Paradigm: Reinterpreting the Value of Cosmos with the Launch of IBC
With the launch of Cosmos's IBC, cross-chain has truly risen.Written by: Charlie Noyes and Dan Robinson
Compiled by: Perry Wang
On the Ethereum blockchain, all applications run on a shared state machine. In contrast, Cosmos consists of many application-specific blockchains that transfer assets and other messages between each other. If Ethereum is a large computer, Cosmos is a protocol that connects independent servers into a network.
When applications are still local to the platform, the mainframe approach can work well. However, the number of applications that each blockchain can support is limited, and these applications were not designed to communicate with each other from the outset.
Today, the congestion of the Ethereum main chain is driving applications to reconsider alternative Layer 1 (L1) and Layer 2 (L2) solutions, as these projects cannot afford the "metropolitan premium" in Ethereum. Each new L1 and L2 requires awkward middleware (bridges) to communicate with other L1s and L2s.
Cosmos presents a different vision for the future of interconnected blockchains: building with interoperability as a primary principle. Cosmos believes that providing shared communication standards for sovereign chains is a natural step in the evolution of protocol design. This vision is inclusive rather than competitive. Ethereum and other platforms will also be able to integrate this interoperability model.
What is Cosmos?
Cosmos itself is not a blockchain—rather, it is a blueprint for designing application-specific blockchains (called Zones). If every blockchain had to implement all networking and consensus code from scratch, it would be unrealistic to build a world composed of many blockchains. Therefore, Cosmos provides template software Cosmos SDK to handle these functions.
Years of development work on the SDK by Cosmos has made launching a Zone as easy as deploying a smart contract. However, this approach is not unique to Cosmos; other projects that combine the idea of application-specific blockchains also provide developers with "boxed blockchains," such as Polkadot's Substrate framework, which is similar to Cosmos's SDK.
What makes Cosmos unique is that it achieves practical interoperability without a shared security layer. These features are interpreted through an architecture that is opposite to that of Ethereum.
Security Model
Ethereum's security model is unified. Every application deployed on Ethereum has the same level of security: broadly speaking, that is the security level of the Ethereum ledger. Since all Ethereum applications exist in a shared runtime, they are tightly coupled and interoperable by default.
In contrast, the security model of Cosmos is not unified. Each Zone (simply put, each application) must choose a level of security sufficient for its purpose and incentivize a rational validator market to provide that security. Each Zone exists in its own runtime, so by default, they are not interoperable, and communication requires a shared messaging protocol.
Interoperability
Cosmos handles the non-unified security assumptions across Zones by treating interoperability as an optional market process: Zones and their users choose the level of security risk they are willing to accept from other remote Zones.
Uncoupled Zones will not even transfer assets. Fully coupled Zones may be shards of a consensus process with each other. In the Zone ecosystem, the overall of these paired relationships is an emerging security topology—cross-chain.
Inter-Blockchain Communication (IBC) protocol is a universal communication standard designed to achieve all necessary interoperability. IBC can be applied to a wide range of use cases, from simple asset transfers to cross-Zone data availability proofs, as well as penalizing remote Zone validators' assets (e.g., fully shared security), and more.
Moreover, any blockchain using a consensus mechanism with finality can utilize the IBC protocol and join the Cosmos Network. For example, ETH2's Gasper, Polkadot's GRANDPA, and Libra's HotStuff are all compatible with IBC.
In theory, everything is a Cosmos Zone.
IBC has now entered production. The first standardized application—cross-Zone asset transfer—has recently gone live. This composable model is sufficient for most decentralized finance (DeFi) applications. Refer to the arguments made by Ethereum founder Vitalik Buterin, which cover many compelling use cases (automated market makers AMM, loans, etc.).
