Is the cross-chain of Cosmos and Polkadot the same thing? What are the specific differences in their solutions?

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What significant changes have occurred in the cross-chain field eight years after its proposal? Where is it headed?

Source: Polkadot Ecological Research Institute

Background

When it comes to the development of blockchain, a more vivid metaphor might be more appropriate; it resembles the dynastic changes during the Spring and Autumn period. Initially, there were scattered feudal lords, each occupying their own territory. As time progressed, a certain level of unity was often required, whether it be in currency, language, or measurement units, which is the embryonic form of blockchain development's future.

If the blockchain before 2017 was characterized by fragmentation among feudal lords, then in the following two years, discussions shifted more towards how to achieve a degree of uniformity among countless chains. After all, every public chain claims to be the future underlying operating system. However, even if 10 such "chains" were to emerge, people would still be unable to achieve the goal of "inter-chain collaboration."

Especially as the number of blockchain protocols increases and asset interactions become more frequent, there is an urgent need for a type of technology that allows for interaction between different chains, which is the reason why "cross-chain" technology has gradually emerged and matured.

Of course, cross-chain (Cross Chain) is not a concept that has only appeared in the last two years. Its origins can be traced back to 2012 when Ripple Labs proposed a protocol called Interledger, aimed at connecting different blockchain ledgers and enabling their collaboration. Its goal was to create a globally unified payment standard and establish a unified protocol for network financial transmission.

In simple terms, the cross-chain concept introduced by Ripple is more akin to a payment protocol. It sets up an automatically executing "intermediary" to aggregate the information of both parties in a transaction. Once an agreement is reached, the transaction is automatically completed. In fact, this type of cross-chain is more like a special smart contract rather than the cross-chain we are familiar with today.

So, eight years after the concept of cross-chain was proposed, what significant changes have occurred in the cross-chain field, and where is it headed? We attempt to deeply analyze the development of cross-chain through the two projects, Polkadot and Cosmos, for our readers.

What is true cross-chain?

1 Misunderstandings about Cross-Chain

Of course, when we talk about cross-chain, many people may have heard this term and even consider it a popular buzzword in blockchain in 2020. After all, the world of blockchain also needs some fresh stories to fill historical gaps. As for smart contracts and public chains, those are stories from two years ago, while cross-chain seems to align more with the grand goals of blockchain development, and indeed it does.

However, many people in the market seem to have some misunderstandings about cross-chain, and these misunderstandings create barriers to understanding what true cross-chain is. Therefore, let’s start with a few common misconceptions.

A. Is cross-chain about swapping on-chain assets like switching places?

When discussing cross-chain, some friends might genuinely believe that cross-chain can transfer assets from the Bitcoin chain to Ethereum in a way that resembles swapping apples and pears on a table. While this sounds magical, is cross-chain really like that?

In the blockchain world, what we often refer to as cross-chain is more akin to the relationship between exchanging Renminbi and US dollars. What does this mean? Cross-chain is like exchanging Renminbi for US dollars, euros, or other currencies, and the exchange process is what we call cross-chain. This is also the form retained by early cross-chain concepts, but it is not a real transfer like a barter; rather, it is an equivalent exchange of value.

Therefore, the cross-chain proposed in the years following 2012 usually refers to asset cross-chain, which includes well-known methods such as two-way anchoring, hash time lock, atomic swaps, asset pledge transfers, gateways, and federated signatures, among others. These are methods of realization, and their goal is not to magically convert on-chain Bitcoin into other types of tokens, but merely to transform the form of assets.

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

B. Is the implementation path of cross-chain very simple?

Many people might think that cross-chain technology is an extremely simple engineering problem, as the literal understanding seems straightforward, like transmitting information from point A to point B, which can be done through a phone or logistics. However, in reality, cross-chain is not that simple.

Even for asset cross-chain, which sounds relatively easy, people have been exploring various methods for many years to try to overcome certain problems and bottlenecks, but they still have not found a universally optimal solution to achieve this goal.

