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The State of Crypto Interoperability. (Explained in Pictures).

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Introduction

There’s been a lot of talk about blockchain interoperability recently with the launch of Cosmos and the potential threat to the Ethereum ecosystem. This piece is going to be a deep dive on the technicalities of Cosmos and Polkadot, but will also give you the prerequisite knowledge you need to understand these protocols at a technical level (with pictures to help understand).

Firstly, it’s important to know why interoperability matters. In the existing internet, we can access and modify numerous data sets through APIs (application specific interfaces). However with blockchains, data is siloed by the chain that it exists on. So what does it mean to have interoperability?

  1. Trustlessly transfer assets between different chains
  2. Cross-chain smart contracts that can interact with each other
  3. Specialised chains that can be used by other blockchains

Before we get into the details of any particular interoperability approach, I’d like to spend some time outlining some of the basics of distributed systems in order to help us understand concepts later on. Keep in mind that blockchains are simply a set of machines all over the world coming to an agreement about what a collection of data should look like.

Distributed Systems

Distributed systems are, as the name implies, a group of computers working together to accomplish a very specific goal. An example of this goal might be to serve the same content around the world to lots of people (like keeping your Twitter newsfeed up to date). In trying to achieve this goal they have to overcome the following problems:

  1. Timing. Each computer/system will execute the same task at it’s own pace and time.
  2. Ordering. Trying to solve what happened and when with time is still very hard since clocks start “drifting” after a period of time. This makes order a complicated challenge since each system has its own account of what happened and when.
  3. Failure. Coordination between systems can fail due to a system crashing, not receiving/sending messages to other systems correctly or choosing to act maliciously (Byzantine)

Like humans, the way to solve most problems is through good communication. With computers though, this is a bit more complicated since they can communicate asynchronously or synchronously.

What does that mean?

  • Synchronous = each system has a certain amount of time allocated to them to communicate and they take turns. Think of it in-real conversations for humans.
  • Asynchronous = each system can communicate whenever they want and there’s no assumptions about when they’ll speak. Think of it as Slack for humans.

All said and done, at the end of the day a blockchain should have safety (agreement on the same output) and liveliness (chain keeps growing and functioning). If your chain has safety but not liveliness it’ll stop producing blocks. If it has liveliness but no safety it’ll produce many forks and you won’t know which one is the correct blockchain unless you have a rule (eg longest chain in Bitcoin)!

Introducing Practical Byzantine Fault Tolerance (PBFT)

Practical Byzantine Fault Tolerance is an implementation developed by Barbara Liskov and Miguel Castro and introduced in 1999. Proof of Stake chains like Cosmos and Polkadot have elements in their design inspired from PBFT so it’s worth outlining what it is and how it works.

  1. A party will listen to numerous transactions until it can form a block of these transactions. We’ll refer to this party as a proposer, since they propose a block.
  2. Once a block has been proposed, everyone participates in a pre-vote to confirm that they heard the same block. It’s important to note that a block could be incorrect/malicious but still be valid in the pre-vote stage since everyone’s simply trying to come to consensus that they received the same data/block.
  3. Once more than ⅔ of the participants agree that they received the same block, they move to the pre-commit step. A pre-commit vote is then cast to determine whether this is a valid block and nothing malicious is going on.
  4. If more than ⅔ of the participants vote that the block is indeed valid and correct then we can successfully commit this block to the blockchain.
  5. The height of the blockchain is increased and steps 1–5 are repeated.

From what we’ve learned above, we can see that the following steps ensures that the order of blocks is known (by the height of the blockchain increasing once a commit happens), each computer can take it’s time to come to its own conclusion then communicate what result it came to (timing) and can handle failure (malicious node proposing a block or a node not being able to vote).

Hello Cosmos!

