Building the bridge(s): Why the future of digital asset transfer will be fluid.
The architectural structure of THORChain, and the associated performance and security tradeoffs are designed with cross-chain transfer being of central importance to the network.
For digital currency to succeed, people need connectivity between fiat and digital assets, most notably at this stage through exchanges such as Coinbase.
If their current assets are in dollars, euros, yen, or something else (like real estate), there needs to be a simple way to convert those assets into digital currency.
This is the initial on-ramp, or bridge, to bitcoin and associated digital assets.
But of equal importance in a more liquid crypto market is the ability to exchange assets across chains seamlessly and as a direct transaction.
Different solutions have been put forward, but we propose that cross-chain bridges, with incentivized validators ensuring the transactional integrity, will be the most successful.
Coinbase: The original bridge
Many people would initially prefer to buy digital currency with a common payment method such as a credit card, wire transfer, or bank transfer. This is largely because this process reminds them of processes they already use (like Amazon.com, Paypal, or *insert daily payment gateway*) and this lowers the barrier to entry.
As Brian Armstrong wrote in a Coinbase blog in 2016;
You can think of digital currency as an island, and an exchange like Coinbase is a bridge to that island.
In the early days, this island didn’t have any convenient bridges (maybe taking a small raft or an expensive helicopter were the only ways to reach it). Some early bridges were hastily constructed and have long since collapsed. But as sturdy bridges have come into existence, the flow of people to and from the island has dramatically increased.
Coinbase, as significant as it has been and will continue to be, is not without its issues (which will we go into later) however this island symbology for fiat -> crypto also holds for crypto chain A-> crypto chain B in the form of cross-chain transfer of assets.
THORChain will act as not only an on-ramp for fiat currency into crypto but it will also provide the bridge infrastructure to allow chains to communicate with each other and transfer assets fluidly and anonymously.
The problems with centralized control of critical on/off ramps
Coinbase, despite all the good it has done and continues to do, has grown to a point where it acts as a new type of autocracy, similar to the legacy models that crypto was designed to avoid through decentralization.
Essentially, it is has become too big and the market too reliant upon it as a central starting point of the crypto landscape.
A central point of failure, in this instance, is not actually in the protocol design or in the consensus mechanism but at the point of exchange between blockchains.
If you think about this, it is completely ridiculous as the technology simply designed to connect the assets and protocols that are being built could, and arguably already is more important than the core blockchain ideas and technologies itself.
This topic has reared its head most recently in the form of censorship, and most notably in the case of controversial social network site Gab.
Gab is controversial as it is said to be a hub for far-right groups and other niche pockets of the internet community.
However, Gab has become relevant to the crypto discussion, because, on December 15, 2018, it was announced that it would be accepting btc and ltc as a payment method for its subscription service.
Sidenote: THORChain does not in any way support Gab or its communities in isolation, but it does support freedom of ideas and the ability to counter suppression of thought.
Coinbase censoring merchant accounts
Gab is not the first time the crypto industry has run up against American policy, in April last year the merchant account of Wikileaks was closed by Coinbase at the behest of the government. The cryptosphere in it’s truest sense has no room for censorship.
Andrea Antonopoulos then immediately pointed out the irony of this as he shared the announcement.
Gab.com released this statement;
“As predicted: the on ramps and off ramps (exchanges) are going to start censoring not only companies but also individuals. Coinbase has now banned both Gab’s merchant account and Andrew Torba’s account. Decentralized exchanges are the future. The next phase of financial censorship as people move to bitcoin is censoring the on ramps and off ramps (exchanges). This will force and incentivize people to not use those ramps and instead only use bitcoin for all things. Keep censoring. It will just push people to bitcoin.”
The problem for exchanges such as Coinbase which are based in the States lies in US policy which forces companies to practice suppression and censorship. This is partly why so many other exchanges and crypto companies refuse to deal with US customers.
The elegance of Cross-Chain Bridges
The Bifröst Protocol forms one of the cornerstone innovations of THORChain, and aims to solve the single biggest issue for asset transfer, interoperability between blockchains.
Bifröst is permissionless, meaning that there is no restriction on who can generate a THORChain account and trade from it.
Indeed, there is no restriction on who can enter the ecosystem via the Bifrost Protocol (cross-chain), and no limits on those assets movements.
Because of this Bifröst is the glue that holds the entire THORChain ecosystem together, enabling the seamless trading of any digital asset across any distributed ledger.
While Bifröst is not the first cross-chain solution, it could be the most evolved. In fact, THORChain’s protocol improves upon the weakness of preceding cross-chain architectures like Rootstock 2WP, Liquid Sidechain, POA Network Bridge and COSMOS Peg Zone.
How does it work in practise?
Cross-chain Bridges are simple in concept; an asset is locked on one chain; whilst an identical asset is atomically “minted” on the other and sent to an address owned by the original party.
The newly minted asset is fungible with the original one by virtue of the fact that it can be used to redeem the original asset at the same ratio that it was minted.
This newly minted asset represents the rights to unlock assets on the original chain; so as long as the bridge continues to exist without censorship or interference, then the tokenised asset can be handled as though it was the original asset.
When the owner (anyone who has keys to spend) wishes to move back to the original chain, it is done via the same bridge; the asset is destroyed on the ‘bridged’ chain and atomically unlocked on the original chain.
- An asset is locked on one chain
- The exact amount is then minted on another chain.
- The assets are perfectly fungible, as they are pegged to each other, but can’t be double-spent.
- If the owner decides, the minted assets can revert back to their original state (and chain) and the newly minted asset will be destroyed.
- The original assets will be unlocked and exactly as they begun.
How are these bridges maintained?
Validators secure all transactions across the THORChain protocol by validating and relaying transactions, and by extension producing blocks.
Validators will stake their own tokens (Rune) as a representation of their self-interested responsibility to the governance of the protocol. There will be a limited number of validators, currently 100, who will be required to execute reliable multi-sig infrastructure to reach consensus.
THORChain will require protocol level slashing rules to immediately slash a validator’s stake if they attempt to spend from any of the multi-signatures without posting a valid
txid first, or they spend to an incorrect user address with a valid transaction.
Bridges are not only a more elegant solution when compared to atomic swaps, but the technology and infrastructure exists now to create cross-chain fluency. Blockchains can not survive in the current fragmented state that they are in right now. This is an irrefutable fact.
When we begin to visualise different blockchains, not as seperate universes, but as isolated highways — we can begin to see how connecting protocols can just be about creating equivalency of value and not necessarily about complete compatibility of design and infrastructure.
At it’s most simple, we are looking to agree on truth of transaction with cross-chain consensus.
We propose that cross-chain bridges, with on-chain governance, is the most effective way to achieve this.
Join the Distribution
For more information or to participate in the distribution, head on over to https://thorchain.org/token.
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