The Road to a Multichain Future

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Hey DEFI TIMES community,

The world of DeFi is mainly Ethereum based. Although other chains are catching up and experience rapid development, Ethereum has the widest variety of DApps, protocols, and developers to show.

Ethereum has the first-mover advantage - it exists since 2015. After six years of building, trial and error, hacks, attacks, failures, and successes, builders on Ethereum seem to have found the killer app: DeFi.

On Ethereum, developers try to build financial services without middlemen: Goodbye banks.

If Ethereum had been scalable initially, the story would end here; however, Ethereum is very costly at the moment, which opened the doors for dozens of "competing chains."

Simultaneously to the rapid developments on Ethereum, these chains develop their own ecosystems and network effects - They are gaining momentum!

Today, it has become clear that these "Ethereum competitors" are not competing but complement it. Different blockchain technologies are suitable for different use cases.

By now, it's pretty obvious that all those different chains will merge together in the future. Cosmos and Polkadot are two examples promoting the "interoperability" of all chains. Interoperability essentially makes it possible to transfer information from one chain to another.

Most experts agree that an interoperable future is the most likely - Many chains will co-exist!

But how does this future look like! What do we need to accomplish for this scenario to play out?

Let's explore the road to a multichain future!


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The Road to a Multichain Future

The Early Beginnings

The idea of a multichain future began in the very early days when Bitcoin was still young. Because Bitcoin's code is open-source, people had no trouble copying the code, change a few parameters, and run a slightly different network.

These early Bitcoin forks had no immediate value to the crypto space but would later turn out to be the thought leaders of interoperability. The idea that multiple chains would exist entered the world, and we would never get rid of it again!

Litecoin was a very early Bitcoin fork that survived until this day. It was launched in 2011 along with several other Bitcoin forks. Here's a list of all the different chains that existed in April 2014:

Since that time, people kept forking Bitcoin, making adjustments to the source code, and creating different versions of the initial Bitcoin vision. Bitcoin wouldn't be the only blockchain thriving!

It was only in 2015 that Vitalik Buterin and several others decided to take this vision to the next level. In July of that year, "Frontier," the first version of Ethereum, was released. Ethereum's initial concept was to build a general-purpose blockchain, where developers could build anything they wanted to. Bitcoin's programming possibilities were minimal; Ethereum's were not!

From that point, anyone could build any application and even deploy other tokens on top of it. By deploying a token, you basically create another "coin" without making its own consensus mechanism. Tokens leverage Ethereum's security. The simplicity of creating a token lead to thousands of new cryptocurrencies evolving overnight. The ICO mania happened in 2017. 

The "Bitcoin-maximalist" narrative was slowly coming to an end.

In 2017, we finally had multiple chains with different use cases. "Ethereum competitors" emerged, claiming to be a better and faster version of Ethereum! Thousands of different cryptocurrencies were listed on Coinmarketcap. The ecosystem was thriving!

But the idea of a multichain future hadn't quite hit the mainstream yet - It was yet to be formed.

Cosmos as a Thought Leader

The origins of interoperability began in 2016 when Jae Kwon created the whitepaper for a project called Gnuclear. Gnuclear's vision was to create a blockchain that would ultimately connect all other existing blockchains - a bold plan at that time!

In August 2016, this project was renamed "Cosmos," which we know today. In January 2017, Jae Kwon ran a private token sale to finance the efforts. With this token sale, the Cosmos team collected $16 million - the road to true interoperability had begun!

Several bugs, problems, and fixes later, the Cosmos network launched in April 2019 - amid the cold bear winter! 

Cosmos' vision became clearer: It would become a network of several different blockchains that would ultimately connect all other existing blockchains. Ethereum users would be able to transfer information to Cosmos and vise versa. That was revolutionary because it wiped out the idea of chain maximalism. When everything's interoperable, why do we only need one chain? It didn't make sense anymore.

Cosmos has two main components: The Hub and the zones.

The Hub is responsible for the consensus; it's the ledger that maintains the history of Cosmos! The zones are blockchains that connect with the Hub. While the Hub is responsible for their security, zones are somewhat independent.

Zones use the Inter Blockchain Communication Protocol (IBC) to exchange information with each other. Those zones cannot only communicate with each other; they can also communicate with blockchains outside of the Cosmos network, e.g., Ethereum or Cardano.

Cosmos' vision is no other than connecting every single blockchain in the world!

The Internet of Blockchains

"The Internet of Blockchains" was born - the most powerful narrative that has ever existed. New blockchains, like Cosmos, could finally leverage the liquidity and network effects of larger chains like Ethereum. 

Slower and less scalable chains, like Ethereum, could leverage the scalability of other chains to grow.

Interoperability is a win-win narrative: If my chain grows, your chains don't have to shrink! That's not possible in a non-interoperable world. Without interoperability, network effects determine the ultimate winner! Why would you build on anything other than the biggest chain? 