For example, a few years ago, we saw the proposal of Bitcoin sidechains, where two-way anchoring is a very important concept in Bitcoin sidechain technology, aimed at achieving cross-chain between Bitcoin main chain coins and sidechain coins. Two-way anchoring allows the sidechain to "know" whether a specific coin on the main chain is in a locked state, and based on this locking state, it can unlock or destroy the corresponding amount of sidechain coins. This is akin to BTC "crossing" to the sidechain, or vice versa, where sidechain coins "cross" back to the main chain. However, even today, seasoned technical personnel still believe that this method is too simplistic and carries several security risks.

Thus, cross-chain is not as simple as many might think; in fact, it is much more complex than we anticipate, which is why it has become a challenging issue that the blockchain industry needs to tackle.

C. Is there only one way to implement cross-chain?

This is a common mistake made by many blockchain practitioners who do not understand the technology well. They tend to think that there is only one way to achieve cross-chain, and everyone is striving towards a correct method. However, as explained in the previous two points, this is not the case. The methods of implementing cross-chain encompass a wide range; we simply refer to them collectively as cross-chain.

In the next section, we will explain several common methods of cross-chain implementation in more detail, which we believe will provide clarity.

2 Ways to Achieve Cross-Chain

Since there is more than one way to implement cross-chain, what are the notable cross-chain methods currently available? We will attempt to explain several mainstream methods of cross-chain in a more understandable way, avoiding overly complex technical jargon.

A. Centralized Gateway Cross-Chain

As the name suggests, this is a cross-chain method input by an authoritative external oracle. By introducing external forces to access cross-chain, it is akin to relying on a third-party institution to complete the cross-chain action, much like transferring money through a banking system. While this method is efficient, it also carries certain security risks.

B. Multi-Signature Custodial Cross-Chain

Compared to the previous method, this approach adds a group of authoritative institutions on top of a single centralized entity, where they vote to handle the interaction of cross-chain data. This is similar to a parliamentary system, as the presence of multiple institutions further enhances security, but conversely, efficiency is significantly reduced.

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

C. Mirrored Cross-Chain

Mirrored cross-chain is a more interesting solution to cross-chain issues. It synthesizes smaller assets through the maximum asset mirroring, achieving a virtual cross-chain in economic terms. For example, Synthetix uses its digital asset SNX, over-collateralizing several times the value of SNX (the maximum asset) to synthesize smaller assets.

D. Light Node Cross-Chain

Delving deeper into the previous cross-chain ideas, we can find another cross-chain approach, which is entirely managed by code for data interaction without the need for any intermediaries. Of course, this is the ideal method. Theoretically, it can ultimately achieve block header cross-chain, transaction cross-chain, and ultimate consensus cross-chain, but it also means that the technical implementation is the most challenging, requiring more time and effort to develop.

3 True Cross-Chain

Although there are more than ten specific implementation methods for cross-chain in the market, and new terms related to cross-chain continue to emerge each year, if we return to the essence of the cross-chain issue and ponder what true cross-chain really is, we can gain clarity.

Recently, a senior blockchain technology expert discussed a more interesting description of cross-chain. He first defined consensus penetration, which refers to how two blockchains with different consensus can connect from the consensus layer, allowing the two chains to interconnect and ultimately achieve consensus cross-chain.

In summary, we believe that the basic function of cross-chain is to enable asset interaction between chains, followed by information interaction. Broadly speaking, cross-chain needs to solve the information transmission and interaction between chains under the same consensus. However, more fundamentally, cross-chain addresses the transactions between chains under different consensus, and the methods or technologies that can solve this problem are what we refer to as cross-chain.

Of course, this is just what we currently consider to be a relatively accurate definition of cross-chain, but as blockchain continues to evolve, it is not ruled out that more interesting descriptions may emerge.

Why does blockchain need cross-chain?

1 Breaking the Information Island Dilemma of Blockchain

USDT is currently the highest market value and most widely used stablecoin, a cryptocurrency based on the stable value of the US dollar (USD) launched by Tether. 1 USDT = 1 USD. Tether strictly adheres to a 1:1 reserve guarantee, meaning that for every USDT issued, there is 1 USD in its bank account.

USDT has also gone through several twists and turns to be issued on multiple blockchains, starting with the Omni protocol, then moving to the ERC20 version of USDT on Ethereum, and later to the TRC20 version of USDT on Tron, gradually developing into the third-largest cryptocurrency by market capitalization.