Enter Cosmos, founded in 2016 by Jae Kwon and Ethan Buchman and raised over $17M+ in their ICO for ATOMs. The Cosmos Hub is it’s own blockchain that connects to other zones (blockchains) and therefore allows communication between different zones. Any proof-of-work blockchain such as Bitcoin, Ethereum, ZCash or an application specific blockchain would have to be connected to a bridge-zone via the Inter Blockchain Communication framework.

Getting into the architectural details, Cosmos Hub uses Tendermint as it’s consensus algorithm (inspired by PBFT) created by Jae Kwon in 2014. What this means is that each voting stage (pre-vote & pre-commit) has a fixed amount of time for everyone to vote before it moves on to the next stage. After a block has been finalised, there’s no going back. This means you can have instant mobile & internet-of-things payments since as soon as the transaction is in a block it’s finalised. Since no confirmations are required this is called having “fast finality”.

ATOMs held by users can be used to become validators in the system or to delegate ATOMs to a validator instead. The Cosmos blockchain will have 100 validators to begin with and plan to increase the limit via a governance parameter in the future. Only those with reasonable power in the network will be able to participate in the security of the network.

To make all of this less theoretical, I’ll outline a set of steps to possibly to convert ETH to BTC. — everyone’s favourite example.

  1. A trusted intermediary zone will be created for Ethereum and there will be set of validators who will be responsible for relaying messages from the Ethereum bridge-zone to the Cosmos Hub.
  2. Since both Ethereum and Bitcoin are probabilistic (there is a chance the current chain isn’t the correct one), the validators need to wait for a certain number of confirmations to ensure the transaction actually went through.
  3. Once the validators are certain the transaction is final they’ll initiate a transaction from their zone to the Cosmos Hub that they did indeed receive the Ether. The hub will then create a form of Wrapped Cosmos Ether that it’ll hold. Every other Cosmos zone will now be aware there’s new Wrapped Cosmos Ether in the system.
  4. Assuming an exchange rate was determined beforehand, the Wrapped Cosmos Ether will be exchanged for Wrapped Cosmos Bitcoin. This Wrapped Cosmos Bitcoin is then sent to the trusted intermediary Bitcoin zone and sent to the specified address on the actual Bitcoin chain.

There’s a few assumptions/things to be aware of with this model:

  • The Cosmos Hub needs to ensure the balances of the Wrapped Cosmos assets are correctly incremented and decremented. While this is a potential downside, the Cosmos team has designed the system in a way that anyone can create their own hub. Essentially Cosmos will be a network of Hubs and Zones run by different groups.
  • Each Zone has to be trusted that they’re relaying the correct messages about assets being sent/received. Senders also need to trust the validators set will correctly relay their messages and not steal their assets.

Entering Polkadot

Polkadot is founded by Gavin Wood, a cofounder and former CTO of Ethereum and president of the Web3 Foundation. Polkadot raised over 145M+ late 2017 selling the native currency DOT during a crowdsale. If Cosmos resembles an open network of hubs and zones, Polkadot is a single “relay chain” which offers numerous benefits to chains, called “parachains” (short for parallelizable chains), that join it.

A couple key aspects Polkadot aims to innovate are:

  • Each parachain gain pooled security from the validator set of the relay chain. Once a chain has connected to the Polkadot network by becoming a parachain it is secured with the same level of security as the whole Polkadot network. In Cosmos, each new chain needs its own validator set and has to bootstrap its own security.
  • Parachains can interact with other parachains using trust-fee interchain communication. Users who want to communicate across chains do not need to trust every chain they transmit messages to, but just the singular security of the whole Polkadot network. Again, this is different from how Cosmos works where a user would need to trust the source chain, the routing chains, and the destination chain with each of their separate validator sets.

Polkadot’s consensus mechanism consists of two components: GRANDPA and BABE. GRANDPA is a finality gadget which draws on some ideas behind the GHOST fork choice rule (like Ethereum’s Casper) and BABE is a block production mechanism similar to Cardano’s Ouroboros. The introduction of a finality gadget allows for portions of the chain to be “finalized” and provably never be reverted. Separating the finality gadget from the block production allows for the slower finality gadget to work in a different process from the generation of new blocks in the chain. This means that the actual production of blocks can scale unlike in the PBFT-bound Cosmos Tendermint algorithm.

