The Internet of Blockchains

Chapter 17:

In this chapter, we will learn about crypto projects in less detail than we have for Bitcoin, but we will learn about many. There are so many, and they are even more complicated than Bitcoin. However, our knowledge of Bitcoin and our newly discovered knowledge about PoS, smart contracts, and the blockchain trilemma will stand us in good stead to quickly appreciate the new and exciting features of the networks that Bitcoin inspired. This chapter will hopefully give you the knowledge, inspiration, and starting point needed to read deeper into any networks that interest you.

This approach will introduce as many different networks as possible, discuss their differences, and discuss other fascinating projects. For each new edition of the book, I will add more coverage. That means I have about 30,000 more projects until I finish.

When discussing the features and objectives of the various crypto projects, they may appear as very exciting, world-changing technologies. Some, one, perhaps most of the cryptos we talk about in this chapter could change the world! But a strong word of caution! Changing the world does not guarantee you will make money if you buy them. Even if it turns out that all the crypto projects mentioned in this chapter succeed, timing is also essential. Therefore, I only suggest you buy tokens beyond a small amount for experimentation once you have thoroughly evaluated them.

What precisely a “small amount” is will be different for everyone, and you should decide what you are prepared to risk, at this early stage, for yourself. An excellent way to view any purchases in this book would be as entertainment and education. View the purchases like a textbook or a video game—no expectation of profit, but you might learn something or have fun.

If you learn something and have some fun, you have won. As we have seen, if you spent $100 on Bitcoin in November 2021, then by January 2023 (time of editing), your $100 would be worth about $25. Ouch! If you thought bitcoin was volatile, all these other coins, which we will look at in this chapter, can lose value even faster – they can, sometimes but not always, go up. Or they might go to zero.

Whatever you decide, have fun, don’t spend more than you are comfortable losing, and hopefully, you will begin to see the potential these altcoins have for the world’s future.

In some tax jurisdictions, the simple act of selling a token is a taxable event. Even if you lose money or make only a few cents profit, you might be required to report your activity. Tax advice is beyond the scope of this book. The reader should research the implications for tax in their location.

We will learn about many but far from all categories of crypto projects. For example, we have looked at some of the Bitcoin forks in Chapter 5, including the block wars’ politics and technicalities. I think there is much opportunity for non-bitcoin cryptos to play a part in changing the world, but I don’t think it is likely that any of the Bitcoin forks will play a significant role, but I could be wrong.

I hope that no single project becomes “The” blockchain. I think an Internet of differently featured, separately scaled, yet interconnected ecosystems are the ideal solution for humanity. However, ruthless competition might eventually see a single emergent victor.

The complexities of bridging between blockchains, paying gas fees in dozens of different tokens, the risks of getting a transaction wrong, and the confusion of understanding “where” you are currently transacting could be abstracted and hidden by the applications of the future. Some are already doing it. As a hypothetical example, If you want to buy a playable character for the Mirandus RPG on the Gala Gyri chain with Bitcoin, then Bitcoin could be sold using REN Bitcoin on Ethereum for USDC, bridged to Gyri, changed to GALA, and the NFT purchased and placed in a Gyri wallet connected to the game but secured by the same seed phrase in the same application the user uses for his Bitcoin. The user doesn’t need to know the complicated steps – he wants to play a game, and his preferred currency is Bitcoin.

Until the Internet of Blockchains is simplified for us by abstraction, it would make sense and even be fun to try and understand.

In summary, the Internet of Blockchains isn’t done yet, but it sure looks like watching what happens will be an exciting time. Now we will look at more projects that aim to add features that Bitcoin doesn’t have or even compete with Bitcoin as a decentralized payment system. However, as discussed in chapter 5, each chain has hardcore fans who think their crypto is the best. Therefore, I will try as hard as possible to present the different projects unbiasedly.

Apart from Bitcoin, I don’t have a hard favorite, so hopefully, I am well placed to introduce these alternative projects and let you do further research to try and predict which one will take over the world – if any.

