Simplifying the Omisego Whitepaper
Here we’ll quickly breakdown what omisego is and the system’s consensus protocol, potential vulnerabilities, and projected future state — all straight from the whitepaper in a way we call can understand!
Here’s my annotated version of the white paper with notes for your reference!
What is Omisego?
OmiseGO is building a decentralized exchange, liquidity provider mechanism, clearinghouse messaging network, and asset-backed blockchain gateway. Essentially, Omisego is challenging the entire financial exchange and payment gateway markets by developing a scalable peer-to-peer exchange system that allows decentralized exchange of other blockchains and between multiple blockchains directly without a trusted gateway token. OmiseGo willl act as a P2P, decentralized exchange blockchain that ports into other blockchains to allow for inoperable trading.
Traditionally, there have been significant e↵orts in engineering around payment systems which are compatible across payment networks and financial institutions. These are usually constructed by creating a clearinghouse which manages the interchange, usually via a messaging network with either a central counterparty clearinghouse or nos- tro/vostro accounts. Examples include FedWire, CHIPS, SWIFT, consumer card payment networks, NSCC/DTCC, OCC, and ACH. These networks service di↵erent roles and func- tions, including local/national payments, international payments, credit, equities/asset ex- change, and derivatives. These centralized networks allow for the controlling entity to arbitrarily change the mechanisms, which result in significant amount of transaction costs via information costs, due diligence, and contractual enforcement between all parties.
Omisego Consensus Protocol
- Proof of Stake Blockchain — Owning OMG tokens buys the right to validate this blockchain, within its consensus rules.
- How to support P2P decentralized exchange across blockchains — By bonding Ethereum into a smart contract  (or Bitcoin-like tokens into bonded clearinghouses), it is possible to lock up Ether onto the activity of the OMG chain to allow for eWallet pairs to occur over Ether or other cryptocurrencies, creating a liquid market
- Uses off-chain methodologies to support scalability AND decentralization
- The OMG chain validates the activity of the behavior of all participants (including activity on other chains). In other words, the role of the OMG token is providing computation and enforcement.
- The decentralized exchange will initially use a batch-auction construction where every round exchange matching occurs.
- OMG requires fullnode validation of the public Ethereum blockchain for maximum e ciency and security
- OMG token must have value, to prevent low-cost attacks and is necessary to enforce this network.
- EPPs are responsible for holding balances of other EPPs they wish to support for fast transactions (they may charge a higher spread) — this could lead to EPP systems with multiple points of failure (rather a central point of failure) if the EPP system is not secure enough
- OMG chain validation dependent on bandwidth of Ethereum chain
Potential Future State and Application Stack
- Third parties may also in the future develop decentralized wallets which can hold EPP (eWallet payment providers) balances on-chain.
- Development of cross-chain oracles to enable cross-chain clearinghouses. Clearinghouses are used to ensure that payments occur on the Bitcoin blockchain. Clearinghouses are necessary as it’s not currently possible for complex enforcement of contract state in Bitcoin. These clearinghouses are responsible for disclosing activity on the Bitcoin (or Bitcoin-like) chain by generating preimages and hashes.