Three Multi-chain networks you need to watch closely

Since 2017, many have predicted the limitations of the Ethereum network, with the most major one being scalability. The scalability problem of Ethereum has started becoming more noticeable in 2020 with the “DeFi Summer”, and the unprecedented growth DeFi experienced. Consequently, Ethereum has been unable to maintain its dominance in the decentralized world.

Meanwhile, various new public blockchain networks have continued to emerge. Many of those networks have been experiencing tremendous growth, attracting a lot of developers and users.

The way the decentralized web has grown during this period made us realize that the future of Web 3.0 will be multi-chain. There won’t be any Ethereum killers nor a one-chain-fits-all solution, but rather an Internet of Blockchains.

In this article, I write about one specific subset of blockchain networks, the multi-chain networks or blockchain hubs. I will also provide a brief overview of the three main blockchain hubs that you need to watch closely. They are operational, growing, and will keep growing in the coming months and years.

Blockchain Hubs and Multi-chain Networks

Blockchain Hubs & Multi-chain networks
Blockchain Hubs & Multi-chain Networks

As with everything in Crypto and Web 3.0, the terminology is vague. In some cases, people use the same term to describe two different concepts, while in other cases, multiple terms are used to describe the same concept. Therefore, you might find the terms Blockchain Hub and Multi-chain network used in a different context.

Usually, with the 1st and 2nd generation of blockchain networks (i.e. Bitcoin and Ethereum), we have one network of computers operating on a single blockchain or ledger. As the number of users grew, the fact that there was one single blockchain in place prevented the network from scaling. As a result, the time it takes for the network to process a transaction increases as well as the fee associated with executing a transaction.

One powerful approach that is used by many third-generation blockchains, which is also planned for Ethereum 2.0, is sharding. Sharding technology basically allows a blockchain network to work on multiple blockchains or ledgers at the same time. However, that’s not enough, as with sharding, the operations you can perform on the underlying blockchains are the same. The various blockchains are homogeneous.

As an analogy, you can think of 1st and 2nd generation of blockchain as a single assembly line of a car manufacturer. Sharding is having multiple identical assembly lines assembling the same type of car. You can produce more cars at the same time, but you can only produce the same type of car across all assembly lines.

The Blockchain hubs or Multi-chain networks are comprised of multiple blockchain networks that each one can be different. The various blockchains interoperate with one another with a standard communication protocol to transfer assets.

Consider the simplified diagram visualized above. In a Multi-chain network, there are multiple different blockchains, usually divided into one main chain and many sub-chains. Each sub-chain is built to serve a specific purpose. Some might be general-purpose like Ethereum and Solana, while some others might be special-purpose. Special-purpose blockchain can be optimized for a dApp, gaming experience, or even enhanced to meet regulatory compliance for a specific jurisdiction.

The main chain is usually providing services to sub-chains. Cross-chain asset transfers and security are among the services the main chain can provide. This group of blockchain networks can then communicate with other blockchain networks, creating networks of networks serving multiple heterogeneous blockchains.

Polkadot

In order to tackle the scalability problem some of the early generation blockchains faced, Polkadot adopted both a multi-chain and sharding model. Polkadot is a sharded blockchain with heterogeneous shards. What sharding means in this context is splitting up the work that happens onto multiple sub-chains, known as parachains.

Running multiple blockchains at the same time creates the problem of coordinating the work and transfers across multiple blockchains. Polkadot established two types of blockchains, the Polkadot relay chain, and the parachains. The Polkadot relay chain plays the role of coordinator, allowing parachains to exchange information and assets via a standard messaging protocol. Polkadot also provides security for all attached parachains.

As a reference to the illustration above, you can think of the relay chain as the main chain and the sub-chains the parachains. The relay chain is there to provide services to the parachains. Therefore no functionality such as smart contracts exists on the relay chain. Instead, the various parachains provide, among other functionalities, smart contract functionality.

The fact that parachains can be completely different from each other, allows different types of smart contract engines (Virtual Machines) to be deployed. As of today, there is a parachain providing EVM (Ethereum Virtual Machine) compatible smart contracts, another one providing WASM (WebAssebly) compatible smart contracts as well as other specialized chains for gaming or real asset tokenization.

When it comes to security, although Polkadot has a shared security model between the relay chain and parachains, that is not sufficient. If the relay chain must revert for any reason, then all of the parachains would also revert. This is in place to ensure that the validity of the entire system can persist and no individual part is corruptible.

Each parachain must implement a Proof-Of-Work or Proof-Of-Stake to ensure censorship resistance and protect against Sybil attacks.

