Centrifuge Chain — the Gateway for Real-World Assets to the Blockchain Multiverse
The efficiencies of building a single-purpose chain with a bridge to Ethereum
Why is Centrifuge building its own blockchain? Though we are built on and loving Ethereum, we have needs that just can’t be met with this architecture as it exists today.
In this post, we will go through the properties that matter most to us at Centrifuge, and outline how Ethereum’s positive qualities, such as its multi-purpose design, large ecosystem and community driven governance, also hinder its speed, cost and efficiency- and thus usability for Centrifuge. Centrifuge Chain is optimized specifically for the transactions required by the Centrifuge protocol. This achieves a much more efficient execution of these transactions and allows for targeted use-cases like privacy-preserving NFTs. We are building Centrifuge Chain to hold the shared truth of off-chain assets with an initial bridge to Ethereum, and are looking forward to a future of many, connected blockchains.
What Matters Most to Centrifuge?
The Centrifuge mission is to change the rules of global trade to foster economic opportunity everywhere. Global B2B spend (a.k.a. sent invoices) amounts to roughly $180 Trillion [1]. With payment terms at an average of 60 days [2, 3], businesses need financing to bridge the gap. Existing solutions today, such as factoring and reverse factoring, only address a small portion of that need. This is why we built Centrifuge OS — to allow businesses to exchange business documents (such as invoices) and tokenize those assets to have greater access to financing — thereby unlocking value that has previously been inaccessible.
How Does Centrifuge Work Today?
A company, such as Paper Records, uses the Centrifuge P2P Network to sign and send an invoice to Spotify. Spotify verifies receipt of the document and its correctness with its signature and sends an updated, signed version of the document back to Paper Records. Ethereum is used for the node identities, allowing Paper Records to look up Spotify and for Spotify to verify Paper Records. Paper Records is then able to anchor the document hash with both signatures onto Ethereum. Using these elements Paper Records can now mint an NFT on Ethereum that represents the unpaid invoice — and use this NFT as collateral to access financing. Third parties, from traditional lenders to DeFi lending pools, can verify the value of the NFT against the on-chain anchors and identities, as well as get access granted to the off-chain document whose authenticity can be verified against the on-chain anchor as well.
Though we are built on and love Ethereum, we have investigated and started building our own chain in order to achieve efficiencies and new possibilities over our architecture as it exists today.
Ethereum is a World Computer
Though there are many positive qualities to building on Ethereum, these same attributes also form the motivation for us to build our own chain as a solution.
Multi-Purpose
Ethereum is designed to serve many different purposes and types of use cases. It is built to be a core blockchain that prioritizes security. This has the benefit of enabling many different types of applications to be built on Ethereum. However, this multi-purpose design means that many types of operations are slow and costly. This creates long wait times for our transactions, which can be especially long and expensive depending on the current gas price. In the case of Centrifuge — our anchor transactions on Ethereum end up costing around 0.1EUR and the cost to mint an NFT costs roughly 1.7EUR (and that is at low gas prices!).
The Uncertain Road to Eth2.0
Another important quality of Ethereum is its high security guarantees. Due to the perceived high value of the Ethereum Network, it is attractive to mine ether, giving Ethereum a high hash rate. The higher the hash rate, the higher the cost of an attack on a Proof-of-Work chain. However, this approach to block production is inefficient and results in a deadweight loss; creating unnecessarily high security costs. Though Ethereum plans to release Ethereum 2.0, which is intended to lower transaction costs and increase throughput while maintaining high security guarantees — this transition will be a long process with an uncertain timeline.
Large Ecosystem & Community Driven Governance
Ethereum has a large and valuable ecosystem of developers, Dapps, hackathons, and global communities. However, governance for such a diverse group can be complicated. Features such as privacy, though important, are not a high priority to the larger community. As a result, Ethereum support for zk-SNARKs is limited and inefficient. Privacy is an important feature for Centrifuge users — and is therefore a priority for Centrifuge. Though support may be added to Ethereum in the future, it is not something that we can rely on.
Ethereum works well for low volumes of high value transactions. High volumes of privacy-requiring use-cases require a different solution. The average business user, SMBs and large enterprises alike, would be paying many times more using Centrifuge on Ethereum compared to their existing solutions. It wouldn’t be worth it for most businesses to make a switch. But what if we could lower that cost and have high throughput capabilities?
Cent Chain Efficiencies
We are building Centrifuge Chain to support our specific use case. Centrifuge Chain is the gateway for all off-chain assets to the Blockchain universe. This focus allows us to improve upon our current architecture in a few key ways:
Speed: The transactions on the Centrifuge Chain are optimized for the small subset of operations needed by our specific use case. This allows for faster execution of logic and finality of transactions.
Cost: The optimization of transactions, together with our PoS architecture, is also what brings down the transaction costs dramatically.
Storage: We all know storage needs to be addressed — and because we are building our own chain, we can target a solution from the beginning so that it will be more efficient and minimized. Centrifuge Chain also implements a state rent model that requires users to pay for continuous availability of their data over long periods of time. This encourages decentralization because less resources are required to run a node.
User / Developer Experience: Building our own chain allows us to improve upon the user and developer experience for Centrifuge. Our users require privacy, and this is something we can build for directly — targeting the features they need from the start. For developers, we can provide custom APIs and tools that come with the blockchain node itself instead of smart contract APIs which are harder to integrate with.
Centrifuge Chain is optimized specifically for the transactions required by the protocol. This achieves a much more efficient execution of these transactions and allows for targeted use-cases. While there are downsides to building a single purpose chain, the advantages for our use case outweigh the costs. Integration with other Ethereum and DeFi projects becomes a bit more involved. Our experience with Ethereum development, combined with a standardized bridge to get data to/from our Parity Substrate based chain reduces the overhead substantially, while still benefiting from the upside of our own chain.
Centrifuge Chain — Built on Substrate, Ready for the Blockchain Multiverse
We are building Centrifuge Chain on Parity Substrate. This set of libraries, modules, and technologies allows us to reuse other’s blockchain-building-blocks and focus on the Centrifuge specific chain logic. We can trust existing modules for basic features like the consensus algorithm or proof-of-stake handling. At the same time we are able to develop a standardized bridge to Ethereum that can be reused by other projects, which in turn increases interoperability. Substrate will allow us to easily tap into the Polkadot ecosystem at a future point in time as well as re-using IBC modules to connect with other blockchains that support the standard.
We envision a larger ecosystem of many, connected blockchains- where Dapps on Ethereum could use data from other chains, value could move freely, and Centrifuge Chain can enable off-chain assets to access financing through DeFi projects like Maker or Compound. Centrifuge Chain will help us realize our vision to unlock value for businesses that has previously been inaccessible.
Join Centrifuge Chain as a Validator!
We recently launched our first public test network, called “Flint” and are now opening up the network for interested validators. If you are interested in becoming a validator on Centrifuge Chain, reach out to us via chain@centrifuge.io.
Learn more about Centrifuge
Thanks to Maya Byskov Gadegård and Philip Stehlik