Since USDT is backed by corresponding US dollars, it can be issued in greater quantities as the amount of USD increases. However, it often encounters situations like this year when DeFi became popular, and many ERC20 USDTs on Ethereum were used in DeFi projects, leading to a shortage of ERC20 USDT. In such cases, if Tether needs to urgently issue more USDT, it is challenging to quickly raise a large amount of USD. Consequently, Tether has to transfer USDT from TRC20 to Ethereum to meet market demand. The method Tether employs is to destroy a portion of the TRC20 USDT and then issue the same amount of ERC20 USDT on Ethereum.

Later, some DeFi projects on Tron also emerged, leading to a shortage of TRC20 USDT, forcing Tether to frequently transfer USDT back and forth across multiple blockchains.

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

This highlights a significant pain point in the current blockchain landscape: data (i.e., information and assets) cannot be freely transferred between blockchains. No matter how well each blockchain ecosystem performs, it is akin to a well-developed city that cannot communicate with other cities, creating information islands.

Good blockchain applications certainly do not want to be limited to just one blockchain, as exemplified by USDT. Another approach is for projects like the Loopring protocol (LRC) to issue another name for its cryptocurrency LRN on the NEO chain, thereby expanding the use cases of the Loopring protocol on NEO.

Therefore, if there were a cross-chain technology that could facilitate data interaction between different blockchains, Tether and the Loopring protocol team would not have to go through the hassle of transferring assets across different chains. The original intention of Polkadot's design is to connect all blockchains together, enabling interoperability and ultimately forming an interconnected network composed of multiple blockchains. This perfectly meets the demand, allowing blockchain application projects that wish to operate across multiple blockchains to simply issue on Polkadot and extend their applications to all blockchains.

2 Providing Blockchain Performance

This year, with the rise of DeFi, Ethereum has once again proven to be the largest blockchain application platform in the blockchain field. During this DeFi boom, some longstanding issues in blockchain have resurfaced, making them hard to ignore.

Currently, over 90% of DeFi projects are on Ethereum, resulting in slower transfer speeds and skyrocketing transfer fees for Ethereum and ERC20 tokens. The average gas fee for Ethereum transactions has remained above 500 Gwei for a long time, peaking at 1000 Gwei, which has severely impacted projects and organizations outside the DeFi ecosystem.

Sean Papanikolas, founder of the NFT marketplace Cargo, has stated that the NFT industry is at a turning point. However, due to soaring gas prices and insufficient scalability of Ethereum, new participants in the industry are facing pressure. High gas fees have led some platforms to focus on Layer 2 scaling solutions, while others have turned their attention to other blockchains, completely moving away from Ethereum.

On the other hand, exchanges are also victims of this situation. High transfer fees have caused many exchanges to incur losses of several dollars or more each time users transfer Ethereum and ERC20 tokens. The largest cryptocurrency exchange in the US, Coinbase Pro, was overwhelmed and ultimately announced that users would have to bear the network transfer costs.

Improving performance and reducing transfer fees to scale blockchain has become an urgent necessity.

Currently, there are two main categories of scaling solutions: one is on-chain scaling, which involves modifying the rules of the blockchain, including block size, consensus mechanisms, etc. For example, there has been heated discussion in the cryptocurrency community about increasing Bitcoin's block size to improve transfer speeds. Another example is the design of Ethereum 2.0, which transitions the consensus mechanism from PoW to PoS and employs sharding technology to enhance efficiency.

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

The second category is off-chain scaling, commonly referred to as Layer 2 scaling. Layer 2 networks, as the name suggests, handle data from one blockchain on another network, processing it and then sending it back. This includes centralized solutions, such as Bitcoin's off-chain scaling solution—the Lightning Network, as well as decentralized solutions, like ChainX, which can facilitate cross-chain transactions for Bitcoin. The distinction lies in whether the second network is a blockchain and whether the intermediate process is completed through smart contracts.

As a well-known cross-chain project, Polkadot's architecture is inherently sharded, so there is no need to worry about Polkadot's performance issues. Additionally, Polkadot can connect to other parallel chains, which can spontaneously serve as a Layer 2 extension for certain chains to enhance their performance.