As we learned in the previous chapter, there is a standard theory that an Internet of Blockchains will eventually emerge. An interconnected, diverse system with dozens, maybe hundreds of different ecosystems with different features, pros, and cons. This chapter introduces some of the projects making this happen and the concept of bridges that link the disparate chains together.

Contents

Collectively, these alternative contenders are called altcoins. If a project is a blockchain, it is sometimes referred to as a layer one crypto. Sometimes Ethereum is no longer referred to as an altcoin because it has grown significantly in market capitalization and global adoption. Another optimistic way of referring to the non-Ethereum altcoin projects is as Ethereum killers. Whether they will beat Ethereum is unknown, at least to me. After covering the vital topics of the blockchain trilemma, PoS consensus, and smart contracts, we will explore Ethereum as it is the biggest and first of its type. We will then look at a selection of the so-called Ethereum killers.

After the Ethereum Killers, we will explore some Ethereum scaling solutions or layer twos. These are a collection of fascinating projects that leverage Ethereum for security but offer faster and cheaper transactions than Ethereum, vastly widening the scope and scale of dApps that can be deployed.

The last thing we will look at in this chapter is a quick overview of bridging and the technologies that join the blockchains.

In the next chapter, we will also learn about privacy tokens that aim to keep all transactions from prying eyes, utility tokens that serve a specific purpose on a blockchain, and Litecoin because it is one of the original projects connected to Bitcoin. Stablecoins that “peg” their value to other assets, usually the US dollar, chains, and tokens that facilitate the distribution of music, movies, games, and oracles, which are how crypto projects retrieve and act upon data from the real world.

There are dozens of ways to categorize crypto projects, tokens, and blockchains. We will cover as many as we can before the end of the book, but it makes sense to keep it simple to start with. If you can’t wait and want to see more now, there are 171 categories on the Coin Market Cap website. You can see them here: https://coinmarketcap.com/cryptocurrency-category/

Ethereum

Ethereum was first proposed in 2013 by Vitalik Buterin, a programmer and cryptocurrency researcher, as an alternative to the then-existing cryptocurrencies like Bitcoin. Buterin was motivated to create a system of true digital ownership when, as a 15-year-old boy, his favorite weapon in the online game World of Warcraft was nerfed (made less effective) by the software company Blizzard. So in 2014, Buterin and a team of developers, including Polkadot founder Gavin Wood and Cardano founder Charles Hoskinson launched a drive to raise funds for the development of the Ethereum platform. Ethereum went live in July 2015.

Buterin envisioned Ethereum as a decentralized platform for creating decentralized applications (dApps) and smart contracts and enabling a new decentralized Internet infrastructure where people control their data and assets. His goal was to create a more equitable and transparent digital economy and promote trust and cooperation among all network participants through blockchain technology.

Ethereum is an open-source blockchain platform which means the code is publicly available for anybody to inspect or even copy if they want to. It provides a cryptocurrency called Ether (ETH) used to pay for transactions and computational services on the network. Ethereum was designed to provide a more flexible, programmable infrastructure for decentralized applications beyond a payment network like Bitcoin. The platform allows developers to build various applications, from digital wallets and financial applications to gaming and prediction markets.

Ethereum introduced the ERC20 token standard, which defines the format of a token on the blockchain and therefore allows the creation of many more tokens because as long as the token is ERC20 compliant, it will work on Ethereum. To create a new token on Ethereum, you only need to program a smart contract that defines it.

In 2016, a significant security exploit in a decentralized autonomous organization (DAO) was built using smart contracts on Ethereum. The DAO (Decentralized Autonomous Organization) hack was a security exploit in June 2016 on Ethereum. The DAO was a decentralized investment fund that had raised millions of dollars in Ether from investors.

Perhaps confusingly, this DAO was called “The DAO.” Today there are many DAOs. The DAO was one of the first.

However, a hacker discovered a vulnerability in the smart contract code and stole over 3.6 million Ether from the fund. This caused a major crisis for the Ethereum community, as the funds represented a significant portion of the total value of the Ethereum network at the time.

