One of the greatest problems facing blockchains is that they are unable to communicate with one another. Both Cosmos and Polkadot aim at fixing this, but how do they do it, and which one is better?
What is Interoperability?
With the recent surge in DeFi that we’ve seen, one would expect that all smart contract platforms, such as Etheruem, Tron, EOS, and Neo would see a surge in popularity as users use these platforms for decentralized banking and yield farming. However, the vast majority of DeFi action is happening on the Ethereum blockchain due to its status as the largest and most well-established smart contract platform. Though this is good for ETH holders and believers in the Ethereum network, it is a negative for blockchain as a whole, because billions of dollars in value are locked up on other blockchains and unable to participate in the DeFi movement. Furthermore, users who want to use Bitcoin on the Ethereum network are unable to natively do so. Instead, they need to use a coin such as Wrapped Bitcoin, or WBTC, a tokenized version of Bitcoin, which requires users to trust a fairly centralized source with their Bitcoins.
The first obvious solution to this problem would be to migrate everything to one blockchain, but this comes with a slew of different problems. First, which blockchain would be trusted with all of these coins and information? Second, what consensus method would this blockchain use, and would it make tokens that were used for proof of stake on their previous networks worthless? Not to mention the billions of dollars that would be at risk by migrating an entire blockchain’s worth of data to another blockchain, and the risk for any sort of bugs or hacks.
This is the problem area that Polkadot and Cosmos are trying to solve: allowing blockchains to communicate with each other while also respecting the independence and unique governance mechanisms of each blockchain. This is known as blockchain interoperability. They aim to create a system where Bitcoin could send data to the Ethereum blockchain seamlessly and in a decentralized manner. Perfect interoperability would allow any blockchains to share both data and value with each other, which would unlock massive potential and growth for cryptocurrencies, unlike anything we’ve seen thus far in their development. Let’s take a closer look at both Cosmos and Polkadot to discover how each of their plans to create interoperability through their platforms through metrics such as their history, teams, partnerships, tokenomics, and technology.
The Polkadot whitepaper, titled “Polkadot: Vision for a Heterogeneous Multi-Chain Framework,” was released in 2016 by Dr. Gavin Wood and. He and Jutta Steiner founded Parity Technologies, the company behind Polkadot, earlier that year with the intention to work with Ethereum. However, the company eventually decided to work solely on Polkadot. Wood later founded the Web3 Foundation, which is dedicated to supporting projects working on creating the decentralized Web 3.0 and calls Polkadot their “flagship project”. Today, the Web3 Foundation is the main group in charge of the project.
In October 2017, Polkadot held an ICO for their DOT token, where they raised $144 million for 50% of the total supply. These tokens were initially released on the Ethereum blockchain as ERC20 tokens. Unfortunately for the project, the popular Ethereum Parity Wallet, where the ICO funds were held, was hacked, and the project lost $92 million. This was a massive hit to the team, but they pressed on and continued to develop the Polkadot ecosystem. To this day, they still have not recovered the funds, which are frozen in an Ethereum wallet.
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The mainnet launch of Polkadot was originally slated for Q3 2019 but has been delayed multiple times. Instead, Kusama, a “canary network,” was released in 2019 as a way for the Polkadot technology to be tested and proven before the true release of Polkadot. Kusama is called a canary network because it is used to find any problems in Polkadot before it becomes dangerous, just like how miners used to bring a canary into mines to warn them of carbon monoxide poisoning before it got too dangerous. The Kusama release allowed the team to be assured that their product was ready for launch and would not experience any day-0 exploits.
On May 25, 2020, after three years of development, Polkadot finally launched its mainnet. The blockchain was launched in the relatively centralized Proof of Authority mode, which was mainly to allow users to claim and stake their DOT tokens. This was the first stage in their four-stage launch process. Phase 2, which occurred shortly after Phase 1, changed the consensus to Nominated Proof of Stake, which saw the network begin to use validators and the DOT token to secure the network. Phase 3, which launched on July 20, took governance decisions out of the hands of the Web3 Foundation and into the hands of DOT holders, and also enabled balance transfers. The next and final phase requires the governance protocol to upgrade, which will enable core functionality. After this step, whatever happens to the Polkadot network is up to DOT holders, as the protocol will be fully decentralized.
