Introduction
In terms of its purpose and functionality, it is inevitable that, when speaking of Cosmos Network, comparisons will be made with Polkadot. Both are two large and successful projects that seek to obtain interoperability between blockchains. However, their vision differs in many aspects, making it even more difficult to try to find out which of them will prevail as the future internet of blockchains, or if both will coexist and interact with each other, in a future of interconnected blockchains.
This report will analyze what their differences and similarities are, and what advantages and disadvantages they have between them, to try to answer the previous question.
Note: this report complements the information provided in our article Cosmos: the future internet of blockchains ?, which describes all the fundamentals about the technology and the Cosmos Network ecosystem. To understand other basic and fundamental concepts about blockchain technology, the reader can refer to our free article on Fundamentals of Blockchain Technology.
The Relay Chain / Parachain system
Polkadot, like Cosmos, is a network of blockchains that seeks to solve the scalability problem that centering the world's economy on a single blockchain that tries to encompass all possible applications would present. Like Cosmos, its solution is to connect different different blockchains, with different operations (transaction processing, rules, capacities, etc.) between them, providing an inter-blockchain communication protocol.
To achieve this, however, Polkadot's architecture differs substantially from that of Cosmos. Polkadot, in contrast to the Hubs and Zones system, has a sharding design, that is, the Polkadot network is made up of different shards: independent blockchains with different characteristics, called Parachains. All of them are connected to a main blockchain, called the Relay Chain.
The main key of this design is to divide the computational work that the nodes of a single blockchain would have, trying to process, validate and endow the blocks of each and every one of the shards at the same time. In the Polkadot network, the Parachains benefit from being connected to the Relay Chain in three ways:
All of them share the security provided by the set of validators of the Relay Chain.
Its transaction blocks obtain finality thanks to the finality mechanism present in the Relay Chain.
By sharing security, all Parachains can send messages to each other safely, through the Relay Chain.
The system works as follows: the nodes of the Parachains are called Collators. These are in charge of processing transactions within their respective blockchains, and creating block proposals, which they send to the Relay Chain. Randomly, each Parachain is assigned by rounds a subset of Validators, validator nodes of the main blockchain. These are in charge of validating the block proposals, and adding them to the Relay Chain blockchain. Once a block has been added, it is considered finished.
This implies a division of labor between Collators and Validators, which provides enormous scalability to the network. As the Collators are in charge of controlling and processing the state of their own Parachain, the Validators only have to be in charge of verifying that the transactions proposed by the Collators are correct, without having to monitor the state of the Parachain. In return, Collators don't have to worry about finalizing their blocks, as Validators do it for them.
Comparison with the architecture of Cosmos
This system shows great advantages with respect to the current architecture of Cosmos, since there, the validators of each Zone or Hub must be in charge of the processing, verification, and endorsement of their blocks. However, this feature comes at a price: with only one Relay Chain that is responsible for processing and finalizing all the blocks, its resources are limited. This implies that the Relay Chain accepts a limited number of Parachains connected to it. It's estimated to be about 100. In that regard, the Hubs and Zones system, combined with the promise of horizontal scalability, provides infinitely greater long-term scalability.
It must be taken into account that, thanks to Interchain Security, Cosmos will implement in the near future the ability to secure different blockchains through ATOM, allowing the Cosmos Hub to adopt a behavior similar to that of the Relay Chain in terms of its security.
Polkadot Global Security
Due to this difference in architectures, the way in which security is guaranteed in Parachains differs substantially from the Cosmos mechanism.