In the Polkadot ecosystem, you have the following parties:

  • Collators — Produce the blocks for parachains and pass the information to the validators to verify.
  • Nominator — Allocates their capital to validators to participate in the staking mechanism.
  • Validator — Require a high bond requirement because they are responsible for actually sealing the new blocks of the relay chain. Their crucial roles include:
  • Authoring new blocks.
  • Finalizing the relay chain through participation in GRANDPA.
  • Validating parachain blocks by ensuring the transactions which occurred are correct and that the cross-chain messages have been processed.
  • Fishermen — Bounty hunters who “go fishing” for malicious actors by watching the other nodes of the network.

A good way to think about Polkadot is as an interconnected system that will connect to other chains it will want to communicate with through bridges. All parachains and the relay chain operate as one, unified system. A parachain can incorporate custom logic and will be responsible for handling its own state transitions while receiving and posting messages to other chains. Parachains will be able to communicate with other parachains by listening to each other, unlike Cosmos where everything must be routed through the Hub.

Polkadot’s architecture is elegant for the core design assumptions it had made. This starts off with the fact that parachain passively read information from bridge-contracts, rather than relying on bridge-contracts sending messages to other parachains. Each parachain is treated no different to any other parachain. This means Polkadot’s interchain communication framework is truly trustless, since parachains are acting in the interest of the relay chain rather than any specific parachain they’re validating. Furthermore, validators are re-assigned to another parachain at intervals and at random.

Let’s take an example that might be more relatable, how would it work if you wanted to convert currencies from one parachain to another? Let’s take the popular example of converting ETH to BTC.

Collators for the Ethereum parachain would pass block headers to validators in their parachain. The validators would then sign and publish the relevant transactions in the Ethereum bridge smart contract in a format that can be recognised and communicated with the parachain zone. Any ETH sent would be held by a Polkadot validator set, which would also provide DOTs as collateral for invalid transactions. The Ethereum parachain would in turn communicate with the Bitcoin parachain, which would release BTC to the specified address through the validator set governing that particular parachain. Design decisions are still being finalised, but the idea around their cross chain communication is that it’ll be trustless.

One thing to be aware of is that Polkadot’s parachain mechanism will allocate parachain slots via permissionless on-chain auctions. These auctions would involve locking up DOTs for some amount of time to keep the parachain connected to the Polkadot network. Governance will be able to step in and fix the situation in the case of urgent situations where the parachains contains a critical bug or serves some malicious purpose. Polkadot will be governed by an on-chain governance mechanism as it believes it’s the best way to govern crypto-networks.

As Gavin Wood stated for this article, “I believe any blockchains that do not introduce on-chain governance, including providing a viable mechanism to issue upgrades, will ultimately poison themselves through toxic populism. I do not believe “off-chain processes”, “on-chain signalling” and “rough consensus” provide a sufficient means to allow the real stakeholders in chain’s ecosystem to effectively govern and drive a chain to long term success. I also believe that it’s essentially impossible to retrofit governance.”

Timelines

A lot of the core problems for interoperability seem to be solved at a high level, however the execution is still far behind. Cosmos launched in March 2019, but has only got the Cosmos Hub up and running. Their next steps are to finalise how the Inter-Blockchain Communication framework will work. Polkadot is set to launch end of 2019 with just the relay chain being live.

Overall, I’m extremely excited for both Cosmos and Polkadot to launch. What’ll be interesting to see is the developer adoption and the political struggles of each chain and how they play out. Application specific chains are a pipe dream at this point in time since not only is the basic infrastructure far from being completed, but developers will need to think about the resources and people they’ll need behind them to be connected and have sufficient security.

