Demystifying Cosmos: Atomic Swaps, Ethereum, Polkadot and the Path to Blockchain Interoperability | by Jason Choi | The Spartan Group

Sunny: You have to create a translator-type chain for that.

We will put a Tendermint chain in front of the Bitcoin blockchain, and this Tendermint chain acts as a mirror of what’s happening on the Bitcoin blockchain. It puts a finality gadget on top of the Bitcoin blockchain.

So we’ll say that once Bitcoin is 12 blocks deep, Bitcoin will mirror on the Tendermint BFT chain, and we’ll use the Tendermint BFT chain to talk to Cosmos. It’s like a mirror of Bitcoin that has IBC enabled.

The validators of that Tendermint peg zone will basically own a multisig on the Bitcoin blockchain, where they’ll do that translation task. If they misbehave, they’ll be slashed double because they’ll have stake on the Tendermint and Bitcoin chains!

Sunny: I think the Polkadot approach has become more similar to Cosmos over time. Polkadot assumes that there is this one Relay Chain at the center of the universe and that all the parachains are connected to the one Polkadot Relay Chain. Everyone who doesn’t want to be part of this, they write them off as peg zones.

For Cosmos — instead we start from the approach where we design a system where things are by default sovereign. Every chain has its own validator set and it has a high amount of sovereignty. We designed it such that it works without any chain at the center.

The Cosmos Hub (the “flagship” blockchain connecting all chains) does not have to be at the center of this system. And what we instead promote is we want the idea of there being many hubs. So right now today we already have two hub blockchains. One is the Cosmos Hub, which is what we launched last week. And there’s another one called Iris Hub. They’re focused more on enterprise customers and especially focused in China. And this is really cool because then you could have like different ecosystems that are talking to different hubs.

And in my opinion, Polkadot can just be a hub in this larger interchain idea of Cosmos.

Sunny: My favorite hobby is over-fitting metaphors that have to do with history to blockchain. The problem with small sovereign nation states is they often don’t have the ability to fend for themselves compared to empires.

What we did was we can create alliances and systems where larger countries can lease their security to weaker countries. NATO is an example of this. We’re a bunch of countries coming together and of pooling our security together, and whenever you do that you inevitably give up on some amount of sovereignty. I don’t think anyone would say that being in the EU or being in NATO is the same as like being in an empire – you still have a high amount of sovereignty, but you do give up on some amount.

So for example, like Switzerland and Belgium – both very similar demographically but with different preferences. Switzerland highly values its sovereignty over anything else. And so they refuse to join these larger international organizations. Well, a country like Belgium, for historical reasons, they’d rather be part of these larger organizations. Maybe give up a little bit of their sovereignty but get that higher security. We also see Brexit — an example of a country that’s choosing to go for more sovereignty. So with Cosmos, the idea here is let blockchains choose whichever model they want.

If they want to be completely sovereign, they could do that. But then the Cosmos Hub acts as a type of NATO-like system — this hyper secure blockchain layer. Chains have the choice to request that the Hub validate their blocks, and the Hub will do this for a fee. The Hub will still let chains have full control over their governance. For Polkadot, its goal is to offer this shared security mechanism (where chains give up their consensus sovereignty in exchange for shared security).

Sunny: There’s a difference between Cosmos Network and Cosmos Hub. The Cosmos Hub blockchain will essentially provide the same service (as the Polkadot Relay Chain) to a chain in the Cosmos ecosystem where they will provide pooled security to chains that want it. So the Cosmos Hub is very similar to the Polkadot Relay Chain in that way.

Sunny: Right, exactly. And so, for example, Binance is building their dex using Cosmos’ framework (with the Cosmos SDK). I imagine that they’re probably going to keep a sovereign chain. This is just speculation here, but I think they’re probably going to try to use their BNB token as a staking token as it has enough value to actually provide its own legitimate security.

But let’s say another dapp developer comes along tomorrow and say, “I created this cool dapp, but I don’t know where I’m going to get the community to actually bootstrap our stake behind this chain”.

That developer can basically submit a request to the Cosmos Hub to do validation work for it.