In order to validate blocks of different Parachains from the Relay Chain efficiently and safely, preventing a group of validators from focusing on corrupting a certain Parachain, a constant rotation is carried out, through a process called BABE, Blind Assignment for Blockchain Extension, of Validators assigned to each Parachain, that is, the blocks sent by the Parachains are validated by a different set of Validators each time. The decisions made by them are also checked by other sets of validators, which end up taking care of taking the blocks from the Parachains and including them in the Relay Chain. In addition, there is a group of agents called Fishermen, who are in charge of looking for and punishing malicious behavior in Validators, being rewarded with part of the staking of corrupt Validators, if they present cryptographic evidence of their Byzantine behavior. Because yes, the consensus mechanism, like Tendermint BFT, is based on staking. In this case, the cryptocurrency that is blocked to be part of the validation system is the DOT.
Having a certain amount of DOT in staking as Validator affects the process of validation and completion of blocks. To begin with, BABE is based on choosing groups of Validators for each Parachain in different rounds through the use of VRF (Verifiable Random Functions) and on the DOT weight in staking of each Validator. The completion of the blockchains formed by the validators is done using the GRANDPA protocol (GHOST-based-Recursive ANcestor Deriving Prefix Agreement). It considers the voting decisions of the different Validators on which blocks make up the blockchain that they consider to be canonical (must be finalized). Blocks with more than 2/3 of the votes will be finalized by GRANDPA.
Global security vs local security
This system shows a different perspective than that offered in Cosmos. There, the security of each Zone or Hub is local, that is, each of these blockchains has its own validation system, and its own set of validators to finalize its blocks. On the other hand, Polkadot offers global security: although each Parachain has its own Collators, which are the validators that have the first word when creating a new block, for it to be finalized, it must go through the Validators of the Relay Chain . In this way, all Parachains share most of the security mechanism in Polkadot.
These differences can be an advantage or disadvantage when deciding where to create a blockchain project. In Cosmos there is more flexibility and control when defining how the sovereignty and governance of the Zone or Hub will be, as they are not constrained by global norms such as those imposed by the Relay Chain when finalizing its blocks. However, it is much more expensive to guarantee that the blockchain will be secure, since you have to obtain a set of validators that is relevant and reliable enough to finalize the transactions. On the other hand, in Polkadot security will always be guaranteed, since the final word is held by the Validators of the Relay Chain. This obviously leaves less control over the sovereignty of the Parachain.
In Polkadot's favor, this global security system makes sending inter-chain transactions more secure and direct, since the different blockchains can trust each other. Instead, IBC is a more complicated process that requires mutual trust between Connected Zones and their Hub.
Regarding governance, something similar happens: in Polkadot it is also global, and is determined by the Relay Chain validators who have blocked DOT for it. In Cosmos, in contrast, each blockchain has its own set of validators that take care of its governance.
Polkadot Inter-Chain Communication
In Polkadot, communication between Parachains is carried out using the XCM (Cross-Consensus Message format), which allows them to exchange any type of message, be it the transfer of tokens, or the payment of transactions. This format encompasses a large number of general cases, and is carried out by running a program on the XCVM (Cross-Consensus Virtual Machine).
Currently, in order to communicate the Parachains with each other, it is necessary for the message to pass, through the action of the Collators of the sending Parachain, to the Relay Chain, and from there it is picked up by the receiving Parachain. This is only a temporary solution, as the fact that all messages on the Polkadot network go through the Relay Chain can cause scalability problems.
To solve this, work is being done on the protocol called XCMP (Cross-Chain Message Passing). With this protocol, the messages between Parachains will not go through the Relay Chain, solving the problem. However, the changes in the state of the Parachains produced by the emission of the message will be supervised by the Validators of the Relay Chain, and must be registered in a block of this for the transaction to be finalized.
To solve the compatibility between token exchange between Parachains, Polkadot will offer the possibility of deploying SPREE (Shared Protected Runtime Execution Enclaves) modules in the Relay Chain. These are responsible for receiving and sending cross-chain messages of specific tokens, serving as intermediaries for Parachains that want to exchange them, but have difficulties due to having different characteristics and rules.
