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Developing Blockchain Interoperability Solutions with Cosmos and Polkadot

Karolina

02 Jun 2023
Developing Blockchain Interoperability Solutions with Cosmos and Polkadot

The development of blockchain interoperability solutions has taken center stage in the ongoing advancement of decentralized technologies. The limitations imposed by isolated blockchain networks have heightened the importance of interoperable systems, paving the way for increased collaboration and innovation. In this article, we delve into the creation of such solutions using Cosmos and Polkadot. With their distinctive approaches to achieving blockchain interoperability, these platforms facilitate smooth communication and information transfer among diverse chains. Harnessing the power of Cosmos and Polkadot presents an array of opportunities for businesses and developers within the decentralized domain.

Table of Contents

Understanding Blockchain Interoperability Solutions:

The term "blockchain interoperability" denotes the capacity of various blockchain networks to interact and exchange data effortlessly. Conventional blockchain configurations operate in a standalone manner, leading to isolated ecosystems that impede cooperation and restrict innovative potential.

By instituting a framework that enables differing blockchains to communicate with one another, blockchain interoperability solutions seek to surmount these constraints. These solutions augment the effectiveness, expandability, and utility of decentralized applications by allowing data and asset exchanges between chains.

The absence of interoperability presents considerable obstacles for organizations and developers. Enclosed networks obstruct information flow, impede cross-chain transactions, and constrict the generation of substantial decentralized applications. Blockchain interoperability solutions tackle these issues by setting up standards, protocols, and infrastructure that support communication among diverse blockchain networks.

Multiple advantages arise from implementing blockchain interoperability solutions, such as heightened flexibility, superior scalability, augmented liquidity, and diversified use cases. These solutions pave the way for cooperative opportunities, enable smooth asset transitions between chains, and encourage the growth of harmonious decentralized ecosystems.

Cosmos and Polkadot: Pioneers in Blockchain Interoperability

Blockchain technology has been hailed as revolutionary, offering transformative potential across a multitude of industries. But as with any disruptive technology, achieving its full potential requires overcoming certain technical obstacles, chief among them being the issue of interoperability. This is where Cosmos and Polkadot come into the picture, as they are leading pioneers in promoting blockchain interoperability.

The Internet of Blockchains - Cosmos

Cosmos, often referred to as the "Internet of Blockchains", is a decentralized network of independent parallel blockchains, each powered by classical Byzantine Fault Tolerance (BFT) consensus algorithms like Tendermint.

It was designed from the ground up to solve the "hard" problems of the blockchain ecosystem, and interoperability stands at the forefront of these issues. To enable the seamless transfer of data and assets across different blockchains, Cosmos developed the Inter-Blockchain Communication (IBC) protocol. This protocol allows various blockchains in the Cosmos network, known as zones, to communicate with each other, thereby fostering an ecosystem of interoperability.

Polkadot: Enabling a Multichain Universe

Polkadot, on the other hand, is another innovative platform that is built to connect private and consortium chains, public and permissionless networks, oracles, and future technologies that are yet to be created in the Web3 ecosystem.

At the heart of Polkadot's interoperability solution is its multichain technology. This technology is underpinned by Substrate, a blockchain development framework, and it employs a number of unique components such as Parachains and the Cross-Chain Message Passing (XCMP) protocol. Polkadot's structure allows for multiple blockchains to interoperate while maintaining their own unique consensus algorithms and governance models.

In essence, both Cosmos and Polkadot are at the forefront of blockchain interoperability. They offer unique solutions to allow for seamless communication and transfer of data and assets across different blockchain networks. Developers interested in building cross-chain applications would do well to understand the strengths and capabilities of these pioneering platforms.

Developing Blockchain Interoperability Solutions: A Comparative Analysis

When it comes to developing interoperable blockchain solutions, both Cosmos and Polkadot are often the platforms of choice. While they share the common goal of connecting disparate blockchain networks, their approach, underlying technology, and features differ significantly. A comparative analysis of these two platforms can offer valuable insights for developers looking to leverage their capabilities for cross-chain applications.

Similarities between Cosmos and Polkadot

Despite their differences, Cosmos and Polkadot share several similarities in their approach to blockchain interoperability:

  • Shared Vision: Both platforms aim to create an internet of blockchains that can communicate and interact seamlessly with each other.
  • Security: Both Cosmos and Polkadot place a high priority on security, leveraging innovative consensus mechanisms and cryptography to ensure the security and integrity of transactions across blockchains.
  • Scalability: Both platforms are designed to address the scalability issues plaguing traditional blockchains. They achieve this by allowing multiple blockchains to operate concurrently, sharing the workload and improving the overall throughput of the network.
  • Governance: Both platforms have inbuilt governance mechanisms that enable network participants to propose and vote on changes to the network, fostering a democratic and decentralized ecosystem.

