[ESSAY] The Future of Blockchain: Ethereum & Cosmos cooperation

The Future of Blockchain: Networks, Bridges, and DApps

Blockchains alone won’t scale effectively. Instead, a network of interconnected blockchains, each with unique designs, will communicate via bridges, allowing assets to move across these networks. The rules governing these movements are defined by the protocols of the blockchains and bridges involved.

Decentralized applications (DApps) need to adapt to this interconnected reality. Users of decentralized exchanges (DEXs) expect a seamless interface, even if the underlying architecture spans multiple domains to optimize efficiency and user experience.

This is similar to how modern web applications operate. They aggregate resources from various sources, such as databases, caches, and compute clusters. In the web3 world, assets are paramount. Tokens might be minted on one blockchain but used across several others, similar to how centralized stablecoins operate.

While the infrastructure is still being developed, trends are emerging, allowing us to discuss current and future solutions. Let’s delve into the interconnected world of web3 applications.

Understanding Digital Assets on Blockchain Networks

Native Assets

Blockchains typically center around a native asset. For example, Bitcoin miners earn BTC, and Ethereum validators receive ETH. In Cosmos, each chain has its native assets with specific issuance schedules. Finality is crucial here—it ensures that once a transaction is confirmed on a chain, it won’t be reversed. This prevents double-spending when assets move between chains.

The native asset secures the chain by tying its value to the chain’s security budget. Chains with finality gadgets, like Ethereum’s Proof-of-Stake and Tendermint-based chains, need two-thirds of their validators to agree to finalize a block. This security is influenced by the native token’s value, making it crucial for maintaining the integrity of transactions.

Non-native Assets

On smart contract-enabled chains, assets can be created via smart contracts. For instance, Ethereum’s ERC-20 tokens are fungible, while ERC-721 tokens are non-fungible (NFTs). Similar standards exist on other chains.

Non-native assets aren’t tied to a single chain. Stablecoins like USDC and USDT can be minted across multiple chains. Each token can be traced back to its origin. For example, USDC minted on Ethereum is rooted in its smart contract on that chain, while USDC minted on Solana is rooted in Solana’s contract.

Native assets, while inherent to their chains, may not conform to common token interfaces. This is why Wrapped ETH (WETH), an ERC-20 representation of ETH, is widely used in many DApps.

Asset Movement Across Chains

DApps can be deployed on any chain that supports them. A Solidity-based DApp can run on any EVM-compatible chain. In a networked blockchain ecosystem, DApps manage assets from multiple domains. For example, on the Cosmos app-chain Osmosis, users can trade ATOM tokens (native to the Cosmos Hub) with Wrapped BTC (rooted in Ethereum but representing Bitcoin).

Bridges facilitate these cross-chain interactions. They ensure assets are not duplicated or lost by verifying transactions between chains. The security of DApps interacting with assets from different chains largely depends on the bridge’s design.

Cosmos and Inter-blockchain Communication (IBC)

The IBC protocol connects chains within the Cosmos ecosystem and beyond. IBC requires provable finality on the origin chain to ensure safe asset transfers. For example, when moving ATOM from the Hub to the Osmosis chain, IBC validators on Osmosis verify the transaction on the Hub chain. This model can extend to general function calls between chains, offering a form of asynchronous sharding.

However, risks exist. If an IBC-enabled chain is compromised and finalizes an invalid transaction, other chains might accept this invalid state, leading to potential asset theft.

Rollup Bridges

Rollups address some of the security concerns by using validity proofs (SNARKs/STARKs) or optimistic assumptions. Rollups can operate without a native token, using ETH for fees or issuing their own tokens for specific functions. Tokens on rollups can move freely within a “zone of sovereignty,” enhancing liquidity across connected chains.

Pooled liquidity designs leverage this. DApps on rollups can access liquidity on the base layer. Validity rollups, with immediate withdrawal capabilities, optimize liquidity across parallel markets, as seen with projects like Aave and StarkNet.

Emerging Patterns

Web3 focuses on assets, and DApp architecture must consider:

  • Composition with other protocols across chains or maintaining an internal economy.
  • The value and security of user interactions.

As the ecosystem evolves, distinct patterns will emerge, guiding DApp development towards optimal solutions. Thinking from first principles will help navigate this complex landscape.
Understanding token origins, movements, and liquidity helps us identifying three dominant design architecture :

  • Ethereum aiming to be a general-purpose execution and settlement layer, supporting L2 rollups and potentially L3 rollups for specific use cases. The main trade-off for these scaling rollup environments is their reliance on bridges with sometimes long finality-time due to the necessity to reach settlement in the base-layer.
  • Cosmos follows a different path with each App-Chains providing a dedicated execution environment. Natively connecting chains through IBC enables interoperability. However, the trade-off resides in security disparities among chains. Mesh security and Cosmos Hub Interchain Security offer ways to address these issues.

The Future of Blockchain is Cooperation

Looking at the aforementioned patterns, it is evident that each architecture design is building on compromises. What is less obvious to the untrained eye is that these trade-offs are actually complementary. Ethereum maximizes security, achieves scalability through rollups, sacrificing interoperability. Cosmos maximizes interoperability, but the infinite horizontal scaling inevitably poses local security risks. The compatibility of these design decisions likely explains the strong alliance between the Ethereum and Cosmos communities throughout the years. We foresee an inevitable point in time where the two ecosystems will enter a fruitful cooperation phase.

We hope this essay was inspiring!
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