As always, this article is made for educational purposes. This does not constitute financial advice nor trading advice. Past performance does not indicate future results.
Do not invest more than you can afford to lose. This is not financial advice; always do you own research :)
There are more coins than ever.
Every day, a new shitcoin is being minted on Binance Smart Chain. More and more projects are creating ERC-20 tokens on Ethereum — as a form of governance or utility for their protocol.
The world of only Bitcoin and Ethereum ruling the entire industry is now a myth.
It’s easier than ever to build a token — with companies like Coinbase building tools to easily build and launch tokens.
So what’s going to happen in this world of more and more coins?
The easiest conclusion we can make is that there’s going to be a need for more and more tools to easiest deploy more crypto coins and tokens.
This is the “mainframe era” of blockchains. While there are no doubt early network effects due to composability — pooled security, userbase, data, and running code — this comes with diminishing marginal returns as adoption pushes against the throughput limitations of the mainframe.
This is where large, monolithic platforms like Ethereum exist — a network in which every transaction and every bit of data is processed in the same proverbial highway.
Networks like Solana, BSC, and Cardano have created their own security models, their own consensus models, tokenomics, etc.
It’s a “build from scratch” kind of approach — like the early computer days of mainframes.
Jesse argues that we are quickly entering the “server era” of blockchain:
This means that even “server era” blockchains are still composable, but on a different dimension than “mainframe era” blockchains. Rather than running a single virtual machine, these blockchain computers require new standards for communicating with one another in order to enable composition across applications. — Jesse Warden, VC
Here, blockchains are built with application-specific use cases, leveraging a set of shared standards and services in order to more easily create blockchains and tokens.
No longer does a coin have to build its own consensus and security — it can leverage existing infrastructure like in that of the Polkadot network to more easily build a blockchain that’s made for a specific purpose: like payments, NFTs, gaming, etc.
In this new server era, we’re going to see blockchains fit into different roles and work synergistically with one another.
For example, Solana is another Layer 1 — long thought to be a competitor of Ethereum’s — with faster transactions and cheaper gas fees.
However, I would argue that Solana complements Ethereum perfectly — being the “GPU to Ethereum’s CPU”.
When thinking about a multi-coin world, it stands within reason to think that interoperability protocols will have an important part in communicating between different crypto protocols — like Ethereum and Binance Smart Chain and Solana and others.
Let’s double click on this.
Comparing Polkadot and Cosmos
Polkadot and Cosmos are the leading interoperability protocols in the space currently. Polkadot was co-created by Dr. Gavin Wood, a co-creator of Ethereum alongside Vitalik Buterin.
Cosmos is created by the Tendermint team as another way of communicating across different blockchains.
While both technologies’ end goals are similar, they have very different implementations that I’d like to double click on.
Polkadot has a main chain called the Relay Chain — with child chain offshoots like parachains. Parachains have their own operations, but they always re-connect back to the Relay Chain for overall governance, security, statefulness, etc.
Cosmos has a ‘hub and zone’ model. Each zone is a spoke connected to a hub — which is a central connector chain between zones. Hubs can be connected with other hubs, and this interconnected network is the Cosmos network. Each zone is self-sovereign and only connects back to hubs for inter-blockchain communication (IBC) and governance.
Polkadot is not live on mainnet (i.e., real money) yet. They have a ‘testnet’ network called Kusama, and plenty of developer support and a vibrant community of dapps being built — arguably having a better community than that of Cosmos.
Polkadot leverages the shared security of the Relay Chain — thus, parachains are able to use the robust pooled security of the overall Polkadot network vs. bootstrapping security and consensus from scratch.
Cosmos zones have individual security that they each individually security. There is no shared security, even in the event of a linking through a hub.
Because of shared consensus of parachains to the Relay Chain, Polkadot doesn’t have a lot of customization of the parameters of the blockchain compared to Cosmos.
In contrast, Cosmos has a lot of blockchains that form their own consensus, parameters, and can even form private networks without communicating with the rest of the network.
Polkadot hosts an auction to be a parachain, meaning that projects have to pay to become a parachain on the network.
In Cosmos, anyone can build a hub or a zone — for free.
Polka uses a consensus mechanism called GRANDPA, in which the Relay Chain decides on the state of the whole ecosystem. Since GRANDPA just validates based on the highest block, this consensus can — in theory — scale to >1000 validators.
Again, it’s not live and hasn’t been tested in prod yet.
Cosmos has the Tendermint consensus, in which each zone quickly talks to one another for one-block finality. This consensus may potentially cause overload for validators and may not scale past 200 validators.
Polkadot has a strict voting process based on stake-weighted voting of the native coin DOT.
In Cosmos, each zone/hub has their own governance. They stake ATOM, the native coin, in order to participate in Cosmos, one of the major hubs in the network (but again, participate in the Cosmos hub is purely optional in Cosmos).
This is where Polkadot shines. Arbitrary message passing between parachains. is supported through this protocol. This means that Parachain A can call a smart contract inside Parachain B; cross-chain composability is strong. However, this may overload validators though to keep track of all the parachain states.
Cosmos has Inter Blockchain Communication (IBC), which is good for token transfers across zones through the hub. Just token transfers, not true composability.
Polkadot has its Substrate SDK: a WebAssembly (WASM) compiler for any language to build protocols and apps on Polkadot. Substrate also has more modules out-of-the-box than Cosmos.
The Cosmos SDK is Go-based.