Differences between Cosmos and Polkadot

While they share similar goals, there are key differences in the design philosophy and architecture of Cosmos and Polkadot:

  1. Consensus Mechanisms. Both platforms use a form of Byzantine Fault Tolerance (BFT) for consensus, Cosmos uses Tendermint BFT. Polkadot uses a hybrid consensus mechanism combining elements of BFT and Proof-of-Stake (PoS).
  2. Communication Protocol. Cosmos uses the Inter-Blockchain Communication (IBC) protocol to facilitate communication between different blockchains. Polkadot, on the other hand, uses the Cross-Chain Message Passing (XCMP) protocol for inter-blockchain communication.
  3. Network Structure. Cosmos operates as a network of independent blockchains called zones, each powered by Tendermint BFT. Polkadot’s multichain network consists of a main relay chain and multiple parachains, each operating potentially different consensus mechanisms.
  4. Security Model. In Cosmos, each blockchain is responsible for its own security. Polkadot, however, follows a shared security model. The security of all parachains is pooled and maintained by the validators of the relay chain.

Understanding these similarities and differences can guide developers in choosing the right platform based on their specific requirements and objectives for interoperability. Both Cosmos and Polkadot offer powerful tools and frameworks for creating interoperable blockchain solutions, and the choice between them will often depend on the specifics of the use case at hand.

Practical Applications: Blockchain Interoperability Solutions in Action

Use Cases of Cosmos

Cosmos is a highly popular choice for developing decentralized applications (dApps) due to its scalability, modularity, and interoperability. Its architecture is designed to facilitate seamless cross-chain communication, making it ideal for a range of applications:

Decentralized Exchanges (DEXs): Cosmos is well-suited for building decentralized exchanges to support trading across multiple blockchains. The Gravity DEX, for instance, is a DEX built on the Cosmos network that allows users to trade tokens across different blockchains​1​.

Gaming: The scalability and modularity of the Cosmos network make it an ideal platform for blockchain-based games that require high performance and interoperability. ChainGuardian, a game built on the Cosmos network, allows players to battle each other using different characters and weapons​1​.

Cross-Chain Payments: The Cosmos network’s interoperability can facilitate cross-chain payments, allowing users to send and receive payments across different blockchain networks. This functionality reduces friction and increases efficiency in cross-border payments​1​.

Use Cases of Polkadot

Polkadot, on the other hand, offers developers a shared platform to create decentralized applications. It employs a combination of parachains, Proof of Stake protocols, and Virtual Machine-based technologies to address the scalability issues faced by other blockchains like Ethereum. Here are some of its notable use cases:

Interoperability Through Parachains: Polkadot's parachains enable other projects to build their networks and applications on Polkadot, allowing all these networks to interact with each other without the need for additional coding. Parachains are more customizable and give developers more flexibility than competitors like Ethereum. They are connected to the overall Polkadot infrastructure via a 'Relay Chain,' ensuring cross-chain interoperability through a set of robust governance protocols​2​.

Use in DeFi Platforms: Polkadot's parachains are also being used by decentralized finance platforms like Acala. Acala, the first parachain slot winner, acts as a liquidity pool from which Polkadot finances further projects within the network. This financing method is a crucial first step for Polkadot, as it creates launch momentum for even more projects​2​.

Connecting to Ethereum: Polkadot also enables seamless cross-chain operability with Ethereum, as evidenced by the second parachain slot winner, Moonbeam. Moonbeam acts as a bridge for Ethereum developers to extend the use of Ethereum Solidity code, Ethereum Virtual Machine, and its various other tools over to Polkadot. This integration expands the scope of Polkadot's cross-chain ambitions and provides a new level of connectivity between the two blockchains​2​.

Conclusion

The advancement of decentralized technologies is significantly supported by blockchain interoperability solutions, such as those provided by Cosmos and Polkadot. Known as the "Internet of Blockchains," Cosmos employs the IBC protocol to facilitate smooth communication between parallel blockchains. On the other hand, Polkadot utilizes its multichain technology, including parachains and XCMP protocol, to establish connectivity while preserving unique consensus and governance models.

Interoperability solutions have numerous advantages like flexibility, scalability, liquidity, and a wide range of use cases. Both Cosmos and Polkadot serve distinctive requirements; hence it is essential for developers to comprehend their differences.

Practical implementations encompass decentralized exchanges, gaming, and cross-chain payments provided by Cosmos, while Polkadot offers parachains, DeFi platforms, and Ethereum integration. Through embracing blockchain interoperability solutions like Cosmos and Polkadot, businesses and developers have the opportunity to foster collaborative innovation and construct powerful decentralized applications that will shape the future of decentralization.

Would you like to create your own project on blockchain and be an innovator in your industry? Contact us!

Tagi

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Token Engineering Process

Kajetan Olas

13 Apr 2024
Token Engineering Process

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Table of Contents

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that. 

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.

source: https://www.canva.com/design/DAFDTNKsIJs/8Ky9EoJJI7p98qKLIu2XNw/view#7

Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase. 

Token Engineering Artonomous Design Diagram
Artonomous design diagram, source: Artonomous GitHub

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling 

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

  • Systems Engineering
  • Machine Learning
  • Market Research
  • Capital Markets
  • Current trends in Web3
  • Blockchain Engineering
  • Statistics

Summary

The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

FAQ

What does token engineering process look like?

  • Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

  • We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

  • It depends on the project and may range from 2 weeks to 5 months.

Tagi

What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Karolina

18 Mar 2024
What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Enter Berachain: a high-performance, EVM-compatible blockchain that is set to redefine the landscape of decentralized applications (dApps) and blockchain services. Built on the innovative Proof-of-Liquidity consensus and leveraging the robust Polaris framework alongside the CometBFT consensus engine, Berachain is poised to offer an unprecedented blend of efficiency, security, and user-centric benefits. Let's dive into what makes it a groundbreaking development in the blockchain ecosystem.

Table of Contents

What is Berachain?

Overview

Berachain is an EVM-compatible Layer 1 (L1) blockchain that stands out through its adoption of the Proof-of-Liquidity (PoL) consensus mechanism. Designed to address the critical challenges faced by decentralized networks. It introduces a cutting-edge approach to blockchain governance and operations.

Key Features

  • High-performance Capabilities. Berachain is engineered for speed and scalability, catering to the growing demand for efficient blockchain solutions.
  • EVM Compatibility. It supports all Ethereum tooling, operations, and smart contract languages, making it a seamless transition for developers and projects from the Ethereum ecosystem.
  • Proof-of-Liquidity.This novel consensus mechanism focuses on building liquidity, decentralizing stake, and aligning the interests of validators and protocol developers.

MUST READ: Docs

EVM-Compatible vs EVM-Equivalent

EVM-Compatible

EVM compatibility means a blockchain can interact with Ethereum's ecosystem to some extent. It can interact supporting its smart contracts and tools but not replicating the entire EVM environment.

EVM-Equivalent

An EVM-equivalent blockchain, on the other hand, aims to fully replicate Ethereum's environment. It ensures complete compatibility and a smooth transition for developers and users alike.

Berachain's Position

Berachain can be considered an "EVM-equivalent-plus" blockchain. It supports all Ethereum operations, tooling, and additional functionalities that optimize for its unique Proof-of-Liquidity and abstracted use cases.

Berachain Modular First Approach

At the heart of Berachain's development philosophy is the Polaris EVM framework. It's a testament to the blockchain's commitment to modularity and flexibility. This approach allows for the easy separation of the EVM runtime layer, ensuring that Berachain can adapt and evolve without compromising on performance or security.

Proof Of Liquidity Overview

High-Level Model Objectives

  • Systemically Build Liquidity. By enhancing trading efficiency, price stability, and network growth, Berachain aims to foster a thriving ecosystem of decentralized applications.
  • Solve Stake Centralization. The PoL consensus works to distribute stake more evenly across the network, preventing monopolization and ensuring a decentralized, secure blockchain.
  • Align Protocols and Validators. Berachain encourages a symbiotic relationship between validators and the broader protocol ecosystem.

Proof-of-Liquidity vs Proof-of-Stake

Unlike traditional Proof of Stake (PoS), which often leads to stake centralization and reduced liquidity, Proof of Liquidity (PoL) introduces mechanisms to incentivize liquidity provision and ensure a fairer, more decentralized network. Berachain separates the governance token (BGT) from the chain's gas token (BERA) and incentives liquidity through BEX pools. Berachain's PoL aims to overcome the limitations of PoS, fostering a more secure and user-centric blockchain.

Berachain EVM and Modular Approach

Polaris EVM

Polaris EVM is the cornerstone of Berachain's EVM compatibility, offering developers an enhanced environment for smart contract execution that includes stateful precompiles and custom modules. This framework ensures that Berachain not only meets but exceeds the capabilities of the traditional Ethereum Virtual Machine.

CometBFT

The CometBFT consensus engine underpins Berachain's network, providing a secure and efficient mechanism for transaction verification and block production. By leveraging the principles of Byzantine fault tolerance (BFT), CometBFT ensures the integrity and resilience of the Berachain blockchain.

Conclusion

Berachain represents a significant leap forward in blockchain technology, combining the best of Ethereum's ecosystem with innovative consensus mechanisms and a modular development approach. As the blockchain landscape continues to evolve, Berachain stands out as a promising platform for developers, users, and validators alike, offering a scalable, efficient, and inclusive environment for decentralized applications and services.

Resources

For those interested in exploring further, a wealth of resources is available, including the Berachain documentation, GitHub repository, and community forums. It offers a compelling vision for the future of blockchain technology, marked by efficiency, security, and community-driven innovation.

FAQ

How is Berachain different?

  • It integrates Proof-of-Liquidity to address stake centralization and enhance liquidity, setting it apart from other blockchains.

Is Berachain EVM-compatible?

  • Yes, it supports Ethereum's tooling and smart contract languages, facilitating easy migration of dApps.

Can it handle high transaction volumes?

  • Yes, thanks to the Polaris framework and CometBFT consensus engine, it's built for scalability and high throughput.

Tagi