Kyle Samani is a co-founder and managing partner of Multicoin Capital, a thesis-based encryption fund that invests exclusively in cryptographic assets.

Today, blockchain interoperability is virtually non-existent.

If you want to move value through strings, you must do this by moving tokens in a centralized exchange, trading the internal ledger of the stock exchange, and then removing the new asset on a new channel. This process is slow, costly and has significant counterparty risk.

Basically, there are two types of interoperability of the chain:

Relay messages about the state from one channel to another. This includes synthetic tokens (AKA one-to-one pegs, two-way dowels or sidechains).

This includes synthetic tokens (AKA one-to-one pegs, two-way dowels or sidechains). Atomic exchanges between chains. The exchange of chips between users from one channel to another, without trusting a third party.

A number of prestigious projects such as Polkadot and Cosmos are becoming the blockchain blockchain meta. Each of these systems has a native docking token that validators must implement to perform the work of their respective networks.

Another chain of chains, Block Collider, offers a radically different technical mechanism for performing many of the same functions.

Based on the lessons learned from Vitalik Buterin's excellent article on the interoperability of strings, I will review the two functions above and emphasize that the greatest opportunity for these systems is the message relay. Cross-chain atomic exchanges can be performed without trust, without a system of dedicated string chains.

Cross Messaging

Cross-chain messaging is fundamentally a question of trust: how to design a system to reliably relay messages between channels?

This is particularly difficult given what I will call the risk of orphan channel: if a service relays the state of channel A to channel B, but it turns out that the relay was on a string in string A that is eventually orphaned (either mildly or maliciously), then the message relayed to string B is invalid.

If we relay messages to issue synthetic tokens through the chains, this would result in double spending between channels, which is unacceptable. Accepting the perennial risk of "what if relaying is on an orphan fork" is by far the biggest challenge of message relay systems.

Cosmos and Polkadot address the problem of the orphan chain by two mechanisms. First, using the inter-blockchain communication protocol (IBC), they store Merkle-ized block headers for each cross-chain transaction. Based on a history of Merkle-is block headers, Cosmos / Polkadot maintains global invariant balances of the total supply of each token. Together, these mechanisms prevent double cross-spending.

It would be nice if systems like Oraclize could relay messages between channels. But this kind of system does not take into account the problem of the orphan chain.

If we look to the future, it is possible to consider a moment when the problem of the orphan chain is solved by the string of sending itself. How? Capitalizing on purpose in systems based on evidence of participation (PoS). This is the explicit goal of Casper FFG, which is in alpha now. However, we do not know how fast the purpose can be arbitrated by setting up such a PDS system.

Even with a guarantee of purpose, there are still other challenges.

We are currently witnessing a Cambrian explosion of blockchain innovation. This should continue for the next few years at least. Given the number of new channels that are emerging, each channel will need to store and validate the Merkle-ized block headers of all other channels with which it communicates.

Each blockchain could become inflated with blockheaders of all other strings. The use of a bridge chain reduces the bloat by chain of a n function! to a function of N.

Although I would like to see a future in which blockchains communicate directly with each other without an intermediate chain, this seems highly unlikely. This problem is compounded by the fact that systems such as bitcoin can never pass from a working proof consensus to a PDS consensus with a guaranteed purpose.

If you project far enough, it seems possible that the intermediate chains become superfluous, but this future is not yet clear. In the foreseeable future – at least a few years – Cosmos / Polkadot have a real opportunity to become the backbone propelling cross-chain messaging.

Atomic exchanges between chains

The first cross-chain atomic exchange recently occurred between Litecoin and Decred.

These are two strings that do not support Turing-complete programming languages. Atomic channel exchanges will be technically easier to implement between general-purpose smart contract platforms. It will take another 1-2 years for these libraries to mature and be widely adopted, but they will. There are not many technical issues left.

The other major challenge of multi-channel atomic swaps is the discovery of price and matching orders. It is there that decentralized exchanges (DEX) such as 0x and OmiseGo come into play. OmiseGo is fully decentralized, which means that the order book lives on the chain.

In 0x, orders are hosted by relayers (centralized entities), which then submit matched orders to the chain for settlement.

If the market ultimately demands that DEXs be fully decentralized – including order books on the chain – systems like OmiseGo will be needed for atomic channel exchanges to work. However, given the intrinsic limitations of order books on the chain (settlement time, foreground operation, mining, etc.), I believe that model 0x will prevail in the foreseeable future.

Although 0x only works within the ethereum ecosystem today, the 0x roadmap includes cross-chain support * (it will likely use most of the technologies embedded in the Litecoin-Decred proof of concept for Scrypt-based channels). 0x Relayers will host order books for price discovery, and relay messages between strings to trigger the release of funds from escrow on each channel. This should offer many of the best elements of decentralization (no counterparty risk) and centralization (speed, order matching), with minimum guarantees of trust (only that the relay relay messages to both channels).

Chain DEXs are theoretically possible.

However, given the limitations they face, the intrinsic effects of liquidity on order books, time to market and marketing benefits, and the minimum guarantees of trust and confidence in the marketplace, can not be reduced. a relay 0x, I argue that prevail, leaving few possibilities ** for DEX based on Cosmos / Polkadot / Block Collider.

Conclusion

With the launch of Cosmos in the coming months, we are about to witness a huge round of hype around the opportunity of a blockchains internet. Systems like Cosmos solve fundamental problems of communication between channels, but are not necessarily the answer to all the problems of communication between the chains.

It is important to recognize that everything these systems can do must not be done by a chain of chains. As the crypto ecosystem evolves, expect more diversity in trust models, relays, and solutions.

* Note: Atomic channel exchanges are only possible if both channels offer a native escrow function. This requires at least bitcoin-esque scripting functions. Some channels, such as IOTA and sia, for example, do not support trusts on the chain at all, so they can not implement cross-string atomic swaps.

** One of the biggest limits of atomic exchanges between channels is the settlement time. By definition, these transactions can only adjust the slowest blocking time of both channels. The Block Collider system allows for settlements that are theoretically even faster than the blocking times of each chain. Allowing cross-chain swaps to install faster than blocking times from one or the other chain is a pretty crazy idea. Given the slow bitcoin blocks, Block Collider could carve out an interesting niche.

Special thanks to Sunny Aggarwal, Matt Luongo, James Prestwich and Sina Habibian for their contributions to this essay.

Image of chain connection via Shutterstock

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