In an interoperable world, you don't ask this question. You just build wherever you like because it doesn't matter. You can build on Cosmos without having to sacrifice Ethereum's network effect.

Of course, this vision is yet to be achieved.

But Cosmos was the first blockchain to bring this narrative to life. 

However, we have missed one crucial part, which pushes the narrative of interoperability further: Polkadot.

Polkadot and the Parachains

Gavin Wood, one of the Ethereum co-founders, decided to leave the Ethereum foundation pretty early on. While researching the possibility that Ethereum would transition to a sharded blockchain, he saw many hurdles in the process. That's why he decided to leave the Ethereum foundation and build his own sharded network: Polkadot!

Polkadot did its ICO in October 2017 and collected a whopping 485,331 ETH, which would be worth $1 billion today! They secured funding, hired programmers, and were ready to build the web3 - the interoperable future of open finance!

Just like Cosmos, Polkadot is a network of several sovereign blockchains, which are all connected by the Realy Chain.

The Realy Chain is very similar to Cosmos' Hub - responsible for consensus and security. The sovereign blockchains connected to the Realy Chain are called "Parachains." These Parachains can be individually modified. So, their parameters can change!

Those Parachains can connect to all other chains to exchange information with Ethereum, Cardano, Binance Chain, and all other base chains. The goal is, just as Cosmos, to create the internet of blockchains: A future where everything melts together.

The Salad Bowl of Blockchains

The vision is to connect all blockchains so that end-users don't even have to think about which blockchain they currently transact on. For non-technical people, it shouldn't matter whether they are on Ethereum, Polkadot, or Cosmos! The user experience should be so smooth and straightforward that such technical details would be a matter of the past!

That's where the future is heading!

The goal is to create a salad bowl of blockchains! The "salad bowl" is a cultural idea that one single society can include many different people from many different backgrounds without giving up their individual backgrounds!

In the salad bowl model, different cultures are brought together—like salad ingredients—but do not form together into a single homogeneous culture; each culture keeps its own distinct qualities. This idea proposes a society of many individual cultures since the latter suggests that ethnic groups may be unable to preserve their heritage.

That's what Polkadot and Cosmos are building in the crypto space. The idea of interoperability is very similar to the cultural ideal of the "salad bowl."

We merge all kinds of blockchains together; however, they don't merge in a homogenous way. They merge together in a heterogeneous way. Each blockchain keeps its initial parameters but becomes a part of the big picture.

Blockchains of all kinds will form a single ledger! But what types of blockchains are we talking about?

Embrace Diversity of Blockchains

There are plenty of different ledgers in the crypto ecosystem. Let's explore the Ethereum-focused world first:

Ethereum has massive scaling problems, which is why many scaling solutions evolved separately from the Ethereum main chain: Layer-two-solutions and sidechains.

Layer-two-chains process all the computation apart from Ethereum but store the final end result of any transaction on the blockchain itself. So they leverage the speed of off-chain calculation without sacrificing security!

Ethereum sidechains, on the other hand, have their own consensus mechanism; however, they are still closely connected to Ethereum because they build bridges, making it easy to transfer information from Ethereum to the sidechain and back. A good example is xDai. xDai is basically its own blockchain, but they don't brand themselves as an "Ethereum killer." They work closely together with Ethereum and try to capture some of its activity - with the ultimate goal of making Ethereum less congested.

So, the Ethereum ecosystem basically consists of several different chains connected to one another. In the future, Ethereum users won't even notice on which chain they currently transfer funds.

The Ethereum multichain story is far from over because we have missed one crucial update that isn't fully live yet: ETH 2.0. After Ethereum switches to Proof-of-Stake, Ethereum will become a sharded blockchain, which means that the Ethereum main chain will split into 60 different shards that are - you might have guessed it! - interoperable with one another and with all other sidechains and layer-two solutions!

In the end, the Ethereum world will consist of hundreds of different layers - all merging together without any problems.

Luckily, Ethreum will not be the only place where people transact on! Other blockchains are catching up - fast!

Polkadot and Cosmos are just a few examples of how the future will look like. Both Cosmos and Polkadot support a variety of different blockchains. These blockchains (Zones or Parachains) can communicate with all other existing blockchains like Bitcoin, Ethereum, and Cardano - anything you can think about!

Conclusion

In the end, it will all come together: Ethereum, sidechains, layer-two-solutions, other base-chains like Polkadot or Cosmos. Transferring information from one chain to another will be seamless and easy!

The future of money will feel like magic - there will be several different settlement layers, but end-users won't even know where they transact on, and they won't have to! It just doesn't matter to them!

This is the future we are building: a heterogeneous, interoperable, and fast network of blockchains that fulfill different needs. Switching from Ethereum to Polkadot will require little brainwork.

Interoperability is the last piece of the puzzle. Of course, we are still far away from this exact future. But once we solved the interoperability problem, nothing can stop crypto from mass adoption!


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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.

Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.