3 Increasing Blockchain Scalability

In the previous point, we mentioned that Polkadot's parallel chains can serve as Layer 2 networks for certain chains. If these chains possess attributes that the original blockchain does not have, they can add more functionality to the original chain. For instance, if we create a Layer 2 network with smart contract capabilities for Bitcoin on Polkadot, it would enable Bitcoin to also possess smart contract functionality.

4 Enriching the Blockchain Ecosystem

Older generations know that to become wealthy, one must first build roads. Development requires the circulation of resources with the outside world. No matter how well Beijing develops, it cannot compare to the overall economic benefits brought by connectivity after a long holiday. The same principle applies to blockchain. Taking this year's popular DeFi as an example, at Ethereum's peak, the total funds participating in DeFi across the network were only over 10 billion USD. If cross-chain methods could bring Bitcoin, valued in the hundreds of billions, into the DeFi ecosystem, the resulting liquidity would vastly differ in economic benefits. At that point, the development of DeFi could potentially far exceed the exuberance of the 2017 bull market and shake traditional finance.

5 Protecting the Privacy of Each Chain

First, let’s clarify that when we talk about cross-chain, it is not limited to connections between public chains; it can also involve cross-chain interactions between consortium chains and public chains, or between consortium chains themselves. In such a scenario, if data between consortium chain A and consortium chain B is not shared, cross-chain methods can connect them, allowing for interaction that only involves the necessary data. This protects the privacy of each chain while enabling interaction between them.

6 Further Refining Business Logic

In the future, each chain will have independent business logic, and multiple chains will come together, making understanding and analysis clearer. For example, there will be chains focused on DeFi, chains dedicated to gaming, chains with Bitcoin smart contracts, and Ethereum Layer 2 chains, etc. Therefore, cross-chain can also link chains with different business focuses.

How does Polkadot achieve cross-chain?

Polkadot claims to be the king of cross-chain, and it is one of the most complex and extensive designs currently available, as it aims to connect all blockchains. So what kind of structure does it have, and how does it achieve cross-chain?

1 Polkadot's Cross-Chain Structure

We previously introduced that Ethereum 2.0 uses homogeneous sharding, while Polkadot employs heterogeneous sharding. As shown in the diagram below, Polkadot's main structure consists of a main chain—the relay chain—connected to other shards—parallel chains.

To clearly understand Polkadot's structure, we need to grasp three important chains (relay chain, parallel chains, and bridge parallel chains) and four key roles.

The relay chain is responsible for handling the overall consensus and security of the network, while parallel chains are shards built on the Substrate framework that share the same consensus as the relay chain. Bridge parallel chains are necessary for connecting mature blockchains (like Bitcoin and Ethereum) that cannot directly connect to the relay chain due to differing underlying consensus. Instead, they achieve cross-chain functionality by deploying smart contracts on Polkadot's parallel chains and external blockchains.

The Polkadot network maintains four basic roles: collators (who help validators collect, verify, and submit candidate parallel chain blocks), nominators (similar to Bitcoin miners), validators (similar to Bitcoin mining pools, responsible for packaging network blocks), and fishermen (who prevent malicious behavior in the network and report on other roles).

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

Through these roles and Polkadot's cross-chain messaging protocol (XCMP), data can interact across different blockchains.

So, why should we pay attention to the secondary relay chain on the right side of the diagram? If a relay chain can only connect to a limited number of parallel chains and bridges, it can generate or connect to a secondary relay chain to further expand its connectivity. The secondary relay chain can also connect to new relay chains, and so on. Theoretically, Polkadot's structure has infinite scalability and can connect to all blockchains.

2 How does Polkadot achieve cross-chain?

Polkadot primarily uses the cross-chain messaging protocol (XCMP) to transmit messages. Below, we will explain the specific implementation process of cross-chain in a fun way.

