If you believe that it’ll be a multi-chain world (which isn’t a controversial opinion nowadays), you need to care about interoperability (blockchains communicating and interacting with each other).
Today, let’s recap an approach that dates as far back as 2016, when the Cosmos white paper was released and IBC as an idea was introduced.
What’s Cosmos and what’s IBC?
Cosmos: when you think of Layer 1 blockchains, you probably think of one monolithic blockchain. Cosmos is not that. Cosmos is a network of many independent blockchains, think of a “multi hub and spokes” model where separate blockchains are spokes and the “router” blockchains are hubs
Why? Cosmos would argue instead of trying to make one monolithic blockchain work for every use case, why not have a specifically optimized blockchain for each use case, but benefit from the underlying security and interoperability of a greater network?
IBC (Inter-Blockchain Communication): is the protocol that lays out how these sovereign blockchains can interact and transfer data. The protocol was launched in April 2021
How does IBC work?
Let’s say we have two independent blockchains within the Cosmos ecosystem, chains A and B. Chain A and B have their own tokens, governance, etc.
IBC notably separates out two layers: the base layer handles transportation, authentication, and ordering which is separate from an app layer that would be built on top of the base layer (example app layer: swapping assets across chains)
In order to communicate, an IBC module would sit on chain A and chain B. In order to communicate, chain A needs to know what chain B’s state is and verify that, the component within the IBC module that does this is called the light client.
As part of the IBC modules, there are also functions for example to set up connections and channels to send and receive data between chains. Channels represent connected smart contracts that live on separate chains, they are established through a handshake similar to the TCP handshake protocol. So if one doesn’t already exist, a channel would need to be initialized between chains A and B.
The IBC protocol provides important guarantees such as what chains A and B say is the state of their ledger is actually the state, that data is delivered exactly-once, and that data is delivered in the order it was sent (if on an ordered channel), and that data is delivered to the right module
After a channel is established, a relayer (think of a mail carrier) actually creates the datagrams that are transferred between chains A and B. Relayers are off-chain but can be run by anyone that's trusted by the community.
The easiest app to envision being built on top of IBC includes transferring tokens between chains, however, the protocol is actually even more powerful than that since it allows for arbitrary data to be transferred, so let your imagination run wild about what interoperability can truly enable.
midjourney: the cosmos
Neither GC nor any of its advisory clients, including all GC-managed investment vehicles, holds any form of ownership or financial interest in the cryptocurrency or digital asset described in this post. GC has not performed any due diligence, research, analysis, or evaluation of the potential merits, if any, of this cryptocurrency or digital asset project and GC cannot verify any claims made by any promoter or supporter of the cryptocurrency or digital asset described. Nothing in this post should be seen as, nor is it intended to be, a recommendation or suggestion to invest in, purchase, sell, hold, trade, or participate in this or any cryptocurrency or digital asset project. GC in no way endorses or encourages anyone to circumvent or violate any applicable laws, rules, and regulations, including any applicable Anti-Money Laundering/Know-Your-Customer (AML/KYC) and related banking and financial regulations. (See Disclaimer below for further details.)
Disclaimer
Views expressed in “posts” (including podcasts, videos, newsletters, and social media) are those of the individual GC personnel quoted therein and are not the views of General Catalyst Group Management, LLC, “GC”) or its respective affiliates. GC is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell — or a solicitation of an offer to buy — any securities, cryptocurrencies, or any financial instrument or property, and may not be used or relied upon in evaluating the merits of any investment.
The contents in here — and available on any associated distribution platforms and any public GC online social media accounts, platforms, and sites (collectively, “content distribution outlets”) — should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects, or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts or figures provided here or on GC content distribution outlets are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in the content has been obtained from third-party sources. While taken from sources believed to be reliable, GC has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, posts may include third-party advertisements or links to websites not associated with GC in any way; GC has not reviewed such advertisements or websites and does not endorse any content contained therein. All content speaks only as of the date indicated and is subject to change at any time.
Under no circumstances should any posts or other information provided on this website — or on associated content distribution outlets — be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by GC personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an GC-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles — which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters.
There can be no assurances that GC-managed investment vehicle’s objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by GC involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by GC and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by GC is available here: https://www.generalcatalyst.com/portfolio/. Past results of GC’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Excluded from this list are investments (and certain cryptocurrencies or digital assets) for which the issuer has not provided permission for GC to disclose publicly. GC has no special role in any of cryptocurrency or related projects or power over their management. To the extent any GC-managed investment vehicle has any form of ownership or financial interest in a cryptocurrency, digital asset, or related project, GC does not undertake to continue to have any involvement in these projects other than as an investor and token holder, or holder of a form of economic or ownership interest, or right to a future ownership interest, and other token holders should not expect that it will or rely on it to have any particular involvement.
For other GC site terms of use, please go to https://www.generalcatalyst.com/terms-of-use/. Additional important information about GC, including our Form ADV Part 2A Brochure, is available at the SEC’s website:
http://www.adviserinfo.sec.gov