How will blockchains interoperate?
Today, the two largest blockchain networks[1] have revolutionized finance and economics by creating a layer of trust, in an online environment, where previously there was none. Of those two blockchains, Ethereum took the idea of digital money, self-sovereignty, and censorship-resistant transactions to another level by introducing business logic and enabling the smart contract. However successful Ethereum’s global computer is, it has not been without pitfalls, which is the focus of this article.
The Success Is Now The Problem…
By creating a Turing-complete computer as a blockchain network, the founders of Ethereum achieved several technological advancements that have spawned a global ecosystem with over $77B in TVL[2]. Considering how nascent the blockchain technology is, the capital inflow has proven a need and a clear demand for the solutions that Ethereum’s global computer provides. Namely, the explosion of decentralized finance applications allowing multifaceted financial products built on smart contracts. Whether it be borrowing, lending, yield-bearing assets, or derivative speculation, these products and services are being deployed not by a third party, but by a decentralized computer program. The benefit, of course, is censorship-resistant transactions, transparency of data, and immutable records to name a few, and given today’s economic landscape, there is an obvious product-market fit. However, the success of this blockchains evolution has come at a cost.
The GAS Dilemma…
As the blockchain ecosystem grows, so does the price of Ether, which in turn, makes it more expensive to pay the computational fee GAS to execute smart contract applications. This is a problem as the more complex the operation, the more GAS is required. Like a booked-out repatriation flight during Covid19, there are fewer seats available, and the ones that are available go to the highest bidder, unlucky for the everyday person.
Why is this so? Well, the proof-of-work consensus mechanism incentivizes miners to do so. Therefore, the Ethereum network remains secure, and the business case for DeFi locking over $77B in smart contracts has caused the GAS fee to rise to a level that is practically unusable for most people. This scalability issue was recognized prior to the launch of Ethereum in 2015[3] and the plan to transition to a proof-of-stake consensus mechanism has been worked on ever since.
So what’s the problem with plan B?
Theoretically, nothing. There has been lots of debate over what provides more security with proof-of-work vs proof-of-stake[4], each with valid arguments. Also note the power usage debate, with equally valid arguments. For the purposes of this article, we will not get into this. The main point is the big elephant in the room… A $77B elephant!
With so much value locked into ETH 1.0, it is a huge undertaking to migrate what we know is secure, over to a completely new blockchain that is ETH 2.0[5]. Granted, the smartest minds in the industry have been working on this process for over 5 years, still, that is 5 years' worth of expended effort to protect a problem that keeps on growing bigger day by day. One can only imagine if that same collective output was spent on new value creation, instead of trying to mitigate the destruction and/or dissolution of the value that has been created. Put simply, if the migration is not successful, Ethereum’s DeFi business case will be dead.
The Hippo and the Buffalo…
Stress testing a network should not just be about software bugs and security risks. There needs to be some form of modeling where network growth can be simulated, and scalability can become a feature instead of a defect. Perhaps this is the reason why the emergence of other blockchain promising to solve Ethereum’s shortcomings is getting attention. Both creators of Cardano[6] and Polkadot[7] were part of the original Ethereum foundation and claimed to have left the pioneering platform to solve these problems. Although both of these competing blockchains are not yet production-ready, it could be this approach of rigorously building and testing the blockchain before deploying that could prevent them from hitting the same scaling issue that Ethereum is now facing.
What does all this have to do with Elephants, Hippos, and Buffalo? Every beast on the plain drinks from the same pond!
Ecosystems…
Regardless of which blockchain network solves this problem or any problem, generally speaking, they have been created to serve a purpose for the greater good of humanity. Therefore we (the user), are the collective in the pond of water that each and every blockchain needs to survive. That is why it is called a network, a collection of computer parts where the sum is greater than the whole. The collective of the blockchain network is both human and machine, where the machine is the beast and the water for their survival are humans! Without our innovative consciousness, the machine will cease to operate. If this is the case, then why are most blockchains siloed in within their own pond instead of swimming in the entire ecosystem?
Interoperability before scalability…
The pond in this analogy is 7.8 billion humans large. On earth, an ecosystem only survives through innate cooperation within its participants whether voluntary or not. Therefore, the bigger problem to solve within this sphere of technology should not be which blockchain will scale first but,
how do all blockchains scale together?
The Inception of the Analogous Function
We know that blockchains are useful only when they receive the right data inputs. Therefore, building a network of blockchains (not a blockchain network) requires a communication network of sound data streams using the same consensus techniques that blockchain uses[8].
In nature, the silent hero is mycelium. A vast network of fungi that connects almost every living thing on earth. It is the foundation of our food web. It is responsible for the composition, and decomposition of life, and is nature’s underground superhighway that carries the intelligence that sustains life.
A blockchain is like the grand oak in the old forest, where the rings of data can tell the story back to its origin. But unlike these grand old oaks, blockchains seldom have an interconnecting data highway, and this is where native interoperability technology solutions can provide cross-chain data inputs to bridge this gap.
With intelligent data solutions, we can provide an accurate communication network that allows blockchains to interoperate with each other. Thus, creating an ecosystem that can generate new business models and regenerate old ones. This is how humanity will not only survive but in turn thrive.
Written by @justdavecx June 2021
Research…
[1] CoinGecko: Cryptocurrency Prices and Market Capitalization
[2] Ethereum Test Drives ETH 2.0 as TVL Surpasses $77 Billion (dappradar.com)
[3] Slasher: A Punitive Proof-of-Stake Algorithm | Ethereum Foundation Blog
[4] https://www.somethinginteresting.news/p/proof-of-stake-will-not-save-us
[5] Ethereum 2.0 (Eth2) vision | ethereum.org
[6] Goguen — Cardano Roadmap
[7] Polkadot Launch: Parachain Rollout
[8] ChainSafe Receives Grant to Expand Chainlink Oracle Pallet on Polkadot
[9] How DeFi is Driving The Spike in Ethereum’s Gas Price (glassnode.com)
