The Internet of Blockchains

A hybrid blockchain was proposed as an attempt to develop an ideal network, taking the best from each blockchain type. We have already examined the most common types of blockchains: public, private, and permissioned. Each of them has its upsides and downsides. If you want to refresh your memory, or read our article for the first time, you can find it here.

Let’s focus today on how hybrid networks work. To this end, we will discuss Web 3.0, the Polkadot project, and a couple of alternatives, such as Hedera, Ethereum, and TON.

Web 3.0 and Web3 Foundation

The Web 3.0 concept is based on the principle of decentralization and has been proposed by Jason Calanacis, a head of Netscape.com. The first solutions have already come to market and include decentralized browsers Parity, Status.IM, Mist, Metamask, Brave, messengers e-Chat, ySign, Tox, and the EOS operating system.

Gavin Wood, a cofounder of Ethereum, has offered his own vision for the internet. Jointly with Web3 Foundation and Parity Technologies, they ran a Polkadot ICO in 2017. All Polkadot solutions are governed by Swiss Web3 Foundation, whose mission is to provide reliable infrastructure for decentralized web protocols.

How does the Web3 ecosystem look like?

一 The serverless internet (a decentralized network);

— Users can manage their personal data and financial accounts;

— Cryptoeconomic and cryptographic tools ensure the reliability of P2P networks.

The Polkadot Project

The Polkadot project brings together private and public blockchains in a single Web3 ecosystem. The project mission is to transform the current internet structure into Web3. Ideally Polkadot should provide the internet in which independent blockchains could exchange information and transactions. The project makes us one step closer to the digital decentralized world of the future.

In its essence Polkadot is an architecture for exchanging and translating information between different blockchain systems: public, private, and permissioned. Transactions can be performed simultaneously and distributed between blockchains.

The Polkadot ecosystem has three main components:

● A Relay Chain which ensures secure message-passing between separate chains and coordinates consensus.

● Parachains, or parallelizable blockchains, which perform transactions and transfer them to the source blockchain.

● Bridges which connect the network to external blockchains with their own consensus, like Ethereum.

Members of the ecosystem:

● Collators who maintain parachains by collecting transactions from users. Collators provide proofs for validators, using Proof-of-Validity. They get commission fees from performed transactions and, in fact, act like miners.

● Validators who verify information in parachains and validate proofs from collators. Validators participate in the consensus mechanism and add new blocks to the Relay Chain, after which the blocks are transferred to all parachains, finalizing the transaction.

● Nominators who secure the Relay Chain by selecting reliable validators.

● Fisherman who track transaction on Polkadot and reveal illegal actions among validators, if there are any.

Key tasks that Polkadot addresses:

● Interoperability: the project will provide an opportunity for blockchains of different types to perform transactions and exchange data.

● Scalability: Polkadot supports several parachains, each processing multiple transactions in parallel, which makes the network infinitely scalable.

● Security: Polkadot operates under a “shared security” model allowing to perform transaction between blockchains without the need of obtaining trust. In other words, Polkadot has a public component bringing together all derivative parachains. All this contributes to security, since a public network is much harder to hack.

Web3 Foundation was conceived as a consortium analogous to W3C (World Wide Web Consortium). Web3 Foundation develops a communication protocol that, in consortium’s own words, has to become a de facto standard for Web 3.0. This distinguishes Polkadot from, say, Ethereum 2.0 or Telegram Open Network, both of which are focused on end products. Polkadot developers believe that the network has the potential to fulfill the dream about Web 3.0, a decentralized internet, and build a new digital economy.

What are the benefits of using Polkadot for businesses? The network will allow businesses to develop their own blockchains tailored to the needs and tasks of a specific industry. The solution can be applied to healthcare, insurance, logistics, transportation, and other areas.

Polkadot will ensure communication between private and public blockchains, guarantee their compatibility and shared security.

How it Works

How does Polkadot operate? It has the Relay Chain connecting validators — nodes with high computing power. They do not store data, only process it. At the second level are parachains, or parallelizable networks, which have business logic and data related to a specific business case. A parachain may be restricted, with its participants deciding on the rules of accepting new nodes and participants, as well as updating smart contracts.

Since a parachain depends on the consensus inside the Relay Chain, that is, a large public network, all internal data will be available to validators. How does that work? Let’s assume that a parachain is in state S. A transaction is performed, say, token transfer. While processing a smart contract, the current state S translates to a new state using a state transition function — a special function for changing parachain states. Details of the transaction are transferred for approval to Relay Chain validators. Depending on validators’ decisions, a block is either added to the system or not.

The security problem of transferring data to a validator still remains. At the present stage, hybrid networks are a matter to be resolved in the future. However, there are multiple innovations in data encryption, such as a zero-knowledge proof or homomorphic encryption.

Alternative Solutions

Hedera Hashgraph is a distributed ledger which synchronizes data using a consensus algorithm. However, the platform is not a blockchain. At the moment Hedera Hashgraph is a work in progress. Its functionality will allow to develop decentralized apps and support smart contracts. The key difference between Hashgraph and DLT is high bandwidth of the former, which is capable of processing dozens of thousands of transactions per second. This means that it can be used in systems that require high performance and data protection (e.g., public sales or online video games).

Telegram Open Network (TON) is a blockchain platform by Pavel Durov’s team. The platform is protected with an in-built proxy mechanism and anonymizer. When finished, the platform will offer message-passing, the Gram crypto currency, and many other services.

Developed for Telegram users’ convenience, the platform will ensure high speed of transactions akin to Visa or Mastercard. The blockchain achieves consensus through the Proof-of-Stake algorithm, delivering high security of transactions.TON’s architecture is based on a main blockchain and 292 additional networks. The blockchain will utilize sharding, which allows to speed up block generation and transaction speed.

TON’s architecture is similar to that of Polkadot and contains the following elements:

一 A basic public network with data on the protocol, hash, and validators.

一 “Working” (production) blockchains which execute smart contracts.

That kind of architecture can best be described as a standard design of a new generation of blockchains.

Hybrid Networks and Businesses

At the present stage, it is too early to discuss the possibilities of integrating hybrid networks in business processes, for the number of reliable solutions is insufficient. Established patterns of work do not imply full business decentralization. However, the technology may spread fast, displacing outdated mechanisms and giving way to peer-to-peer economy.