IBC vs XCM / XCMP
If this is compared with the Cosmos IBC protocol, conclusions similar to the previous section emerge: it will be safer to send inter-chain messages in Polkadot, although their completion will depend exclusively on the restrictions proposed by the Relay Chain. In contrast, in Cosmos, the success of an inter-chain message depends on the Hub to which the two zones that want to communicate are connected. It will be less secure in general, but once there are several Hubs to connect to, the restrictions will be more varied, and sending messages will be much easier.
Cosmos SDK vs Substrate
Both Cosmos and Polkadot have their SDK development environment to facilitate the design of specific and customizable blockchains. Both environments have many similarities, in terms of their modularity and the numerous tools they offer to define different aspects of blockchains, such as their consensus mechanisms or the Virtual Machine for the execution of Smart Contracts. In both, it is not necessary for the built blockchain to be part of Cosmos or Polkadot (as is the case with ChainLink, built with Substrate). However, Cosmos SDK, due to the nature of the project on which these modules are based, offers more flexibility when developing an independently sovereign blockchain, that is, with full control over its consensus and validators.
However, Substrate has numerous advantages over the Cosmos SDK that must be considered:
Through WebAssembly, it allows the blockchain logic to be built in any programming language, which offers much more flexibility than the current version of the Cosmos SDK, which only accepts Go.
It allows improvements to be made on the on-chain code, that is, it is not necessary to restart the network (hard-forks) each time an improvement is implemented, which weakens the network. In this way, making improvements on the blockchain is much simpler and less risky than in the case of Cosmos.
Finally, building with Substrate is a tool to build a blockchain totally independent of any system. However, it has a function by which, following a simple and fast process, the blockchain can be allowed to connect to Polkadot as Parachain, if a gap has been gained.
It allows building blockchains with consensus mechanisms other than PoS, such as PoW or PoA (Proof of Authority). Cosmos SDK currently only allows you to create PoS or PoA blockchains, as it is a requirement to be able to use the IBC protocol.
ATOM vs DOT
The cryptocurrencies of Cosmos (ATOM) and Polkadot (DOT) have similar functions within these two projects: both have staking as their main use to form part of the security and consensus of the blockchain network. In the case of Cosmos, ATOM holders are part of the Cosmos Hub consensus, while DOT holders are part of the Relay Chain consensus.
In both cases, if a user blocks ATOM or DOT, either by delegating them to certain validators, or by being a validator himself, the security of the Cosmos Hub and the Relay Chain is promoted, and allows the user to participate in the governance of these. Also, the user gets different rewards for it. To begin with, both ATOM and DOT are increasing their supply over time, distributing equitably (to promote decentralization) the new cryptocurrencies among users who participate in staking. In this way, you are encouraged to participate in staking, because, if not, even if you are an ATOM or DOT holder, they will fade over time. They also receive, as a reward, the fees of the transactions that have been validated, in the form of the different tokens that have been used to carry out the transaction between the different blockchains. DOT also has another crucial utility. Because the Relay Chain can only host a limited number of Parachains, for a blockchain to secure its position as Parachain, it must do so by blocking DOT, participating in an auction to become part of Polkadot, which will be described in the next section .
This exclusivity of Polkadot generates a greater need and demand for the cryptocurrency, which is reflected in its market data, obtained in CoinMarketCap:
For now, it is clear that Polkadot is ahead of Cosmos in the rankings, with substantial differences between the values of its Market Caps, and its Fully-diluted Market Caps. Also, there has been less demand for ATOM so far, as can be seen from the number of coins currently in circulation.
Polkadot's current prominence may be due to several reasons. To begin with, the utility of DOT, until recently, was superior to that of ATOM, since with DOT you not only participate in the governance and sovereignty of all Polkadot, earning rewards, but it is also necessary to guarantee a position like Parachain. On the other hand, until now, owning ATOM only allows you to participate in the sovereignty and governance of the Cosmos Hub (you do not even participate in the areas connected to it). This means substantially less rewards for ATOM staking users and therefore less demand for it.
