An internet of blockchains: Interoperability in a multi-chain future

Transcript

Angie Lau: The world of blockchain is a siloed one. Blockchain protocols are many, and they don’t necessarily talk to one another or work seamlessly together. Interoperability — or, rather, the lack of it — is still a major stumbling block in creating a seamless blockchain ecosystem that can unlock efficiencies at scale. But there are projects afoot to create a platform of interoperability. And today we’re going to dive into Cosmos, which calls itself ‘the internet of blockchains.’ What exactly are they building, and what will an interconnected future look like? What are current-day challenges, and how might this redefine how you and I work, live and interact?

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau.

Well, today we’re in conversation with Ethan Buckman, who is the co-founder of Cosmos. And I’m super-excited about this conversation because to talk to somebody who’s creating the internet of blockchains… we want to know a little bit more about it. Ethan, thanks for joining us.

Ethan Buchman: Thanks so much for having me. Good to be here.

Lau: So, Cosmos. I imagine a star-filled sky, and so, if I’m going to be a visual learner, I’m going to envision that image. As you talk about the internet of blockchains, what is Cosmos? What is the internet of blockchains? What is the Cosmos protocol that you’re building?

Buchman: Yeah, so, building on your analogy, it’s a star-filled sky, a sky filled with lots of galaxies and different planets. And if you don’t have spaceships to be able to get between those galaxies or between those planets, they’re all going to be lonely. They’re going to be doing their own thing. They won’t be able to communicate. They’ll be siloed off, like you were saying. And Cosmos is both tools to build new galaxies, new planets, but also tools to build spaceships and connect between them and bring that down to earth a little bit.

We think about this very much like the personal computing revolution that took place in the 90s and started even earlier, and the internet revolution that enabled those personal computers to start connecting to each other. It was one thing to just have a computer, but it was a very different thing to have a computer hooked up to the internet. And we think about blockchains in a similar way. You can think about a blockchain like a community computer. It’s a computer — a single computer for a whole community rather than for just an individual. And the community can own it and organize around it and determine how it operates and send transactions to it and so on. And again, just having a community computer is a very powerful thing, but ultimately you want them to be able to hook up and connect to other community computers out there through standardized interoperability protocols, just like on the internet.

And so, in Cosmos, we’ve both built technology so that you can make new community computers, new blockchains, and there are lots of different projects building their own blockchains. But the nice thing about that is they’re sort of automatically hooked up to this internet of blockchains through standard interoperability protocols that allow these different chains to connect to each other and to seamlessly talk to each other.

Lau: It was just a few short years ago, Ethan, when the whole industry was really talking about which blockchain will rule them all. Do you remember that?

Buchman: Of course, yeah. I was born into that.

Lau: Of course we were all born into it. And we’re taking it seriously. Is it going to be Ethereum? Is it going to be Bitcoin? Oh, my gosh. And then the maximalists are like… And then of course, the tribalism effect. We’re not there anymore. We’re talking about coexisting.

Buchman: Yeah. I mean, it’s a lot like arguing in the 70s about whose mainframe computer is going to be the computer to rule them all. Is it going to be IBM’s or is it going to be Dell’s? The question doesn’t even make sense anymore. You would laugh at it because now everyone has a personal computer. They’re connected over the internet. And we’ll see the same evolution in the blockchain space.

Now, that’s not to say that Ethereum and Bitcoin won’t have critical roles to play in the future of the internet of blockchains. I expect they both will. But we’re entering very much a different world that Cosmos really helped pioneer and create, which was this multi-chain reality and this interchain reality of many blockchains connected to each other over standard interoperability protocols. So it’s nice to see people coming to terms with that reality now.

Lau: All right. If we were to bring along some of the audience that might still be scratching their heads — interoperability, Cosmos, Ethereum blockchain, Bitcoin, etc… What makes Cosmos different from a Bitcoin or an Ethereum? Or maybe if they’ve heard of Solana… All of these protocols — and the list is long. But how do Bitcoin and Ethereum differ from Cosmos?