Polkadot provides a framework (Substrate) that anyone can use to build a blockchain customized to their business case. Moreover, Polkadot provides the underlying infrastructure and basic services allowing each team to focus on solving their business case, instead of rebuilding infrastructure components. Once a blockchain is ready, it can “simply” be attached to the relay chain, be part of an ecosystem and interoperate with other blockchains where required.

Cosmos

Cosmos follows a very similar approach to Polkadot. Cosmos is also a Multi-chain Network comprised of multiple heterogeneous, independent, scalable, and interoperable blockchains.

Similar to Polkadot, the Cosmos network is divided into two different types of blockchains. Cosmos blockchains are divided into hubs and zones, which serve similar purposes to Polkadot’s relay chain and parachains. Zones are the various heterogeneous blockchains that anyone can build and attach to a central blockchain – the hub.

One main difference between Cosmos and Polkadot is the security model. Although Polkadot adopted a shared security model, Cosmos hubs and zones have their completely independent security model. In the near future, we should expect Cosmos to adopt a shared security model as indicated by various sources.

Another similarity between the two networks is interoperability and framework development. Polkadot provides Substrate Framework, while Cosmos provides Cosmos SDK for developers to build blockchains. Polkadot uses Cross-Chain message Passing (XCMP) for cross-chain communication, while Cosmos uses the Inter-Blockchain Communication (IBC) protocol.

There are also many differences in the details between Cosmos and Polkadot, which are beyond the scope of this article, but conceptually the two are very similar. Cosmos also allows teams and developers to focus on their business case by providing them with the necessary tools and infrastructure.

Avalanche

Many people know Avalanche as an alternative blockchain to Ethereum due to the tremendous success of Avalanche C-Chain. Avalanche C-Chain has been among the top 4 DeFi ecosystems by TVL for about half a year. Avalanche network leverages the innovative Avalanche and Snowman consensus algorithms that provide high throughput and very low time-to-finality. However, Avalanche is far from just another Ethereum compatible blockchain. Avalanche C-Chain is just one blockchain part of a larger network of blockchains.

Avalanche, similar to Polkadot and Cosmos, is a Multi-chain Network. Avalanche multi-chain capabilities are called subnets or subnetworks. Each subnetwork can validate one or more blockchains. Currently, the primary network validates the three main blockchains that make up the Avalanche blockchain network – X-Chain, C-Chain, and P-Chain.

At the point of writing, there’s not a lot of information available on how intra-subnet or inter-subnet communication will work. Connor and Gabriel from the Subnet Show, in one of their podcast, mentioned that the Avalanche team is working on something called “Instant Asset Transfers”. Nevertheless, we should expect Avalanche to have its own standard communication mechanism, conceptually similar to IBC and XCMP.

Regarding security, Avalanche has a shared security model in place which favors the primary network. Each subnet can have its own set of validators; however, all validators should also validate the primary network.

Avalanche was designed in a way that allows various configurations for subnets to meet regulatory compliance. Validators need permission to provide services to a specific subnet. This allows someone to create a network where the validators are all located in a specific country, pass KYC/AML checks or hold a certain license.

Similar to Polkadot and Cosmos, Avalanche allows you to deploy your own custom Virtual Machine. Avalanche gives you the flexibility of deploying your own Ethereum Virtual Machine (EVM) or Avalanche Virtual Machine (AVM) with some basic configuration.

Final Thoughts

Polkadot’s first parachains have gone live since the beginning of this year. Cosmos also has many hubs and zones live on mainnet for a while. Avalanche has just started seeing the first subnets going live, with many more to come. All three Multi-chain Networks target the same problem with a slightly different approach.

In simple terms, Polkadot, Avalanche, and Cosmos provide the tools, frameworks, and infrastructure that allow teams to deploy highly modular and customizable blockchains while being part of a larger ecosystem.

Since there’s no one-chain-fits-all, we should expect all ecosystems to flourish in the near future. This will also give projects and teams more flexibility on what technology to use or which ecosystem to join. This will enable dApps with varying features and capabilities which will lead to more options for end-users.

Aris Ioannou
Aris Ioannouhttps://coinavalon.io
Aris created Coinavalon with the purpose of helping the average person navigate the decentralized web. Aris has been passively in the space since 2017 and full time since late 2020. Before Coinavalon, Aris worked as a Business & IT Architect in the financial services sector. Aris holds an MSc in Advanced Computing from Imperial College London, a BSc in Computer Engineering from University of Cyprus and currently pursuing an MBA degree from CIIM.

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