Imagine a scenario where I want to exchange 1 asset from parallel chain A for 10 assets from parallel chain B. If we compare parallel chain A to the United States and parallel chain B to Japan, it would be like exchanging 10,000 USD for 1,000,000 JPY. The entire cross-chain process would unfold as follows:

I initiate a transfer of 10,000 USD from my bank in the United States to your account in the United States. The collator in the US notes that I am transferring 10,000 USD to your account and requests the bank in Japan to transfer me 1,000,000 JPY.

The US collator prepares to send this information along with the destination and time to Japan. This information will first be placed in the US output queue, and before transmission, it must be confirmed by the validators in the US. Once confirmed, the information will be transferred from the US output queue to the Japanese input queue via the relay chain.

When the validators in Japan receive this information, they will execute the request through the collator in Japan, transferring 1,000,000 JPY from your account to my account in Japan, thus completing the entire process.

This path is analogous to the blockchain network, where the US and Japan represent different blockchains. Through this method, we complete the connection between two information islands, and the entire process of Polkadot's cross-chain implementation is executed by the blockchain and smart contracts, achieving inter-chain communication in a decentralized manner.

How does Cosmos achieve cross-chain?

While Polkadot is currently the king in the cross-chain field, Cosmos is often compared as a strong competitor. Therefore, we need to briefly discuss the cross-chain structure of Cosmos from a similar perspective.

1 Cosmos's Cross-Chain Structure

Similarly, Cosmos also employs a relay chain approach for cross-chain interactions, but Cosmos aims to provide a standard protocol (IBC) that allows other blockchains to connect to this protocol for information exchange.

We can break down Cosmos's structure into Zones and Hubs. Zones are akin to parallel chains in Polkadot (similar to connecting to different blockchain networks), while Hubs correspond to the relay chain in Polkadot (responsible for monitoring the normal operation of other chains). Overall, the Hub manages independent blockchains referred to as "Zones" and tracks the status of each Zone.

The information transmission between them is handled by a protocol called "IBC" (Inter-Blockchain Communication), which is a unique encoding method in Cosmos. By using this encoding, it can be confirmed that it is part of the Cosmos ecosystem, allowing for secure information exchange.

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

Based on these underlying components and communication protocols, Cosmos has also developed a general framework called Cosmos SDK, aimed at creating a modular ecosystem that allows developers to easily create blockchains for specific applications without having to write every function from scratch, significantly reducing the time programmers spend on blockchain development.

2 How does Cosmos achieve cross-chain?

When discussing how Cosmos specifically completes cross-chain actions, we must return to its structural composition. Cosmos separates the blockchain into consensus layers (Tendermint core), network layers, and application layers (Cosmos SDK), providing developers with greater flexibility when developing various types of applications.

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

Thus, Cosmos's cross-chain method is essentially built on its own blockchain development framework, allowing other blockchains to develop within this framework and incorporate their own applications, such as BFT consensus algorithms or Cosmos SDK. This ideal state sounds intriguing, but there remains a significant gap to true cross-chain, so it continues to strive towards the "light node cross-chain" approach.

Differences Between Polkadot and Cosmos

To provide a more intuitive understanding of the differences between Polkadot and Cosmos, we have created the following diagram:

Is the cross-chain of Cosmos and Polkadot the same thing? Understanding cross-chain is enough with this article.

Postscript

Although we have learned about many cross-chain methods, we still advocate for the cross-chain model designed by Polkadot. Many cross-chain technologies often focus solely on addressing specific issues, allowing a particular chain to gain scalability, but this does not enable blockchain to truly become the so-called value internet and trusted internet.

To carry the title of value internet, it must be a vast network, not limited to a single blockchain. Current public or consortium chains are merely like local area networks. Only a design like Polkadot, which interconnects all blockchains and ultimately forms an interconnected network composed of numerous blockchains, meets this standard.

Of course, the solutions for cross-chain are not limited to what we see now, and it is possible that more innovative methods will emerge in the future. However, from the evolution of projects and the development of blockchain, cross-chain projects like Polkadot and Cosmos are worth understanding. As for which will become the future "king of cross-chain," in addition to technical factors, market and commercial implementation must also be considered, which is the more pressing issue for blockchain today. We will further explore high-quality projects within the Polkadot ecosystem in subsequent articles.

Special thanks: Thanks to the first Chinese community of Polkadot, PolkaWorld, for their support in content.

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