As a result, the Ethereum community decided to hard fork the blockchain and revert the stolen funds, effectively creating a new version of the Ethereum blockchain (still known as Ethereum) and preserving the original, unaltered version now known as Ethereum Classic. This was highly controversial because it demonstrated that when it didn’t suit the powerful, suddenly, the code was not the law. But I would have wanted my Ether back, too.

Ethereum Classic with ticker ETC is a decentralized cryptocurrency and blockchain platform that is the offshoot of the original Ethereum blockchain. It maintains the original Ethereum blockchain without the hard fork that reversed the DAO hack, and it continues to be supported by a smaller community of users.

Since then, Ethereum has continued to evolve, with multiple network upgrades, including the transition to the PoS consensus algorithm in late 2022, and plans for future upgrades to increase the network’s scalability and security. As a result, Ethereum remains a significant player in the blockchain and cryptocurrency space, and its influence and impact on the industry continue to grow.

Ethereum, as I have just alluded to, used to be proof of work. Many consider the change to PoS to be a downgrade. It is now 100 times more energy efficient but less censorship resistant and a little more centralized.

As we have already discussed, the Tornado Cash situation exemplifies this lowering of censorship resistance. When Ethereum was PoW, the miners were distributed around the globe, running transactions on powerful retail graphics cards. Now, most validators in the PoS system are running a complicated server based on a big corporation’s server farm.

The Tornado Cash developer, Alexy Pertsev, currently resides in prison in the Netherlands.

It is important to restate that Tornado Cash is a decentralized platform with no central control and remains operational despite the OFAC designation. However, most Ethereum validators reject transactions that use Tornado Cash; some even reject any address that has ever used or received transactions from people who have used Tornado Cash. Therefore, US-based users should especially exercise extreme caution when using Tornado Cash and consult with legal counsel to ensure compliance with OFAC regulations. If in doubt, don’t use it!

Polkadot

Polkadot was launched in May 2020 by Dr. Gavin Wood, who co-founded Ethereum. Polkadot is a blockchain for blockchains, a network of interactive blockchains. The main blockchain, Polkadot, is called the relay chain, and all the blockchains that connect to it are called parachains. The native token is DOT.

The parachains can be uniquely configured using the Substrate software framework. Developers of the individual parachains can configure how they best see fit for their intended task. This can make the dApps that run on them more efficient and improve the user experience. The benefit of a parachain over starting your own layer one blockchain is that the security gleaned from staking and consensus on the main Polkadot relay chain is extended to all the parachains. Polkadot is not just a network for tokens; its XMP or cross-message protocol allows communication between parachains and the dApps that run on them.

Even though the security of a parachain is derived from the relay chain, each parachain can have its token economy, including its gas token. This allows parachain projects to finance and monetize their ideas without the headache of devising, programming, and, perhaps most challenging, bootstrapping their network. Bootstrapping refers to onboarding validators and stakers before which the network is not secure.

Polkadot is a PoS network but uses its variation called Nominated Proof of Stake. It is a system involving Collators that receive and check transactions, Nominators that stake DOT, and select Validators who recheck transactions, add blocks to the blockchain, and confer with other validators to maintain consensus. Polkadot produces a new block every 6 seconds.

Polkadot smart contracts can be programmed in a few languages because, like Solidity (for Ethereum and others) is compiled to EVM byte code, Polkadot’s smart contracts are compiled to a universal format called Web Assembly or WASM. In addition, a parachain in development runs EVM smart contracts to get Ethereum dApps running on Polkadot. This Parachain is called Moonbeam.

The Polkadot website https://polkadot.network/ which is well worth exploring lists several likely use cases for parachains. Here are a few I found most interesting.

Common good – These parachains are meant for the good of the Polkadot ecosystem and provide services or dApps accordingly.
Smart contract – These support Ethereum dApps to be quickly ported.
Bridges – On Polkadot, parachains can already communicate with each other. Bridges allow parachains on Polkadot to connect to external networks like Bitcoin and Ethereum.
Parachain hubs – Parachains that connect other parachains with services and communications, for example, decentralized finance and on-chain governance of projects or the parachain itself.