The Cosmos whitepaper was written by Jae Kown and Ethan Buchman in 2017 and described their vision to build a network of distributed ledgers. In April 2017, they held an ICO for their ATOM token, where they raised $17.3 million for 80% of the total supply. The main company behind Cosmos is Tendermint, and they are behind the Cosmos SDK and Tendermint Core, which we will explore later. The Cosmos Mainnet was launched on March 13, 2019, and is claimed to be the first decentralized launch of a proof-of-stake network. They also have a phased launch cycle, where Phase 1 was the launch of the network, Phase 2 was the enabling of transfers, and Phase 3 includes the release of the IBC protocol, which allows for Cosmos blockchains to talk to one another. Phase 1 and 2 have been running smoothly for over a year, and Phase 3 will be released in a testnet soon.
The main speedbump that the Cosmos team has had to deal with was the founding team breaking up. In early 2020, Jae Kwon, CEO of Tendermint, was accused of creating a hostile work environment by Zaki Manian, director of Tendermint Labs. Kwon ended up stepping down as CEO and taking the role of CTO, while Manian split to form his own company to work on the Cosmos protocol. Since this split, the Cosmos team appears to have solved their problems and are now refocused on the task of developing the network.
Polkadot has three founders: Gavin Wood, Robert Habermeier, and Peter Czaban. Wood is one of the most prominent names in cryptocurrency and has an incredible list of accolades. Wood was a CTO and a co-founder of Ethereum, and he has an incredibly notable role in the creation of the blockchain. He is credited with the creation of the Solidity programming language, the language that Ethereum is based on, the Ethereum yellow paper, and the coining of the term Web 3.0 to describe the future decentralized internet.
Robert Habermeier has a background in research and development for blockchains and cryptography. He is also a Thiel Fellow, which is a fellowship created by Peter Theil, co-founder of PayPal, which offers grants to college students to incentivize them to drop out and focus on pursuing their passions. The third founder, Peter Czaban, is the Technology Director of the Web3 Foundation and has a Master’s of Engineering from the University of Oxford. These three founders have plenty of experience in the blockchain sector and are a great fit to develop a solution for one of the most difficult problems in the blockchain.
Cosmos’ whitepaper was written by Jae Kwon and Ethan Buchman. Kwon graduated from Cornell with a B.S. in computer science. He worked for Alexa and Yelp before co-founding iDoneThis, a productivity app, in 2011. In 2014, he created Tendermint, where he now works as CTO, and created Cosmos. Buchman was a Master’s Student at the University of Guelph studying machine learning and Byzantine Fault Tolerance, which has helped him immensely in the creation of the Cosmos ecosystem. In 2016, he co-founded Tendermint with Kwon. In 2019, Buchman left Tendermint to become the CEO of Informal Systems, another company developing Cosmos. The current CEO of Tendermint is Peng Zhong, who served as the Chief Design Officer for 4 years before taking over for Jae Kwon.
Polkadot is a multichain system, which means there are multiple blockchains making up the network. The central chain is known as the Relay Chain and is where users stake DOT and participate in governance. One of the main features of Polkadot are parachains. These parachains run parallel to the Relay Chain, which allows the Polkadot network to be highly scalable. They are verified by the validators of the Relay Chain. One unique feature of these parachains is that they can have their own consensus mechanisms and governance system. They are essentially their own blockchain that are capable of connecting to the Relay Chain to connect to other parachains. Think of the relationship between the Relay Chain and parachains like that of Ethereum and ERC20 tokens, except each ERC20 token has its own blockchain and governance system. There are only 100 parachain slots available on the Relay Chain, and the slots will be sold in an auction for a specified length of time. Without a slot, a parachain may not be included in every Relay Chain block.
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Bridges are also available on Polkadot, which will allow non-parachain blockchains to connect to the network and act like a parachain module. For example, a bridge is being developed for Etherum, which will allow users to send ETH to a smart contract on the Ethereum blockchain, which would unlock Ethereum tokens on a smart contract Turing complete parachain, which would essentially have all of the same functions as Ethereum.
