In the year The genesis of Bitcoin in 2009 is perhaps one of the most famous technological events in history. The first real use case for immutable, transparent and uncomplicated ledgers – i.e. blockchain – formed the cornerstone for the development of crypto and other blockchain-based industries.
Today, ten years later, these industries are thriving. The total crypto market capitalization will reach a peak of $3 trillion in November 2021. There are already more than 300 million Crypto users around the world, but predictions suggest the number will surpass 1 billion by December 2022. Although this trip was amazing. It’s just begun.
Several factors have contributed to the success of the blockchain and cryptocurrency industry thus far. But above all, it is due to certain fundamental characteristics of technology: decentralization, lack of trust and data security, to name a few. Leading blockchain networks like Bitcoin are very robust thanks to their Proof of Work (PoW) consensus mechanism. Globally distributed miners secure these networks by providing “hashing” or computational power. Similarly, with the Proof-of-Stake (PoS) protocol that Ethereum plans to soon adopt, validators secure the network by locking or “staking” digital assets.
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However, the number of miners or validators is very important in PoW and PoS, respectively – more miners or validators means more security. Therefore, only the largest, most established blockchains can benefit from conventional consensus mechanisms. On the other hand, emerging blockchains lack the resources to fully secure their networks despite their innovative potential.
Strengthening interchain security frameworks is one way to address this pressing issue. Additionally, with innovations like liquid staking, larger PoS blockchains will help secure emerging ones, ultimately facilitating a safer and more stable industry as a whole.
Interchain security issues for blockchains big and small
One might ask why the big blockchains would consider sharing validators with the smaller ones. After all, isn’t it about meritocratic competition? Of course, it is, but that doesn’t necessarily mean discounting the role of communication or cross-chain mechanisms. Additionally, if emerging but innovative blockchains thrive, it will benefit them and the industry as a whole. And this is key to mass adoption of blockchain technology, which is the ultimate goal regardless of competition.
PoS blockchains are generally more vulnerable to a variety of attacks than their PoW-based counterparts. As Billy Rennekamp of the Interchain Foundation succinctly points out, “If someone controls one-third of the network, they can perform censorship attacks, and if they control two-thirds of the network, they control governance and transmit malicious proposals. Improving or draining the community pool using a spending proposal.
Having said that, over 80 blockchains already use PoS, including Ethereum in the near future. This is mainly due to the high energy consumption and environmental impact of POW chains. But while this change is welcome, without strong measures it could lead to an industry-wide security crisis. If that happens, the industry will lose investor confidence, and everyone will suffer, including large chains with well-established PoS networks. Therefore, enhancing interchain security is a win-win approach and indeed the need of the hour.
Fluid retention improves interchain safety
So much for the rationale behind interchain security. Thanks to the Cosmos Hub, it is, in fact, already in action. However, the journey is very far. Interchain security can be taken to the next level with innovations like liquid staking.
For the uninitiated, Liquid Stack unlocks the liquidity of assets stored (locked) in PoS blockchains or other holding pools. This is important, because otherwise, the stored liquid will not be used. Users cannot use their stake in decentralized finance (DeFi) assets, which limits them from getting good returns. By offering token derivatives of these stock assets, liquid stocks allow individuals to reap the benefits of stocks and fiat simultaneously. This will enable more resources in addition to increasing production.
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For some people, these benefits are more money-minded, because they look at the more critical aspect. A mechanism that allows liquid stacking protocols to free locked values increases interchain security. Simply put, this works by allowing validators on established PoS blockchains like Cosmos – or the supplier chain – to verify transactions on smaller “consumer” chains. Validators do not become fraudulent in the process because it means losing the assets they have stored on the supply chain.
However, the more specific importance of liquid storage expands the scope of interchain security. Liquid assets can represent the value of assets stored on any producer chain, which can be used to share verifiers with virtually any consumer chain. In other words, liquid sorting, currently only possible in space, could become widely accessible.
Tushar Aggarwal He is a Forbes 30 Under 30 recipient and founder and CEO of Endurance, a bleeding-edge financial applications ecosystem focused on liquid style.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.