support a wide range of use cases and applications. By focusing on a specific use case or application, application-specific blockchains can be optimized for that purpose, with faster transaction processing times, lower fees, and other advantages. This is only possible when there’s a high degree of interoperability between blockchains.

Breaking down the Cosmos Tech Stack

Cosmos plans to achieve its vision of an interoperable blockchain future in part through its open source tools such as:

• Tendermint
• Cosmos SDK
• Inter-Blockchain Communications (IBC) protocol

Let’s break each of these down.

Tendermint

The default consensus engine available on Cosmos is Tendermint Core. Tendermint is an open source tool that packages the networking and the consensus layers of the blockchain into one generic, easy-to-integrate engine. This allows developers to save hundreds of hours building something from scratch, and instead put their focus fully into application development. It uses a Byzantine Fault Tolerance (BFT) consensus mechanism which allows consensus to occur if ⅔ of validators are honest, despite potential malicious actors. Because of this, it is sometimes referred to as Tendermint BFT.

Applications connect to Tendermint via a socket protocol called the Application Blockchain Interface (ABCI) which can easily be wrapped in with any programming language. These interfaces can reportedly handle 1000s of transactions per second, with a one second block time.

Cosmos SDK

The Cosmos SDK is a generalized framework that allows developers to simply and efficiently build blockchain applications on top of Tendermint. It focuses on two core principles: modularity and capabilities-based security.

Modularity

Modularity comes from its set of ready-built modules that can be easily combined and implemented to build various blockchain applications. These modules can be connected to create a web of utility across the blockchain and include processes for authentication, banking, staking, and governance.

An example of a popular module is Ethermint which is a software that takes the Ethereum Virtual Machine (EVM) and turns it into a Cosmos-SDK module. This module can be combined with other SDK modules like staking to create fully-functional Proof-of-Stake blockchains able to run Ethereum smart contracts. Anyone can create a module for the Cosmos SDK, which allows for an open source world of ideas to proliferate and grow the ecosystem.

Some other examples of modules available with the Cosmos SDK are: Auth - authentication of accounts and transactions for Cosmos SDK apps Bank - functionalities for token transfers Capability - object capability implementation Evidence - handling evidence for double signing, misbehavior, etc Governance - on-chain proposals and voting Mint - creating new tokens Staking - Proof-of-Stake layer for blockchains NFT - NFT module

Security

Capabilities-based security is built with the assumption that a thriving ecosystem of Cosmos SDK modules will contain faulty or malicious modules. Although the technological specifics are beyond the scope of this write-up, the Cosmos system constrains the security boundaries between modules, limiting the scope of malicious or unexpected interactions.

These two principles work together to allow blockchains to take advantage of interoperability securely and easily.

Inter-Blockchain Communication protocol (IBC)

The Inter-Blockchain Communication protocol (IBC) provides the connections between Cosmos blockchains necessary to allow different chains to transfer value, tokens, and/or data to each other. The IBC leverages the instant finality property of Tendermint consensus and allows blockchains with different applications and validator sets to be interoperable.

Assets are made interoperable by a bridge mechanism between blockchains. Say that Harrison wants to send token $ABC from Chain A to Chain B. First, token $ABC is bonded or locked on Chain A.

Then a message is sent from Chain A to Chain B, telling Chain B that $ABC is locked and is now inaccessible.

After confirming $ABC is locked on Chain A, Chain B will mint $ABC-vouchers, effectively transferring the value from Chain A to Chain B. $ABC-vouchers can then be used in various ways on Chain B, while the original $ABC is locked and unusable on Chain A.

This process can be reversed by burning $ABC-vouchers which will unlock the previously bonded $ABC, transferring value back to Chain A.

Any kind of blockchain can be connected to Cosmos. For fast-finality chains, the consensus algorithms can connect with Cosmos by adapting IBC. For probabilistic-finality chains (BTC, ETH, and others), they need a special kind of proxy-chain called a Peg-Zone. A Peg-Zone is itself a fast-finality blockchain that tracks the state of another blockchain. These Peg-Zones need to be customized for the particular chain they bridge.

Who’s building on Cosmos?

Cosmos has attracted some of the largest names in the industry including blockchains built by exchanges like OKX-Chain (OKC), Binance Smart Chain (BNB), and Cronos (CRO). On their homepages, all of these projects stress their scalability and interoperability.

Cosmos is the chosen home of projects from all different industries such as layer 1 networks, smart contract platforms, decentralized finance (DeFi), gaming, and infrastructure. Some of these notable projects built on Cosmos include Osmosis, Kadena, Fetch AI, Injective, Kava, Evmos, and Ankr. As of Apr 4, 2023, there is over $61 billion of value held within the Cosmos ecosystem.

The more projects that build on Cosmos (or other similar protocols), the larger the network effects and the greater the advantage brought on by its interoperability.

Other projects working on interoperability

Polkadot and Avalanche are both blockchain ecosystems that, similar to Cosmos, allow for the creation and interoperability of multiple blockchains. Although they are striving for similar goals, these projects differ in a number of ways.

Firstly, the architecture of Cosmos and Polkadot are most similar, with both basically having a hub and spoke model. Avalanche instead uses a system of "subnets" and "bridges."

Secondly, these projects differ in how they facilitate communication between blockchains. While Cosmos uses the IBC, Polkadot uses the Polkadot Relay Chain to bridge data between chains. In contrast, Avalanche uses a web of thousands of subnets to form a heterogeneous interoperable network of blockchains

Cosmos, Interoperability, and the Multi-chain thesis

The multi-chain thesis is the idea that different use cases and applications may require different blockchains, each with their own specific characteristics and trade-offs. This concept supports the development of specialized blockchains that can address specific needs such as privacy, speed, or governance. The multi-chain thesis is based on the idea that no single blockchain network can meet all the needs of all users and use cases and instead, that multiple blockchain networks will emerge to serve different niches and markets.

Whether or not the multi-chain thesis will come to fruition, it can’t do so without a high degree of interoperability. Cosmos, Polkadot, and Avalanche provide a framework for creating these multiple interoperable and independent blockchain parts, which can then be used to create a more robust and flexible blockchain ecosystem.

Conclusion

Achieving interoperability is seen as a key goal for the future development of blockchain technology, as it could enable the creation of more complex and robust decentralized applications and services, as well as facilitate the widespread adoption of blockchain technology.

Cosmos and other projects like it are pushing this narrative forward, and will hopefully make communication between diverse chains as easy as sending an email.

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