How to teach blockchain to share data and what is it for?

To date, different blockchain is almost incompatible with each other. If you decide to transfer money from one blockchain of credit to another, then you will have to place them first on a trusted centralized exchange, exchange there, and then withdraw the new asset to a new block. This process is slow, expensive and involves the risk of running into counterfeit fraudsters.

In general, we can distinguish two types of compatibility blockchain:

1. Ability to send messages about the status of one blockage to another. This operation is carried out by means of special “synthetic” tokens (also known as one-time tokens or sidechains).

2. Direct exchanges of tokens between blockchain (atomic swaps, atomic swaps). The exchange of tokens between users, in this case, is carried out directly on the blockchain, without the need to trust money to unauthorized persons.

A number of high-profile projects, for example, “Polkadot” and “Cosmos”, today already compete for the title of “blockchain for blockchain.” Each of these systems launched its own token, which must be paid for the operations conducted in their networks. Another “blockchain for blockchain”, Block Collider, for performing the same functions offers a completely different technical solution.

Based on the theses from Vitalik Buterin’s excellent article on the interoperability between blockchain, I’ll look at both of the above options closers, especially paying attention to the fact that the greatest advantage of these systems is still the transmission of messages. Direct exchanges of tokens can be carried out without the need to allocate a separate blockchain for their conduct.

Messages between blockchain

At its core, the issue of exchanging messages between two blockchain is a matter of trust. How to create a system that is guaranteed to transfer information between the two networks?

This is especially difficult considering the risk that we will call the “orphan’s blockchain” risk: if the system transfers the state of blockchain A to Blockchain B, but suddenly it turns out that the sender used the fork of A, which is no longer supported, not accepted by the network (intentionally or not ), then the transmitted blockchain B message becomes invalid.

If you transfer messages between the blockchain, issuing “synthetic” tokens, there is a risk to spend money on different blockchain funds twice, and this is unacceptable. The solution to the eternal question “what if the sender uses an unsupported fork” certainly represents the greatest problem in messaging systems.

“Cosmos” and “Polkadot” solve this problem in two ways. Firstly, with the help of the interconnection protocol (IBC), they retain the so-called. “Merkle headers” for the blocks of each transaction. Based on the history of the “Merkle headings”, Cosmos and Polkadot build global unchanged balances of the total number of each token. Together, these mechanisms prevent double spending between blockchain.

It would be nice if such systems as Oraclize were able to transfer messages between the blockchain. However, systems like this do not take into account the problem of “orphaned” networks.

Imagining the future, one can imagine a time in which the problem of unsupported forks is solved by the sending side itself. How? Based on the irreversibility of proof of the Proof-of-Stake algorithm. This is what Casper FFG, the startup, whose project is now in the alpha version offers to do. However, it is not clear how quickly it is possible to develop a practical implementation of such a PoS function. After all, even guaranteeing the finality of the transaction, we do not solve the remaining problems.

Today in the field of blockchain technologies, one can say, the Cambrian explosion. It is likely to continue for at least the next few years. Given the number of new detachments, each of them will have to store and check the “Merkle headers” for blocks of all the blockchain with which this network exchanged information.

So, the blockchain can simply drown in the information from the headings of blocks of other projects. The use of an intermediate blockchain reduces the rate of its “swelling” from exponential to linear.

I would like to see a future where blockchain exchanges information directly with each other, without intermediate networks, but this seems unlikely. The problem is exacerbated by the fact that systems such as bitcoin will never be able to move away from the use of the Proof-of-Work algorithm to the more advanced version – Proof-of-Stake, which guarantees the finalization of the transaction.

If you fantasize and look far enough, it seems quite possible that it would be possible to refuse intermediate blockchain, but when this future comes, it is unclear. In the foreseeable future – at least for the next few years – Cosmos and Polkadot have a real opportunity to become the backbone of the infrastructure that provides the exchange of tokens between the blockchain.

Direct exchange of tokens.

Not so long ago, between the networks Litecoin and Decred, the first direct exchange of tokens, or, as it is also called, an atomic swap.

These are chains that do not support Turing-complete programming languages. But it is technically easier to implement direct exchange technologies between systems that support smart contracts of general purpose. Another year or two will be improved methods of creating systems for such operations, but direct exchanges will necessarily see the light. Technical barriers remain not so much.

Another serious problem associated with the direct transfer of tokens – finding out the course and drawing up orders. This is where decentralized exchanges, such as 0x or OmiseGo, come into play. OmiseGo, for example, is completely decentralized, which means that the book of exchange orders exists on it as a record on the blockchain.

At 0x orders are placed by repeaters (centralized structures), which then send confirmed orders to the settlement blockchain. If the market ultimately requires that exchanges are decentralized in full, including on the part of placing orders – then systems like OmiseGo will become necessary for conducting direct exchanges between blockchain. However, taking into account the internal limitations in the methods of keeping stock records (the time of placing orders, targeting miners, while producing a new block), I believe that the 0x model will remain predominant in the foreseeable future.

Although 0x works today only with the air, the project’s road map includes support for direct exchanges between blockchain (the exchange is likely to use most of the technologies built into the Litecoin-Decred exchange concept for Scrypt-based networks). Repeaters 0x will administer the history of exchange orders for reconciling rates and transfer messages between blockchain, initiating the issue of “synthetic” tokens for the exchange of funds.

This should ensure the advantages of decentralization (no risks associated with counterparties) and centralization (speed, negotiation of orders), minimizing, in addition, the need to trust your money to someone (the relay actually only transmits messages to both detachments). Theoretically, even separate detachments of decentralized exchanges are possible. However, I believe that the 0x model will win, leaving little room for Cosmos, Polkadot and Block Collider. This becomes especially clear if we take into account the limitations that they will encounter, for example, the network effects of liquidity in the books of exchange orders, the time to market and its advantages, and the lack of the need to give someone their money at 0x.

Outcomes

In the next month or two, the Cosmos project will start, and we will witness a huge sensation about the possibility of creating a web of the blockchain. Such systems as Cosmos solve the fundamental problems of connection between blockchain but do not necessarily become a solution to all problems of internetwork communications. It is important to understand that not all functions can be shifted to the blockchain. As the industry develops, we should expect an increase in the number of trusted systems, repeaters and various technical solutions.

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