There are four consensus roles on Polkadot: Validators, Nominators, Collator, and Fisherman. Validators are those who secure the Relay Chain through staking DOT, By adding blocks to the Relay Chain, they allow individuals to complete cross-chain transactions. These Validators verify information containing the parachain blocks and produce Relay Chain blocks. In exchange for this job, validators receive DOT from block rewards and transaction fees, and malicious actors get their DOT balances slashed. Nominators are like Validators, but instead of actively validating, they delegate their stake to other Validators who take a fee from the staking reward. This system is similar to Delegated Proof of Stake, or dPoS, seen in blockchains like EOS, Tron, Icon, Cardano, or Ark.
Collators are in charge of maintaining parachains and collecting parachain transactions which they pass to validators. Essentially, they aggregate all of the parachain transactions into one verifiable block that they send up to the validators for inclusion on the Relay Chain. They run full nodes for each parachain. This idea is similar to the zkRollups scaling solution seen on Ethereum, where lots of transactions are bundled up into one transaction before being sent to the network.
Fishermen are similar to collators in that they run a full node, but they have an extremely different task for the network. They watch the parachains for any invalid transactions and ensure that none are passed onto the Relay Chain. Unlike collators, they are required to have a DOT stake on the Relay Chain, and if they are right about an invalid transaction, they will receive a large DOT reward. If they are incorrect, they will lose their stake. The computing requirements for running a Fisherman are lower than a Validator, so it offers a nice option for users with strong home computers but no server infrastructure.
The consensus mechanism implemented by Polkadot is actually a hybrid consensus model into two pieces, BABE and GRANDPA. BABE, or Blind Assignment for Blockchain Extension, is the block producer that validators help to run, and it determines the authors of new blocks. GRANDPA, or GHOST-based Recursive ANcestor Deriving Prefix Agreement, is the finality gadget on the Relay Chain, which means it finalizes the blocks. Polkadot uses this system to achieve provable finality instead of probabilistic finality. In probabilistic finality, like what is seen on Bitcoin and Ethereum, multiple block confirmations are needed to ensure that a transaction is trustworthy, and this can take multiple hours in the case of Bitcoin. Provable finality is much quicker and transactions are irreversible after they occur. In layman’s terms, provable finality means there’s no chance that a transaction you receive can be invalidated any time after it is sent.
This system on Polkadot is very complicated and is hard to summarize in a short article, so hopefully, this explanation provides a quick glance at how the Polkadot blockchain is able to offer scalability and interoperability to different blockchains.
The Cosmos Network calls itself the “internet of blockchains” and hopes to bring multiple chains together under their technology. They cite three critical tools that they hope creators will use to build interoperable blockchains and scalability to the Cosmos network: Tendermint, the Cosmos SDK, and IBC.
Before Cosmos, building a blockchain was a complicated process that required having a network of computers to run your blockchain, a consensus mechanism, and an application to be created. Tendermint, created by Jae Kwon, simplifies this process by packaging the network and consensus together and leaving only application development for developers to work on. The consensus method used by Tendermint is Byzantine Fault Tolerant, which means some malicious actors cannot break the network’s security as long as a third of the network is honest, and runs a consensus method similar to the delegated proof of stake. Some of the most important characteristics of the Tendermint consensus method include the capability to handle thousands of transactions per second, instant (provable) finality, and security. These features make the consensus algorithm highly advanced and a strong basis for any blockchain.
The Cosmos SDK is a tool to help developers create the application portion of their blockchain, assuming that blockchain is built on Tendermint. There are already a set of modules created that developers can drag and drop into their blockchain to add features such as staking and governance with little coding required. A good example of the capability of this SDK is the Ethermint project, which ports Ethereum to an SDK module. Ethermint works just like Etherum but also has the benefits of Tendermint, most importantly scalability, and smart contracts can easily be ported to this implementation. This feature is how Cosmos hopes to entice developers to build on their platform, with easy tools to create their own blockchains.