But note that soon Cosmos will implement different functionalities to the Cosmos Hub, adding immense added value to ATOM, as discussed in our Cosmos report, which will undoubtedly be reflected in its position in the rankings.
Parachains auctions
In order for a blockchain project to access all the benefits of being a Parachain, it must earn its place in the Relay Chain. This is achieved through auctions: DOT holders who wish to link their project to Polkadot, must compete with other blockchains by betting DOT. The winning project will be a Parachain for a period of up to two years, during which the DOT used to win the auction is blocked and returned after the end of the period.
Polkadot auctions are one of the most innovative aspects of the project, leveraging the exclusivity of the Polkadot network to place immense value on DOT, and keep the community on the lookout. As different blockchains will enter and leave the system, it will be in constant evolution. In addition, only innovative projects that add value to the Polkadot ecosystem will be allowed to keep their position. If a blockchain becomes technologically stagnant, or does not scale enough, it can be eliminated from the project by the governance of the Relay Chain, giving way to a better blockchain.
Auctions work as follows:
The periods during which you can have a hole to be a Parachain last 3 months. There are a total of 8 periods for which you can bet on an auction for a gap, causing the blockchain to be Parachain for a maximum of 2 years.
The auctions last 1 week, and the different participating projects block DOT during that period to bet on it, and they must choose how many 30-day periods they wish to occupy if they win the position, specifying in which period they begin and in which they end.
Actually, the auction is of the candle auction type: although it lasts 7 days, only the first two guarantee that the bets placed on them will be considered. During the next 5, although bets can be made, a screenshot will be made at a random moment of the auction status by means of a VRF. That capture will determine the auction winners.
Which projects are the winners are decided in such a way that the amount of DOT wagered is maximized in each period of the two years, in such a way that the maximum of periods are occupied with the maximum DOT wagered in each one of them, without the Winning projects overlap in periods.
It is planned that there will be about 100 Parachains connected at a time in Polkadot, but initially 30 positions will be raffled.
In Polkadot there is a way, in addition, to involve the community in the auctions, and they are the so-called Crowdloans: modules in which any DOT holder can contribute it to be used in an auction for a project that wishes to participate in this way. It is up to the project to decide what incentives and rewards to provide to its benefactors if it succeeds in earning a position like Parachain.
Current state of Polkadot
Since its founding by Gavin Wood, one of the co-founders of Ethereum, member of the Web3 Foundation and the inventor of the Solidity programming language in 2016, and its ICO in which 5 million DOT were sold raising a fund of 145 M $ in two weeks, the project has followed the following evolution:
Launching the Relay Chain
In March 2020 the Relay Chain was launched. It went through different phases:
An initial phase where you had a PoA system.
An upgrade to the PoS system.
Enabling the governance system, to involve the community in decision-making.
Currently the Relay Chain is already fully functional. Compared to the Cosmos Hub:
Both the number of validators and the activity and blocktime are higher than those of the Cosmos Hub, as can be expected from a blockchain destined to be the central axis of an entire ecosystem of 100 Parachains.
Kusama
In 2019 Kusama was launched, a testing network that basically contains all of the raw Polkadot code. Its purpose is to serve as a test Polkadot so that projects wanting to be a part of Polkadot can test how their idea works in a realistic setting.
Kusama is governed by its own native token, KSM, and has its own governance system and set of validators. This implies that Kusama is totally unrelated to Polkadot, and his community has full control over how the network will evolve. In addition, it does so more quickly, as its governance cycles are drastically shorter.
Another incentive to use Kusama is that the entry barrier for projects is lower, since transaction costs are lower, as are the amounts required to participate in staking. This obviously implies that it is much less secure than Polkadot.
The auctions in Kusama are currently being tested, and some have already taken place. The last scheduled, the eleventh to date, will end on October 13, 2021. For now, there are 11 blockchains on the Kusama network, whose duration periods on the network will vary from 6 weeks to 1 year. If these test Parachains are working properly, the next step will be auctions on the Polkadot mainnet.