Buchman: Yeah, so the way to understand this evolution is with Bitcoin. Bitcoin was a single blockchain with a single application that allowed you to move money around in a programmable way — so, slightly intelligent, smart money movements. And then with Ethereum, Ethereum said, ‘Well, that’s not enough. Moving money is cool, but we want more featureful applications. We want to be able to do more complex things. We want to be able to build financial applications and games and whatever. And so we want a general purpose computer on our blockchain.’ And Cosmos came along and said, ‘You know, that’s a nice idea, but if I’m an application developer and I’m building an application on Ethereum, I’m going to find myself constrained by the Ethereum environment. Maybe there are aspects of the Ethereum programming language I don’t like, or maybe the blockchain is too slow for me. Or maybe there are other rules I don’t like. Or maybe it’s going to upgrade in ways that are going to impact me in a way that doesn’t work for my users or for my community.’

And so the idea behind Cosmos was to really prioritize this problem of sovereignty — what we call sovereignty, which is the ability for the users and developers of an application to really be sovereign over how that application and infrastructure is run and to give each application its own blockchain. So, rather than having many applications as smart contracts on a single blockchain like Ethereum, each application can have its own blockchain, what we call an application-specific blockchain. And those blockchains can still be interoperable with one another using standard protocols like the one we’ve built IBC, the Inter Blockchain Communication protocol.

So it’s really about giving application developers sovereignty, giving them their own blockchain, and yet still having them be interoperable with one another. So, sovereignty and interoperability — that’s the heart of Cosmos.

Lau: And I want to dig into IBC a little bit more. As you said, it’s the Inter Blockchain Communication protocol. It’s perhaps one of the most interesting elements of the Cosmos ecosystem, as it really aims to be that connective tissue — or the spaceships that you mentioned of segregated blockchain networks that can’t necessarily exchange value with one another. How does that actually work within Cosmos and perhaps the broader blockchain ecosystem? What does IBC try to solve?

Buchman: So, IBC tries to solve this problem of standardizing communication between different blockchains, in the same way that we have standard internet protocols like TCP/IP that all our computers now are using to standardize their communication. No matter what kind of computer you have — it could be a Linux computer, an Apple computer, a Microsoft computer, a server, a cellphone, it doesn’t matter — they can all use the same standard communication protocol. And then, using that standard communication protocol, you can build all kinds of applications on top. You can have email, you can have Zoom messaging, you can have Facebook, whatever you like.

And so in a similar way, we have built with IBC a standard communication protocol that allows you to abstract over the underlying blockchain technology so that any different kind of blockchain can communicate with other blockchains in a kind of standard way and build many different kinds of applications on top. And, of course, the first application that most people are excited about is token transfer — just being able to transfer tokens from one chain to another. But we’re already starting to see more advanced IBC applications that allow things like accounts to be managed from one chain by another, or for security to be shared between one chain and another, so a lot more advanced kinds of applications can be built on top of this general-purpose communication protocol of IBC.

Lau: But another important element of the Cosmos ecosystem is ATOM — the protocol’s native token used to pay transaction fees and reward stakers for securing the network. As you build out Cosmos, and as you have the ATOM token in there, what’s that value proposition against current market realities?

Buchman: We’re building an ecosystem and we’re trying to change the nature of the game, so we’re not trying to play the game that already exists — we’re trying to create a new game. And that has allowed us to be very focused on being developer-first, building tools, technologies that anyone can use however they like with or without the ATOM token. So, there are many developer teams out there building blockchains using the Cosmos technology. Some of them are proud and tell everyone, ‘Hey, we’re using Cosmos, we love it.’ Others kind of keep it on the down low. They don’t want other people to know that they didn’t build their own blockchain. They’re just using the Cosmos blockchain, and then they can all connect over IBC to each other.

Now, the Cosmos Hub is just one blockchain among the many other blockchains. It hosts the ATOM token natively. And it’s a blockchain that’s being designed to facilitate and to support the success of all the other blockchains being built. One of the major features upcoming is interchain security, which I mentioned, that will allow using IBC, using this general-purpose communication protocol. It will allow new blockchains to inherit security from the Cosmos Hub itself, which is arguably the most secure chain in the Cosmos ecosystem at the moment, with the highest market cap, and it’s been around the longest and (has) the most integrations and so on.