Will it even be a relevant trade-off? It’s hard to say. Maybe Ethereum’s off-chain governance is the very thing that allows it to thrive despite it’s slower roadmap execution since it allows true permissionless innovation with the guarantees of a highly secured chain.

The flip side to this argument is that all crypto networks will bootstrap their security on another chain, such as Ethereum, and then graduate to their own chain once they can guarantee the security of it through its existing community. A good example would be MakerDAO, they’d have enough resources to create their own chain and get enough political backing to be part of Polkadot’s para-chain. If for some reason it can’t get enough backing to be a part of the para-chain, it could establish a bridge zone on Cosmos and bootstrap their own security. Polkadot plans to provide bridge-slots for chains that are unable to provide pooled security but still give message passing down the line.

I think these are the kinds of nuanced questions that we as a community need to be asking rather than looking at chains as a zero-sum game. I’m personally excited for where all this leads us to and am receptive to your feedback on this piece. Reach out to me on Twitter @kermankohli.

Special thanks to Gavin Wood (Web3 Foundation), Logan Saether (Web3 Foundation), Billy Rennekamp (Cosmos), Chjango Unchained (Cosmos) for their contributions with ensuring the technical accuracy of the article.


The State of Crypto Interoperability. (Explained in Pictures). was originally published in Token Economy on Medium, where people are continuing the conversation by highlighting and responding to this story.

Source: https://tokeneconomy.co/the-state-of-crypto-interoperability-explained-in-pictures-654cfe4cc167?source=rss—-fbbd350c08fc—4

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Cardano’s bullish case strengthens as IOHK and UN team up

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IOHK and the United Nations have offered a $10,000 bounty for developers to use Cardano’s blockchain.

While major altcoins look to bounce off last week’s sell-off, Cardano’s strong performance over the past three days continues this Monday.

The ADA token has jumped 10.64% in the past 24 hours to see the crypto asset’s price hit $0.105. The 9th ranked cryptocurrency is the top-performing coin among the top 10, ahead of Bitcoin SV, ChainLink, and Bitcoin Cash.

Meanwhile, the rest of the market is looking to consolidate fresh gains after a largely green weekend extended during the Asian trading session.

Bitcoin has gained 2% to hit highs of $10,920 before retreating to around $10,850 as of writing. Ethereum, which has struggled below $400 for over three weeks, has gained around 1.46% to trade at $358. XRP/USD remains mostly unchanged on the 24-hour log as bulls try to keep bears at bay around $0.24.

Cardano flips bullish

ADA/USD sank to lows of $0.075 on September 23 to see bears threaten to push prices lower and drop Cardano out of the top 10 cryptocurrencies by market cap. The past five days have however included 4 green daily candles, with higher highs and higher lows seeing bulls break above $0.10 for the first time in a week.

Yesterday, ADA/USD gained by more than 5% to register a daily close at $0.102 before rallying in the Asian trading session to reach an intraday high of $0.106.

Cardano may thus have plenty of upside room if bulls sustain pressure above prevailing levels amid a confluence of bullish technical and fundamental indicators.

For the latter, the network’s move to a new epoch in the next five days will see decentralization introduced via the Shelley upgrade move to 38%.

Recently, IOHK also announced a partnership with the United Nations that aims to promote the use of blockchain to help achieve the UN’s sustainable development goals (SDG) on poverty, inequality, and the environment among others.

The partnership includes a $10,000 bounty set aside for developers who will use Cardano blockchain infrastructure to create open-source and scalable projects geared towards the above goals.

ADA/USD technical

Cardano’s price on the 4-hour chart. Source: TradingView

Cardano is looking to break above an ascending channel on the 4-hour chart, with a nice head and shoulder trend formation on the cards. The cryptocurrency is also looking strong on the daily chart where the 50 SMA and 100 SMA provide the next target at $0.109 and $0.113 respectively.

