From Bitcoin to Ethereum
The Bitcoin technology breakthrough was due to the following:
- Proof of Work to make it really expensive to change an old block deep in the blockchain, since it would require redoing the proof of work of all the following blocks (since the hash of each block in the block-chain would be different) faster than the miners of the main chain
- Decentralized consensus: the longest chain (with the most work) is the valid one
- Public/private key cryptography: any attempt to tamper with a transaction would change the hash function and it would be detected and invalid
- Decentralization: many nodes around the world and miners participating and storing the history of the blockchain without a central entity (initially, now a few mining farms control most of the bitcoin hashrate)
Summary: you can send transactions online without worrying that these bitcoins are going to be stolen, copied, etc. As long as you are in possession of the private key in cold storage and the hashrate is high enough, you can be sure your bitcoins won’t be stolen and you can easily send bitcoins to other private keys.
Please note: a private key is associated with a bitcoin balance according to the blockchain history of that specific private key, there are no “bitcoins” inside a ledger nano for example.
During this time, starting a new blockchain from 0 was very hard and time consuming so the norm was forking (copying) the bitcoin code. Also, the hashrate increased a lot making mining bitcoin not environmentally friendly.
Then came Ethereum, what did Ethereum bring?:
- Still Proof of Work, no much difference here (it is moving soon to Proof of Stake)
- Still same consensus, the chain with the most work
- Similar concepts in public/private key cryptography
- Similar ideas in decentralization
- NEW: ability to write smart contracts, which was a limitation of bitcoin
This led to the wave of ICOs and ERC20 tokens. However, the limitations were and are this:
- Lack of scalability and interoperability
- Need for traditional App users to buy an ERC20 tokens and also ETH tokens before being able to use any dApp
- Lack of programming languages beyond Solidity
- No formal verification of the smart contracts code, leading to hacks like the DAO
- Slow and inefficient governance
Tendermint, Facebook’s HotStuff/Libra and Proof of Stake
Tendermint was developed in 2014 by Jae Kwon and this consensus algorithm has been used by Hyperledger Fabric of IBM and others. Cosmos hub and Binance chain use Tendermint consensus and the Libra project of Facebook uses a modified Tendermint version called HotStuff.
Initial attempts of Proof of Stake to mitigate the energy waste of the Bitcoin Proof of Work didn’t work because they were naive implementations of Proof of Stake suffering from the Nothing at Stake issue or from long range attacks for example. Advanced versions of Proof of Stake (with bonding, slashing, etc.) combined with Tendermint or similar consensus algorithms are very powerful and they are used in the Cosmos ecosystem, the Facebook Libra project and soon also Polkadot (project led by the Ethereum CTO and co-founder Gavin Wood).
Interoperability, hubs, zones and validators
There are private and public blockchains. Each of them isolated. Thanks to the combination of Tendermint and similar consensus algorithms, and inter-blockchain communication standards, corporations and banks will be able to connect their different private blockchains and also they will be able to interact with public blockchains.
It will be possible for example to take bitcoin, get pegged bitcoin in Cosmos hub, send these bitcoins to the Ethereum blockchain (also connected to the Cosmos hub) and use a dApp with your original bitcoins.
Hubs will be like routers connecting many zones (blockchains). And instead of traditional miners, in advanced Proof of Stake the token holders are the “miners” and instead of mining pools there are validators.
New zones, like the Libra project of Facebook or Binance chain will need high quality validators in their blockchains because otherwise it would be centralized if Facebook or Binance run all the validators in their respective blockchains. Therefore there will be large demand for high quality validators to validate blockchains like Facebook Libra, Binance chain, Polkadot relay chain, Cosmos hub, and so on.
The internet of blockchains
The first blockchain with Tendermint consensus and advanced Bonded Proof of Stake with a decentralized set of 100 validators was the Cosmos hub. Shortly after being launched it reached the top 20 position in Coinmarketcap (CMC) and was listed in Kraken, Binance and other top exchanges for free.
The next step will be the inter-blockchain communication standards (IBC) that will allow many zones (blockchains) to connect to the Cosmos hub (and to other zones) and exchange tokens. Exchanges will also offer validation services including Coinbase, Kraken and others as they have already announced. Custodians will also start offering staking and validation services.
Polkadot will launch the mainnet towards the end of the year 2019, as well as other hubs and zones within both the Cosmos and Polkadot ecosystems. They will all connect together exchanging not only tokens but also allowing cross blockchain smart contract triggering. Bitcoin, Ethereum and other blockchains will also be connected via peg zones and this will be the beginning of the Internet of Blockchains.
Also, the coming introduction of WASM will open the door to many software developers not limited by Solidity for example and formal verification will ensure that there are no errors in the code. Furthermore, SDKs like the Cosmos SDK or Substrate for Polkadot will accelerate the innovation.