We think about the Cosmos Hub as sort of an anchor in this thrashing sea of blockchain innovation. You have different experiments, all kinds of financial applications and games and logistics and whatever that people might be building and experimenting with. And the Cosmos Hub is sort of a stable anchor that’s prioritizing security and being conservative and enabling all the innovation to happen around it, but really trying to be here for the long term.

Lau: I do want to note that Terra was built on the Cosmos ecosystem, and LUNA, the native coin for Terra, as we all know, imploded. A lot of wealth destruction there. To your point, you’re the hub. You’re the stable force, the stable platform. How were you impacted by Terra being on the Cosmos ecosystem? And what were those days like?

Buchman: Cosmos is very powerful technology, and with great power comes great responsibility. And Terra got to amazing highs and, at the same time, pretty substantial lows, and we all took a hit. Many people in the Cosmos ecosystem held LUNA. I’ve held some LUNA. So everyone I think was impacted in that sense. But at the same time, the fact that it was an independent blockchain meant that the other blockchains using Cosmos were sort of not necessarily directly impacted unless they themselves had exposure to LUNA, which some of them did. But they were able to mitigate. So, on the one hand, it’s quite a tragic, unfortunate event, what happened. On the other, it demonstrates the sort of power and potential of the Cosmos technology of this fault separation.

In a way, you can think of it like Linux. Linux is very powerful, very general-purpose technology. You can use it for a lot of things. But if someone builds something with Linux and that thing collapses, it doesn’t necessarily affect any of the other systems that have been built with Linux. A very similar thing with Cosmos.

Lau: So much to talk about. So, Cosmos is quite a unique blockchain protocol. It’s got a number of interesting innovations to push mass crypto adoption. As we know, mass adoption is that Holy Grail. The challenges are great at the moment. What would you say they are?

Buchman: The challenge, the challenges with adoption — there are still pretty serious user experience issues to overcome: managing your own keys and things like this. I think there’s also a sort of bad rap in the media because things are so volatile, and people see scams and things like that happening, so they kind of associate it. But that’s kind of the case with any new technology. I mean, banking in the early days probably went through a similar kind of thing. I think full-scale real-world adoption is still some ways out.

But we’re seeing increasingly large institutional investors and companies looking at crypto as an allocation on their balance sheet. We’re seeing more and more entities look at blockchain technology as a potentially viable way to build gaming applications and metaverse applications. And, of course, there’s a huge amount of financial applications that are being built that are really pushing the boundaries of what it means to build robust financial systems.

And obviously, there are many things being built in crypto and DeFi that are not robust, and we see those things collapse quite dramatically and quickly. But there are things that are being built that you consider more blue-chip that really are robust and that, even despite massive market volatility and commotion, they’re holding up just fine, and they’re fully transparent. You can track them live and you can see exactly what’s going on. It’s just tremendous how powerful that level of transparency is for investors — for people using the system to be able to understand exactly what’s happening in a way that is really just impossible with the traditional financial world. So, there’s a lot for traditional finance and traditional institutions to learn from the transparency and the sort of accessibility that certain crypto systems enable.

And again, that’s not to say there aren’t a lot of bad things happening, too. And that’s the case with any new technology. But you can’t throw away the baby with the bathwater, so to speak. And there’s a lot of really amazing innovation and insight to be gleaned from all this.

Lau: I mean, to your point, accessibility and transparency is really, really critical. The problem is that for the individual, it’s hard to scale that. And you only have a number of hours in a day and to be consistently trying to police your own transparency and hold your blockchain accountable. What we’re talking about is hard — that’s probably infinitely more impossible to manage.

Buchman: I mean, it’s very simple. ‘All you have to do is just read the code for yourself. I mean, everyone knows how to read code. It’s just trivial. Just read the code before you deposit money and then you have no problems.’ I mean, this is what people say. Obviously, that’s ridiculous. The barrier to adoption is that people say things like that with a straight face.

Lau: It is. And so what responsibility do protocols have and developers have and also the regulators? What is this mix of security — if you will — or reassurance that allows the non-code readers, Ethan, amongst us to be able to participate.