Cardano daily price chart. Source: TradingView

If the expected breakout happens, action will likely push ADA/USD to $0.12, with an extended bullish scenario bringing $0.15 into play. On the flip side, the 20SMA and 50 SMA provide support at $0.09 and $0.08 on the 4-hour chart.

Source: https://coinjournal.net/news/cardanos-bullish-case-strengthens-as-iohk-and-un-team-up/

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COVID-19 spill: Ebang revenue dropped by 50% in H1 2020

Ebang, one of Chinese Bitcoin mining machine manufacturers, has posted a sharp drop in revenue generated in the first half of the year compared to the previous year. Giving reasons for the slump in Ebang revenue, the chairman blamed the recent outbreak of coronavirus as the major cause. Meanwhile, the company has launched a subsidiary […]

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Ebang, one of Chinese Bitcoin mining machine manufacturers, has posted a sharp drop in revenue generated in the first half of the year compared to the previous year. Giving reasons for the slump in Ebang revenue, the chairman blamed the recent outbreak of coronavirus as the major cause. Meanwhile, the company has launched a subsidiary in Canada today.

Ebang revenue shades 50 percent from the previous record

Following the company’s latest filing with the United States Security and Exchange Commission (SEC), the Ebang revenue in the first six months of the year totaled $11.04 million. When compared to the revenue generated in H1 2019 (at $22.35 million), the recent amount represents a 50.6 percent decrease year-over-year (YoY).

The company also posted a poor sale of computing power within the same period. Precisely, only 0.25 million Thash/s was sold in the first six months of the year. However, the company sold as high as 1.82 million Thash/s last year, representing an 86.02 percent drop YoY, according to the SEC filing.

Ebang chairman blames COVID-19

While commenting on the sharp drop of Ebang revenue, the chairman and CEO of the company, Dong Hu, related the development to the coronavirus outbreak. Hu mentioned that the business operations were affected due to COVID-19 measures. Also, the company’s chip suppliers reduced their production capacity, which consequently led to a shortage of raw materials.

The outbreak of the COVID-19 has significantly affected business and manufacturing activities worldwide,” Hu commented. “Measures to contain COVID-19, such as travel restrictions, mandatory quarantines, and suspension of business activities, have caused severe disruptions and uncertainties to our business operations and adversely affected our results of operations and financial condition. 

At the same, the company had seen its net loss reduced to $7.3 million in H1 2020, compared to the $17.6 million recorded last year. In a separate report, the company revealed the launching of its wholly-owned subsidiary in Canada to improve its industrial chain layout.

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CFTC charges company over offering illegal leveraged transactions in ETH, LTC, BTC

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U.S Commodity Futures Trading Commission (CFTC) has charged Laino Group Limited’s PaxForex, a company based in St. Vincent and the Grenadines, for engaging in illegal retail commodity transactions in crypto, gold and silver and for failing to register with the CFTC as a futures commission merchant (FCM) according to a release published today. 

CFTC claimed that for over two years, PaxForex had offered unlawful retail commodity transactions in not only leading cryptocurrencies like ether, litecoin, bitcoin, but gold, and silver as well.

The release further stated law enforcements have charged PaxForex for extending credit or accepting money, securities, and property in the form of bitcoin and other assets in exchange for margin trades or contracts- all of which require the company to register with the CFTC as an FCM. However, the CFTC alleged that PaxForex did not acquire this license and has violated the Commodity Exchange Act. 

CFTC planned to return the alleged company’s ill-gotten gains to those affected and also applied other penalties such as a permanent registration and trading bans, among others. Division of Enforcement Director, James McDonald said in a statement: 

This action shows the CFTC’s continued commitment to ensuring that entities offering leveraged, retail transactions within our jurisdiction—including those involving digital assets—register with the CFTC. 

Source: https://eng.ambcrypto.com/cftc-charges-company-over-offering-illegal-leveraged-transactions-in-eth-ltc-btc

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