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Be Part of the Gang: How the IBC Creates a New Template for 3rd-Gen Blockchains

The Inter-Blockchain Communication Protocol (or IBC) is a way to connect the discrete blockchains of the Web3 economy in order to create a more interoperable, interconnected environment in which data-value can transact without boundaries or borders. Kickstarted by the Cosmos Network, it offers a way for application-specific blockchains to do what they do best — innovate — while being free to tap into the burgeoning network effect this next generation of interconnected blockchains is continuing to build.

Blockchain empowers innovation, but that innovation can get ‘trapped’ on the blockchain substrate it was built on. Liquidity — so important to power up new projects — is siloed away and can’t flow freely. Even more importantly, dApp utility built on a specific blockchain can take advantage of the network effect, and user experience isn’t fragmented. The IBC solves this fundamental problem — and here’s how.

Why the IBC is So Important

Much of the promise in the blockchain lies in its ability to more efficiently allocate capital to where it is needed. If capital can’t get to where it wants to go, it stifles innovation and starts to fracture the ‘open finance’ ideal. That ideal states that developers can continuously create new, better products and take advantage of the network effect and available liquidity that blockchains create.

There’s more. Blockchains that are built for one specific purpose can perform that purpose expertly, rather than trying to encompass all possibilities. However, if unconnected to the larger ecosystem (and its broad user base), then the benefits of that application-specific blockchain are near-obsolete as the user can’t entwine that utility or use case with other blockchain experiences.

The IBC will allow blockchains to be created with specific purposes in mind and then be seamlessly and safely connected to the rest of the ecosystem, breaking down the walled gardens that were a hallmark of Web 2.0 and realise the vision of a fully interoperable, open-source future that isn’t reliant on third party bridges.

Galaxy Mechanics — How the IBC Works

Blockchains, almost by design, don’t talk to each other very well. To maintain network security, transactions have to be validated in a decentralised fashion using a consensus mechanism.

This is why the blockchain is inviolable, because actions on the blockchain are guaranteed by its consensus, and the transactions are known to be legitimate and trustworthy. Simply allowing transactions from a different network to pass through without being authenticated breaches the new network’s sanctity.

This is the problem the IBC seeks to solve. It does it by proscribing a set of standards that must be adhered to by blockchains seeking to connect. This is called the inter-chain standard (ICS). Once adhered to, it allows for permissionless transfer of tokens cross-chain whilst ensuring blockchains maintain their own sovereignty. Sovereignty is important, as it lets blockchains make their own rules.

Sunny Aggarwal, former leader researcher at Tendermint, states that IBC allows ‘economic integration without political integration’. It’s like having an agreed set of rules for parcel delivery between houses — with standardised boxes, instructions and rules on shipment — but blockchains can choose in the box, i.e, what you’re sending.

For Onomy’s vision of a DEX that allows for complete on-chain trading of all assets using CEX features, this integration to the Cosmosverse — alongside our custom bridges to Ethereum, Near, Avalanche, Polygon, Harmony and many others — is crucial to create the one-stop hub that crypto traders crave.

Technical Implementations & Joining the #IBCGang

IBC architecture consists of two layers. The IBC/TAO layer, responsible for transport, authentication and ordering, and the upper application players built on top, the IBC/APP layer.

The TAO module is the crucial part. It stands for transport, authentication, and ordering — transport for the physical data, authentication for validating, and ordering to ensure data arrives in the order it is sent.

Once functional, different APP layers can be implemented on top of it. These APP layers interact with the TAO module — which is uniform across blockchains that use it. Blockchains’ TAO modules can then interact with each other via Relayers, through which they send ‘packets’ of data.

The TAO module has channels for each smart contract that runs on a sovereign chain. If a packet comes through a channel, the destination chain knows it comes from one specific smart contract. The IBC/TAO modules exist as smart contracts on each blockchain, and they verify that the states exist on a connected blockchain without relying on a third party.

Each TAO module consists of an on-chain light client, a connection abstraction and a channel abstraction. Details on how these smart contracts function can be found here.

When working, these contracts can initiate a ‘connection handshake’, in which blockchains can authenticate the validity of one another through a series of transactions. Once done, data-value sent between chains can begin.

Blockchains that wish to be IBC enabled must also have the following features:

  • Key-Value Store
  • Consensus State Introspection
  • Timestamp Access
  • Port System
  • Exception/rollback system
  • Data Availability

More information about this can be found on the IBC website’s documentation. Cosmos, Ignite (previously Tendermint) and the IBC have worked tirelessly to provide developer’s the resources they need to create IBC-enabled chains, with the result being hundreds of projects are now in development using the Cosmos SDK and using Tendermint consensus.

Onomy Protocol is, of course, one of those chains. We chose to build on Cosmos because of the secure, integrative, shared, yet sovereign environment that our layer-1 blockchain can use to provide a complete hub for all trading needs. Once we join the #IBCGang, users will be able to seamlessly trade assets from other Cosmos chains, while Onomy-native assets like the NOM coin and Denom stablecoins will find utility through the broader Cosmos ecosystem thanks to the IBC.

The IBC, Cosmos, and the Future Galaxy of Chains

The IBC does not require ATOM tokens to use. It positions itself as an agnostic, general purpose standard that all blockchains can, if they choose, use. It’s not just for token transfers, smart contracts can send all types of data between blockchains connected to the IBC.

Currently, 28 blockchains are connected to the IBC, and — in February ’22 alone, 11.2 million transfers were recorded on the IBC. In April ’22 — five years from the date of the first Cosmos fundraiser, $150 million in IBC transfers occurred in a 24 hour period. In short, it’s working, and Ignite CEO Peng Zhong is a strong believer in its future uptake, suggesting that over 200 chains will be connected to the IBC by the end of 2022.

Even though the IBC is agnostic, holders of $ATOM will benefit from the value accrual that comes with the expansion of the ecosystem, as IBC enable chains will automatically benefit from — and provide innovation to — the Cosmos ecosystem. Onomy is proud to be one of those chains, and our hybrid DEX and stablecoins will help fuel the so-far spectacular growth of the most technologically-advanced ecosystem in Web3.

About Onomy

Onomy Protocol is a layer-1 Cosmos chain powering a multi-chain & intuitive DEX that combines AMM liquidity pools with an order book UI facilitating market, limit, and stop orders, alongside FX markets via its stablecoin minting system, and cross-chain asset storage through Onomy’s non-custodial DeFi access wallet.

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Onomy Protocol

Onomy Protocol

Offering the infrastructure necessary to converge traditional finance with decentralized finance.