Buchman: I think that’s a really good, important question, and I think it highlights how far we have to go. I think even in the traditional financial system, there have been major shocks and major crises. And, in a sense, the 2008 crisis was something we’ve never fully recovered from. I mean, sure, the stock market recovered, but if that’s your only measure of economic well-being, then you’re going to miss the majority of people, many of whom are really suffering and don’t show up in the statistics. And in a sense, that system has collapsed quite tragically. And so if that’s your benchmark, if that’s your gold standard for what a secure system looks like, that’s a pretty low bar. And I’m quite certain we can do better than that. I’m not sure we’re quite there yet. I mean, crypto has its own problems and there’s a lot further to go.

And what we need is something that pushes more to local communities and municipalities and empowers cities, and sort of a more local approach to finance, to investing, to security, to our online life in general. And that’s going to be a generational shift. It would require new forms of education, raising students in different ways. It’s not something that’s going to happen in a few years, five years, even 10 years.

But I think that’s the transformation we’re going through. These are sort of once-every-few-centuries kinds of transformations that we’re talking about here. And it’s a difficult thing to talk about because people want to know what’s happening in the next five years. Well, we’re trying to think about what’s happening over the next 50. And that’s really the timeframe we need to be thinking about — thinking in generations, really. And that makes people uncomfortable. But that’s really what this is about. And so it’s a long haul and it’s hard to try to plan in the short term when you’re really thinking about such long-term things.

And I think even in the crypto community, there’s still a lot of naivete around how we need to approach social organization. And people think, ‘Oh, it’s a technical problem and we just build these global cryptocurrency systems and that’ll solve the world’s problems or something.’ I don’t think that’s right, either. I think that gets trapped in the same kind of, like, globalist thinking. That’s a real problem, and we need much more locally grounded, community-oriented, regionally aware solutions. And again, that will take a generation to build, but that’s what it takes to really do this.

Lau: Let’s route some of these examples to the real world now. You shared some really interesting local applications of blockchain technology in the real world by local governments, local businesses. I mean, tell us about some of these.

Buchman: The examples I love that are really near and dear to my heart are ones that focus on really empowering community-based economics. And the best examples of these are mutual credit systems. So, these are systems where you get, effectively, a co-operative businesses together, you get them all to sign up to a common system, and you allow them to issue, basically, currency units that are redeemable for each other’s goods and services and that are collateralized by their future production.

So I’m a business, I do — I don’t know — US$1 million in turnover a year. And so I can take out loans within this system, not from a bank. It’s from the sort of network itself of, say, US$100,000. And I promise to accept that currency — this complimentary currency for US$500,000 of my own goods and services or whatever. So, we can collateralize these loans with our own future productivity. And so there are examples of these systems — one called the Resource Network in the U.S. — that we’re starting to work with. There’s one called Grassroots Economics, and they have this Sarafu currency. They’re in Kenya and they’re spreading to other countries in Africa that we’re working with. And there’s a number of others that are building these mutual credit systems.

These are on the ground, boots on the ground, working with real businesses, really trying to help support local economies in a way that central banks and the sort of post-2008 banking system really has left behind. And so we’re really trying to get down there and figure out how do we reboot local economies and use this technology and really, in a positive way, to support and enable them. And there’s some really exciting results. And so that’s what we’re really focusing on.

Lau: I love it. There’s a lot of runway for you guys. You called out 50 years. How do you fund that? How do you create an environment of growth, of innovation? How do you do that right now, as the market feels a little nervous and volatile? How do you bring that to light for Cosmos?

Buchman: The real challenge is how do you think on the 50-year time horizon but act and develop and strategize and plan on the quarterly, one-year, five-year time horizon. And that’s something we’re iterating on and learning. A lot of what I’ve been looking at is really trying to understand history a little better and reading on not just the last 50 years, but the last 500 or, better, 5,000, and really try to understand how to think in eons, how to think in generations, see how cycles of technology have changed in the past, how political systems come and go, how innovations happen, how revolutions happen, what the potential is for peaceful revolutions.

But we’re very grounded in the short term, as well. We’re building real products that we can bring to the market this year or in the next couple of years. And certainly with Cosmos, we’ve been able to ship meaningful, usable products into the market basically every year that continue to get adoption, continue to build this whole new landscape of new kinds of products and innovation. But we’re trying to be very focused on values aligned, what is the world we’re trying to create, and how do we make sure that we’re always taking incremental steps that meet the market where it is today, but also push it just a little bit in the direction that we want it to go.