Highlights of Cosmos
In summary, in Cosmos, each application is encouraged to deploy as an independent Cosmos Zone. Cosmos provides the core software infrastructure (SDK, IBC, etc.) needed to develop these blockchains and make them interoperable. Cosmos views different levels of interoperability as a spectrum and allows each blockchain in the network to choose how to interact with other blockchains. These relationships collectively form cross chain.
So, why is the Cosmos model attractive?
Advantages of Sovereign Chains
Scalability: A network composed of application-specific chains is more scalable than a blockchain where everything must be secured by all validators; even sharding platforms have limits. Cosmos Zones achieve dynamic "horizontal" scalability based on acceptable counterparty security assumptions.
Resistance to Miner Extractable Value (MEV): Application-specific sovereign chains can implement robust MEV mitigation measures and have high granularity control over their incentives.
Transaction ordering mechanisms can be tailored for specific use cases (e.g., the AMM on Cosmos Hub mandates batching all transactions in a block).
Each Cosmos Zone only secures one application's safety, so they are less likely to accumulate MEV over time compared to platforms that provide arbitrary programmability. In this sense, Cosmos Zones are closer to the Bitcoin blockchain than to Ethereum.
Additionally, Zones can choose with whom to interoperate, so they are not subject to arbitrary external incentives from other applications on a shared platform.
Developer Experience: Cosmos Zones can optimize the runtime for specific applications rather than performing general optimization (e.g., for the Ethereum Virtual Machine EVM). Developers can use any language and tools they want, many of which already have available SDK bindings.
Defensibility: Given that Zones are responsible for their own security, their tokens and value capture are harder to fork, reducing the likelihood of competitive fratricide.
Disadvantages of Sovereign Chains
- Security: Smart contracts on Ethereum can rely on the platform to protect them from security failures like rollbacks or invalid state transitions. In Cosmos, each chain is responsible for its own security, so the likelihood of application failures is higher.
Counterargument 1: Essentially, every Ethereum application either pays too high a price for security or does not provide its fair share of resources, while all applications share the risk of catastrophic related security failures (MEV's death-by-a-thousand-cuts). Applications that cannot afford their security costs will fail quickly, which is actually healthier.
Counterargument 2: In reality, many applications on Ethereum (e.g., Maker and Compound, but not Uniswap) already have governance tokens for security. These applications can also reach consensus using tokens. The scope of governance token authority is similar to the issue of designing an application-specific shared security layer.
Counterargument 3: Cosmos will enable various shared security options in the future. IBC can be used to couple the consensus sets of multiple Zones. Zones like LazyLedger will enable sovereign execution environments, sharing security through rollups (very similar to Ethereum's rollup-centric design).
- Synchronous Interoperability: While blockchains in Cosmos can transfer assets to each other and interact in other asynchronous ways, they cannot perform synchronous calls from one Cosmos chain to another.
- Counterargument: Synchronous interactions can still occur within a single Cosmos blockchain. Large-scale synchronous interactions with all other applications will ultimately remain impossible. Synchronous communication can be achieved through sharding platforms like Ethereum 2.0 and Polkadot for scalability, as well as rollups and other L2 architectures.
- Psychological Impact: Application developers must understand the unknown details of blockchain protocol design, such as MEV.
- Counterargument: This is likely unavoidable. Application developers cannot isolate themselves from "front-running" behavior on Ethereum. Whether they deploy to a shared platform or their own blockchain, they will be forced to consider these dynamics, and their own blockchain will often adopt more effective improvements. Both architectures can use advanced tools and middleware to abstract some of the complexity.
Conclusion
Blockchain protocol design is ambiguous. There is no "correct" level of scalability or security. Qualities like "trustworthy neutrality" cannot be reliably defined.
Today, application platforms emphasize "static setpoints" in these design decisions. Cosmos is the first project that allows developers to explore the entire trade-off space without sacrificing simple composability.
For complex problems, free markets often find better solutions than any manual approach we might advocate. Cosmos is testing this hypothesis in the context of blockchain application design.
With the launch of IBC, cross-chain truly rises.