The part that impressed me the most was when founder Gavin Wood did a live presentation “spinning up” a new parachain in about 90 minutes. Becoming a parachain operator is quite complex in real life, but you can read more here https://polkadot.network/blog/obtaining-a-parachain-slot-on-polkadot/ if it interests you.

My early impression of Polkadot was that using the web-based wallet Polka.js was much less intuitive than other blockchains for staking and even basic tasks like sending and receiving tokens. Part of this awkwardness, I suspect, is down to a less developed UI, but some are probably because of the extra features, possibilities, and the multitude of parachains. If this complexity can be wrapped in a friendly, intuitive UI as Polkadot matures, it could make for some exciting, advanced features not readily available on other networks. One example of this UX improvement can be found in the mobile app Nova Wallet. With Nova Wallet, you can send and receive any token on any Polkadot para chain and use a decentralized exchange to swap between the tokens.

As you can see, Polkadot is all singing and dancing. Easily create a parachain, connect to other parachains, instant security provided by Polkadot relay chain, share the benefits of hubs and connectivity to another layer blockchain courtesy of somebody else’s hard work. Nice! At the time of writing, there are nowhere near as many usable projects as there are on Ethereum or some others, but there are over 500 projects listed on https://polkaproject.com/ and counting. Furthermore, there are 54 dApps, from AI to games to decentralized finance. Like any crypto project, Polkadot could come to nothing, but it seems more likely that once the ecosystem is built, it could play a significant role in the Internet of Blockchains.

Binance Smart Chain

The Binance Smart Chain is intriguing and very active. Widely criticized because of its lack of decentralization but still widely used. So let’s learn a little more. As the name suggests, BSC is connected to Binance. Binance renamed BSC, and its correct name is the BNB Smart Chain, but for me and many others, the Binance name has stuck.

The Binance Smart Chain, sorry, the BNB Smart Chain is EVM compatible, so smart contracts developed for Ethereum are easy to port to the BSC. BSC uses Proof of Staked Authority consensus achieving around a 3-second block time, another variation on PoS. Most of the time, people refer to BSC as being PoS. The Binance coin, BNB, is used for staking and gas fees on BSC. It should be noted that the Binance Chain is a little older than BSC and does not have smart contract functionality. You should avoid accidentally sending tokens to the wrong Binance Chain, or they will be lost.

I mentioned the need for more decentralization in the BSC. At the time of writing, there were just 56 validators. You can check the current number here: https://bscscan.com/validators. This is potentially a problem as it makes BSC easier to be shut down or influenced by nefarious forces like governments or Binance themselves. BSC is currently the third largest chain for DeFi after Ethereum and Tron. You can view the up-to-date situation here: https://defillama.com/chains.

Pancake Swap is a decentralized exchange and yield farming platform on BSC and is the top dApp. Being EVM compatible with a fraction of the fees on Ethereum, BSC has seen lots of innovation. One amusing app I played with for a while was the game My DeFi Pet which allowed players to mint NFT monsters and then breed them, farming their food and leveling them up to try and get rarer, stronger monsters to beat other players or perhaps sell for a profit.

My favorite wallet for BSC is the Trust wallet. The Trust wallet was developed by computer scientist Victor Radchenko but is now owned by Binance. It is available on mobile and as a browser extension. The company is based in the US, which might make it vulnerable to censorship at some point, but it is a good option, in my opinion. You can find out more at https://trustwallet.com/.

Cosmos

Cosmos calls itself “the Internet of Blockchains,” just like the title of this chapter; I don’t think they have a copyright to the term. However, they do so with good reason. Cosmos is called a layer 0 blockchain. So-called because it is the infrastructure of multiple layer one blockchains. The gas token and the staking token on Cosmos is ATOM.

It is much easier to build a layer one on Cosmos than it is to start your very own layer 1. In addition to being easier, layer one blockchains built on Cosmos can connect and communicate with all the other layer ones, including swapping tokens between them without the risks and costs of a bridge. Layer 1 blockchains communicate with Cosmos and the other layer ones through the Inter Blockchain Communication protocol or IBC.