As for the KSM, today it has a market cap of approximately $ 2B, showing great demand, as there are currently about 8/9 M KSM in motion. This is due to the enormous activity that happens within the network, and its interaction with the 11 functioning parachains that it has.
DOT and KSM price evolution
Both Polkadot and Kusama have seen their greatest evolution this year, influenced by the appearance of new projects, and the introduction of auctions in both Kusama and Polkadot.
Evolution of the price in USD of DOT throughout its history, obtained in CoinMarketCap on 11/07/2021
KSM price evolution in USD throughout its history, obtained on CoinMarketCap on 11/07/2021
As can be seen, Kusama did not fully recover after the bans in China, probably due to the end of its 11-auction period on October 13, 2021. However, Polkadot is currently at record highs, due to the impending Start of the first Parachain auction on its mainnet on November 11. The 11 auctions will last until March 10, 2022.
It is inevitable to observe the enormous influence of Parachain auctions on the demand and price of DOT. The added utility of auctions and Crowdloans is undoubtedly one of the key aspects in Polkadot's success as a platform.
Relevant Polkadot projects
Polkadot has a promising future, and today it has 173 potential Substrate-built projects to become part of its core network as Parachains. Some of the most notable are:
Moonbeam
It is a project that seeks to replicate the Ethereum environment as Polkadot's Parachain PoS. All Ethereum tools and all Smart Contract interactions will be available on Moonbeam, and it will be possible to interact with the environment in the same way as with Ethereum, only in a cheaper and more efficient way thanks to the benefits of the PoS consensus.
The great advantage is that it will allow Ethereum users to benefit from the shared security and transaction purposes offered by the Relay Chain, as well as the possibility of interacting with its entire ecosystem.
Currently, Moonriver, Kusama's version of Moonbeam, has won the second Kusama auction, which is why it is currently a Parachain of this network, for a period that will last two years thanks to its Crowdloan campaign.
Network blanket
It is a blockchain similar to Secret Network in Cosmos. Through the use of zk-SNARKs technology, it is a blockchain project that seeks to transform itself into a DeFi inter-chain platform with data privacy, in which tokens can be deposited in exchange for their encrypted version, to be used in finance. He also owns his position at Kusama, with his side project Calamari Network.
Phala Network
Phala is a project that, like Manta, focuses on privacy. In this case, it solves a different layer of the problem: by using nodes combined with TEE, similar to Secret Network, it aims to allow creation and interaction with dApps by implementing data privacy. It also owns its Kusama testnet, Khala Network.
Astar Network (Plasm Network)
It is a multi-chain project that seeks to create a connection between Polkadot and different external blockchains, and allow interaction between them through dApps, exchange of NFTs and decentralized finance. This project would mean a future connection between Ethereum, and the Cosmos ecosystem, with Polkadot. Currently, Astar Network owns its version as an active Kusama Parachain, Shiden Network.
Acala Network
It is a blockchain that aims to be a liquidity hub for Polkadot, and a decentralized finance network compatible with Ethereum. The project will allow Polkadot users to access the Liquid Staking functionality, the Acala aUSD stablecoin, and the creation of all kinds of Smart Contracts and cross-chain dApps based on Ethereum, and benefited by the advantages offered by Substrate.
Acala Network also has its twin version, Karura, in Kusama.
Conclusion
Taking into account what is exposed in this report, both Cosmos Network and Polkadot have proven to be sufficiently innovative and distinguishable from other blockchain projects to gain relevance in the competitive market. Its objectives, advantages and weaknesses can be easily observed by comparing it with its most direct competitor, Polkadot:
It is very likely that, taking into account that the visions of these two projects differ enough between them, without entering too much conflict, and considering news as a future connection between them thanks to Astar Network, both projects end up coexisting in a future of blockchains interconnected, in which they guarantee numerous ways for their Zones or Parachains to provide shared security or their own sovereignty and governance.
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