Sunny: No. So this is going into the primary difference between the shared security philosophy of the Cosmos Hub vs. Polkadot.

For Polkadot, there will be thousands of validators and Polkadot basically assigns validators to specific chains. So out of say 1,000, 50 are assigned to a parachain, 50 to another, and so on.

With the Cosmos Hub, we’re going to take a different approach to this. A chain can show up at any time and say to the Cosmos Hub that it wants to be validated, and present the rewards associated with this validation work, as well as the inflation schedule of its token, how much transaction fees are anticipated, etc.

And then, each individual validator on the Cosmos Hub can individually say, “I want to validate that chain.” The validators will then stake their Atoms on the Hub and perform validation. If they failed on that chain, their Atom stake will be slashed on the Hub of course. This is great because of a few reasons. I personally run a small validating company, and we don’t have that much capacity. I run it part time since my main focus is on Cosmos core development. As such, I can only validate two or three chains.

But some validators are companies — for instance, my co-host on Epicenter (Podcast), Brian, works full time on a validating company called Chorus One. Maybe Chorus One is ready to validate hundreds of chains! They have their company, they have a lot of servers. And so, with the staking mechanism(the more Atoms you stake, the more validation work you can do), capital and resource allocation is efficient.

Sunny: Currently, what happens in Polkadot and Ethereum is that all chains have to pay for equivalent security. So that means on Ethereum, someone who’s using CryptoKitties has to pay the same transaction fees as someone who is like using Dai to transfer millions of dollars.

That’s not right because that means that the people who were playing with CryptoKitties are overpaying for security. And that’s what makes it so expensive to use.

In the Cosmos Hub, where we have a shared security model, the chains that are less economically important/significant will have less rewards, less transaction fees and hence they’ll have fewer validators validating them.

Chains that are very high value applications will need to have high transaction fees in order to pay the high number of validators that they’re going to have. This is how allocative efficiency impacts end users.

Sunny: Sure. You can think of IBC as TCP IP. It’s just the internet protocol. But on top of TCP IP, you need these higher level protocols. You need HTTP for the web, you need FTP for file transfers and you need SMTP for email.

Same thing with IBC. It’s just this bare bones basic protocol. And then on top of that we’ll build other protocols but we’re just starting with token transfers.

Sunny: As far as I’m aware, Polkadot hasn’t actually built any of these higher level protocols yet (Jason: more details on this in my Polkadot interview). They don’t even know what kind of VMs are going to exist on different chains. And so, from that aspect, Cosmos and Polkadot have the same capabilities there.

The Cosmos Tendermint development team follows this philosophy of iterative design. We don’t want to oversell what we’re trying to build here because then people get overexcited and then disappointed when it turns out we’re pitching things that are 5, 10 years away.

Complex cross chain contract calls is completely feasible. And we’re helping people who can make that a reality, like Agoric.

But let’s just like set some expectations and focus on token transfers first. That’s our priority.

Sunny: The main thing is that they have to make sure they implement that IBC standard. There’ll be some pegs zones that we’ll make make “hacky” exceptions for — like Bitcoin and whatnot — things that are high value enough to deserve exceptions. But otherwise, if you’re not one of those few chains, you have to make sure you build IBC into your core protocol.

That’s a development trade off in that it’s an extra thing that you have to do in order to be part of the system. Now, assuming that you have the IBC, then what else do you have to give up? Not really much.

Now keep in mind that for some dapps — like finance dapps for example — they’re not using the Cosmos Hub for security. In fact, if you don’t even want to use the Cosmos Hub at all, you don’t even have to connect to the Cosmos Hub. You could connect to a different hub, for example, the Iris Hub, or you could just connect directly to the chains that you need to communicate with. But if every chain tried to connect to each other via IBC connections with every other chain, you’d have n squared connections! And that’s just not very efficient in my opinion.

But I’m happy to be proven wrong. Maybe that is the emergent behavior that comes up. It just that I think in most networks we see in the real world, you often end up falling back towards a hub and spoke architecture, or a multi hub and spoke architecture.