Lau: I note that you guys are going to launch something called interchain accounts, a decentralized exchange where you wrap Ether or you wrap BTC. And so, for those of you in the audience, that’s essentially when another token is pegged to that crypto. It really means the movement of crypto is much more seamless than if I had to go to an intermediary, trade off what’s the middle exchange currency or crypto and then move along in my day. So, tell me how you think about decentralized finance, decentralized exchange, all of this in the Cosmos ecosystem. 

Buchman: I think there’s been a ton of amazing innovation in decentralized finance. We’ve seen a lot of that on Ethereum. We’re seeing more of it happening in Cosmos with the flexibility and the power that the Cosmos development environment gives you. Plus, the interoperability aspect of things means you can build new interchain protocols like interchain token transfer, interchain accounts, like you mentioned, which are very powerful.

People are only just starting to wrap their heads around what interchain accounts will let you do. It’s like remote control, basically, like when one computer controls another through Zoom or whatever. Interchain accounts allow one blockchain to control another, accounts on one blockchain to control accounts on another interchain — so a very, very powerful primitive that you can build all kinds of new applications on top of.

The thing about DeFi for me is that I think it gets a little bit carried away with the kind of — let’s say — ‘casino’ aspect of things. There’s a lot of focus on calling it decentralized finance, but I think of decentralization more as a means than an end in and of itself. The ends for us are really about greater collaboration and accessibility, and so we like to think about collaborative finance or regenerative finance. Really, at the end of the day, it needs to be about enabling sustainable growth in the world economy and supporting trade and supporting local communities to compound wealth, and not just siphoning out wealth and extracting wealth into existing investors and so on.

So, it’s really about rebalancing that relationship between the power and dynamics of capital and trade itself. And that’s something that’s been tremendously weakened over the last 15 years. And there’s a lot of potential for crypto to improve. But we’re not seeing it in the mainstream talk about crypto, but it is sort of happening on the sidelines. And (I’m) sort of excited about this new breed of research and theory that’s going to emerge out of the practice of DeFi, in a sense. So that’s pretty interesting. But we need people to think about it and theorize about it properly, and not just get carried away with the sort of speculation and so on.

Lau: Well, that’s what we’re experiencing right now. The speculation that’s led to deleveraging and unwinding. And a lot of people say it’s necessary for the long-term sustainability of the market. What’s your view about what’s happening now, and what does it set up for the future?

Buchman: I think we’re seeing a very interesting scenario in a macro environment. There’s a tragic war playing out practically in Europe, which is going to impact a lot of things. We’re seeing consumer prices skyrocket due to a combination of supply chain issues with Covid and pent-up demand and the war and so on. And I think that’s put central banks in a really difficult position where they don’t quite understand what to do and they only have one button. And so they push that button, which is to jack up interest rates and then all kinds of havoc breaks loose. So, I have a feeling they’re going to break something pretty substantial in the fall and it’s going to be bad news. I don’t know exactly what that looks like, but I think in the short term, we’re going to see some real pain in the global monetary environment. I don’t know how to predict exactly what that’s going to do, but I see a lot of uncertainty ahead, which is unfortunate. That’s kind of the reality. But I’m hoping that we can manage to pull ourselves out of it somehow and really focus on impactful applications that can really help communities boot up again and do things in a more sort of bottom-up and resilient fashion so that things happening on one side of the planet won’t have as much impact on things on the other.

Lau: Well, if there’s one thing that holds true it’s that we can have the ideas and we can be dreamers and we can think that we’re innovating until we execute. And that’s really all the difference in the world is. Who are the people who are executing on these ideas? And to create a platform that allows people to actually try to do it and to still interact with other projects, other sovereigns, if you will, other stars. It’s really fascinating. And I really appreciated you sharing that with us today.

Buchman: Of course. Thanks so much for having me.

Lau: Ethan. It was a pleasure. Thank you so much. And thank you, everyone, for joining us on the latest episode of Word on the Block. I’m Angie Lau, Forkast Editor-in-Chief. Until the next time.