Crypto Narratives: The Interchain
When thinking of the interchain narrative, there are two blockchain projects that immediately spring to mind: Cosmos and Polkadot. The interchain narrative works on the premise that all blockchains will connect together and interact with one another eventually. Cosmos operates using the IBC protocol (“the internet of blockchains”). Polkadot operates on what it calls a parachain model. Moonbeam is the most prominent example of a successful parachain on Polkadot with multiple examples being available on Cosmos (e.g. Osmosis; Injective; Neutron; DYDX; Akash; Sei and Celestia etc.). Moonbeam is EVM compatible and connects well with Metamask. Cosmos blockchains tend to connect to wallets like Keplr and Leap. For the purposes of this article, I will discuss this from the perspective of Cosmos.
Richard Burton compares the interchain idea — what Cosmos calls IBC — to companies having their own intranets in the early 90s, and by the late 90s all being connected together through the internet. In Web 2.0, web office suite software such as Google Suite is probably the end game for this analogy. The offline editing of documents in the Microsoft Office suite is largely redundant if organizations are subscribed to Google Suite because all company departments are connected directly through the internet. This increases the potential for collaboration via things such as shared documents. At the moment, most blockchains outside of Cosmos, Polkadot and the EVM (Ethereum Virtual Machine) largely rely on bridges to communicate and these are highly vulnerable to hacks (Github list of major bridge hacks).
A future where blockchains can communicate with one another seamlessly and securely is highly desirable. A decentralized internet of financial networks has high potential. Companies would be able to host their own immutable blockchains where transparency is a part of daily operations. In the case of Cosmos, the role of the Cosmos Hub (represented in the market as the Atom token) is to provide security for all blockchains that fall under its remit. Using the IBC (Inter-Blockchain Communication) Protocol, all blockchains under the Cosmos Hub are able to communicate seamlessly with one another. A clear example of this functionality is present on the Osmosis DEx where it is extremely easy to transfer assets across blockchains.
Decentralization is at the core of this model. Each blockchain is able to maintain sovereignty and function both independently for its own purposes and as part of the greater whole. Most blockchains in this system tend to function on a DAO governance model. This provides the user with the ability to transparently vote on chain via governance mechanisms. The benefit of this style of decentralized governance is that the users of the blockchain can influence decisions that are made about its future. Degen Flanders provides a good overview of the drawbacks of this style of governance. The criticisms laid out in that article are thus: (1) that DAOs can give ‘unrepresentative voting power’ to whales; (2) that ‘autonomous’ decisions sometimes require centralized intervention from the programmers behind the protocol; and (3) that voting processes can be subject to smart contract fallibilities. All of these are real concerns and are something that those participating in decentralized finance protocols will want to pay attention to.
A common maxim in the crypto space is that the future is multichain. Following patterns in the growth of the internet, this is a logical narrative to buy into. I recently listened to an episode of Unchained a podcast by Laura Shin. Her guest Olaf Carlson-Wee discussed the need for developing a strong crypto thesis. He alludes to buying into narratives that support this thesis. His outlook remained exponentially positive for the development of the space. Another maxim that comes to mind is to invest in the market rather than to invest into one corner of it. An interchain future is at the heart of creating full market exposure to new investors in the space. Whether an interchain future is lead by Cosmos, Polkadot, a future incarnation of the EVM or another emerging player in the market, it is a narrative to pay attention to. An interchain contains many parts, many potential future seeds of financial success to grow into budding market participants. In contrast to narratives such as Bitcoin maximalism, the interchain narrative is one of growth.
What is certain is that the cryptocurrency and decentralized finance spaces are set to grow exponentially. By the end of the expected bull run in 2025, the current crypto landscape will have changed somewhat. Previous big players may have fallen. New players in the market will have arrived. While he did not allude to the interchain narrative explicitly, Carlson-Wee also mentioned that the financial world seems to be shifting away from the governance of the nation state towards that of the internet. This was an extremely interesting assertion and one that may play out in the years to come.
Overall, the interchain narrative is one of intertwined optimism and potential. It is a narrative that drives a significant portion of my market investments. In crypto circles, it is often pitted as Cosmos Vs Polkadot. In the short term, perhaps this is true. However, in the long term, it is a mindset that can help the investor travel along with the likely destination of the market. In 20–30 years time once the Baby Boomer generation has passed on and venture capitalist funds are in the hands of younger generations, crypto will be more developed and mainstream than it currently is. Part of the excitement of investing in crypto markets is the Wild West feel of potentially being able to strike gold. Ultimately though, it is important that we familiarize ourselves with the likely structure of the market in the future and plan accordingly.
Disclaimer: this is NOT financial advice. I’m a cow and I like to eat cereal. Any knowledge gained from this post is merely incidental and you are responsible for your own financial decisions. Make investments wisely and make sure to do your own research.