Look at flights, right? In theory, any plane can fly from any airport or any other airport in the world. But you still end up seeing a number of major airports in the world. I just see similar properties in Cosmos where you’re going to have these major Hub chains like the Cosmos Hub, the Iris Hub, and maybe a Polkadot Hub that will help make it easier for these chains to connect.

Sunny: No you do not.

You don’t have to use the Cosmos Hub. So the Atom token does not need to exist for the Cosmos network to exist, but Atom tokens need to exist for the Cosmos Hub to exist. The idea is just to create a high value, high security chain because the Atom tokens are valuable.

And keep in mind the Atoms are not meant to be money. We’re not making a money token here. We’re not making our currency — in fact Atoms are hyperinflationary just to purposefully try to prevent them from being money.

We’re really trying to create a staking token. If you want, you can think of them as a taxi medallion where it’s this token that you need in order to be a staker and participate in proof of stake of the Cosmos Hub. And you know, you could just sit on your taxi medallion and and hope for it to appreciate, but the best value you can get off of it is to go drive a taxi or go participate in proof of stake and help secure and validate.

Sunny: When people say Cosmos was trying to steal the Ethereum community, it’s not true. There are a few ways to think about it.

On the developer community front, we’re just trying to build a free and open-source tool. All of our tools — Tendermint, Cosmos Core, SDK – all of these are just open-source tools.

We’re just building tools in order to help make it easier to achieve this multi-chain reality and we think our tools are better than the EVM. And so we hope that dapp developers who really want to push forward for that vision choose the best tools for that job. And if that involves creating sovereign Cosmos chains, so be it. If that involves making chains that do shared security with the Cosmos Hub, so be it. I think we’re just adding more tools to the arsenal of dapp developers. I’m not even saying the Cosmos SDK is the optimal architecture. Substrate might be a better architecture than the Cosmos SDK!

We benefit from collaboration — I’ve learned a lot about consensus from the Casper people and I’m sure the Casper people have learned a lot of consensus stuff from the Tendermint people. Are we competing in some aspects? Yes, a little bit. But I hope we’re doing it with the intention of creating the best tools possible.

Now besides the developer community, there’s also what I call the “Faith” community. It’s really just the people who believe that ETH is money, or people who are trying to turn it into a meme coin. I think up until now bitcoin and litecoin are probably the two cryptocurrencies that have done the best job at meme-ing their way into currencies. I’m actually personally very interested in Grin too — which I think has the right narrative and a better monetary policy than bitcoin.

But when it comes to like the ETH community, I guess Cosmos itself doesn’t have a stake in this game. We’re not creating a cryptocurrency. We’re not competing to be money, but we were thinking about it for a while. We had this proposal called photons where we were trying to create a cryptocurrency. But the main goal there was to experiment with a constant issuance money supply — money that’s not as hyper deflationary as BTC or ETH.

But then Grin came along and did that. So now, I’m of the opinion that we don’t need to do photons anymore. The main experiment that we wanted to try has been done by the Grin community instead. And they’ve meme’d their way much better than I ever could have.

So we’re not really competing with the Ethereum community (on the monetary status) and I wish them the best of luck in making ETH be the best cryptocurrency.

I think Tendermint BFT helps a lot with scalability and that will help with the creation of a lot of dapps that maybe just weren’t possible under the current systems.

I hope to see a change in how people think about assets. I think we’re going to see a lot more staked tokens and I think there’s going to be this movement away from these tokens have value just because of their underlying functionality.

In a world with Cosmos, I can now go take the Z Cash state machine, and put it as a Cosmos chain. I can move my BTC onto there or I can move my Dai there. And I can use the zero knowledge properties of that zone with any asset. And so in that world, what exactly is the value of the Z Cash cryptocurrency? I’m not too sure!

I mentioned ETH is trying to move away from the gas token narrative to the money narrative, because they realized that to make money you have got to meme it. You can’t just depend on the underlying functionality because in a world of Cosmos, we will separate assets from its underlying logic, and any asset can use any logical system.

We’re going to see a lot of rethinking of the token models that are being used in the current blockchain space.