Developers are now able to connect their newly-created blockchains together through the Inter-Blockchain Communication protocol, or IBC. It uses the instant finality of Tendermint to allow different chains to easily send data and value between one another. The requirements for these chains to work together are that the blockchain has fast finality and sovereignty, which means there are validators confirming the network.
Independent blockchains on Cosmos, called zones, are connected to the Cosmos Hub, which is analogous to the Relay Chain from the Polkadot Network. The Cosmos Hub blockchain is proof-of-stake and governed by the Cosmos token, ATOM. The way this works is that users of one blockchain can lock up their tokens on one blockchain and receive a representation of those tokens on another, which can then be used however and wherever the user likes.
Having one IBC connection per blockchain would be a monumental task because having 100 blockchains would require 4950 connections. Instead, Cosmos uses a Hub and Zone system. Hubs are like a Relay Chain on Polkadot and are designed to connect the Zones to one another. Any Zone can access any other Zone that shares a Hub, and Zones can be connected to more than one Hub.
The IBC system works great for blockchains built on Tendermint, but what about those that are not, such as Ethereum and Bitcoin? For those, a Peg-Zone is used, which is a blockchain that monitors the state of another blockchain. This is a fairly simple process, where users could send Ethereum to a smart contract and have Peg-Zone Ethereum unlocked on the Cosmos Network. For a platform like Bitcoin, which does not have smart contract capability, this is a more difficult but technically feasible task.
The first (and only) Hub on the Cosmos Network is the Cosmos Hub. Its staking token is ATOM, which is the main token associated with Cosmos. The Hub is responsible for the exchange of data between its Zones. Even though each blockchain is sovereign, the connection and ledger between them also need to be secure, since assets will be interchanged using the Hub. For example, sending Ethereum from one Cosmos Zone to the Bitcoin Zone will go through the Hub. By validating the network through staking, users receive ATOM in return, which comes from the transaction fees of users of the Hub. Moreover, the ATOM token is also used for governance, which gives each holder a say in the future of the Cosmos Hub, such as transaction fees or number of Zones.
Though technically complex, the Cosmos Network offers lots of tools to developers to simplify the experience of creating a blockchain and allowing it to connect to thousands of others through their protocols.
Without partnerships and real-world adoption, the best technology in the world could be rendered obsolete and useless. Especially when dealing with interoperability projects, a lack of consumer interest could lead to a dead project. Let’s take a look at both of these projects’ notable partners.
Polkadot’s recent mainnet release means they have not had a lot of time to make partnerships in the space, and have no applications currently running on their Network. Polkadot’s biggest partner is Chainlink, which will be in charge of creating decentralized oracles for its platform. Two of their other partners include SelfKey, a blockchain-based digital identity platform, and Trace Alliance, a supply chain association utilizing blockchain technology. Even though this is a shortlist, the hype behind Polkadot and the realization of its potential will bring in plenty more partners in the near future.
Cosmos has a plethora of partners, some of which have actually utilized the Cosmos SDK to build their blockchains. Some notable examples include Band Protocol, a decentralized oracle provider, and KAVA, a DeFi Platform. Cosmos’ biggest adopter is Binance, who used the Cosmos SDK to develop Binance Chain, the native blockchain for their Binance token and the home of their decentralized exchange. An example of how easy it is for applications to migrate from Ethereum to Cosmos is Aragon, a dApp that migrated to Cosmos using Ethermint due to high gas fees and a desire to control their own blockchain. With these partners already seeing success on the Cosmos Network, it’s likely that other projects will eventually migrate as well.
Cosmos and Polkadot are both compelling projects competing in the interoperability space and aiming to create an ecosystem of interconnected blockchains. Polkadot has a stellar team backing them, including a co-founder of Ethereum, and a fresh mainnet launch giving the team momentum. Cosmos boasts a mainnet that’s been running for over a year and multiple large projects built on top of Tendermint and the Cosmos SDK.
Both of these projects have plenty of room to grow and improve, and the interoperability space will be fascinating to watch over the coming years as these two protocols compete for dominance.