As well as this setup having advantages like token exchanges, communication, and ease of development, each layer 1, although built with the Cosmos provided Cosmos SDK (Software Development Kit), each layer one can be highly customized to suit the specific functionality of that blockchain’s purpose. So, for example, there is an L1 for a DEX called Osmosis, an L1 for leverage trading called dYdX, an L1 for EVM-compatible dApps called Evmos, and much more.

I recommend looking at this visualization of the Cosmos Hub at: https://www.iobscan.io/#/ or https://mapofzones.com/. Map of Zones is shown in the following image. There are currently 54 L1s on the Cosmos Hub.

The Cosmos hub

Cosmos and connected chains use the Tendermint consensus mechanism, another variety of PoS. Staking on Cosmos is very easy. You can get the Keplr wallet, send tokens from an exchange and click a couple of buttons to stake. Cosmos is constantly evolving. The next likely upgrade branded Cosmos 2 will allow new L1s built on Cosmos to get their security from Cosmos and its stakers. This is an exciting proposition for stakers and the new L1s. The new L1s get to start a custom blockchain without worrying about whether they have enough validators; stakers get paid not just ATOM tokens but the token of all the different L1s they are securing.

Cosmos is a young project even by crypto standards, but at the time of writing, it is one of the ones I am most interested in. Unfortunately, as usual, being exciting does not necessarily equate to being profitable.

Algorand

Algorand is a Pure Proof of Stake, layer one blockchain. Its native token is ALGO. Its founder is Silvio Micali, and it was launched in 2019. Pure Proof of Stake, or PPoS, is a system of randomized node selection that ensures all network nodes get the opportunity to verify transactions, making the network harder to attack. PPoS also makes forking the blockchain impossible. On the face of it, this is good, but those reimbursed after the DAO hack on Ethereum would likely disagree. Remember how we discussed how occasionally Bitcoin forks into two or more chains until, eventually, the longest chain becomes the canonical (real) chain? PPoS makes this impossible. Algorand also has bridges to the Ethereum and Bitcoin networks.

Another exciting feature of Algorand is its speed. It boasts 1000 to 10,000 transactions per second. The disparity is because there isn’t enough activity to test the potential. Algorand achieves its performance by using a system of relay and participation nodes. Relay nodes relay and distribute transactions amongst participation nodes which do the regular work of a node. Algorand increases its efficiency by dividing it into two layers—layer one handles tokens and transactions. A dynamically selected layer two allows interchangeable nodes to run the smart contract transactions (execute the code) rather than all nodes in the ecosystem running all transactions.

The obvious question is how the nodes can be trusted because if they aren’t all running the same code, couldn’t they manipulate the outcome? This problem is solved with cryptography, and periodically, the nodes that execute the smart contracts will submit cryptographic proofs to layer one. Smart contracts are executed using the Algorand Virtual Machine or AVM on the selected participation nodes. In essence, the nodes guarantee correctness with clever mathematics. We will hear more of this theme of mathematical solutions throughout the chapter and the rest of the book.

Another difference to Algorand is the constraints it puts on token creation. Ethereum, as we have seen, provides a template for regular tokens called ERC20. The ERC20 template can do almost anything programmatically imaginable and control its distribution. On the other hand, Algorand makes token issuers adhere to a much tighter standard called Algorand Standard Asset or ASA, making it much less likely that a token could be used maliciously by accident or design. To explain it another way, on Ethereum, a token is A smart contract; on Algorand, you write smart contracts that interact with tokens that the issuer configures within the predefined parameters set by the network. One such ASA token is the SOV which is the token of the Marshall Islands.

Algorand seems to be positioning itself as a blockchain for corporates/governments. For example, The Marshall Islands SOV is used as a kind of CBDC. CBDCs are a negative development. You can find out why in the afterword at the back of the book. Having said that, Algorand is open, permissionless, and the code is open source, and they do talk about financial inclusion, I.e., banking the unbanked. While banking the unbanked can be done maliciously, perhaps by trapping people in a system that controls them or diluting the value of existing stakeholders, it could be a sign of good intent. As with so much in crypto, we will have to wait and see.

Anyone with ALGO can stake ALGO to the governance program and vote on the development of the network. You must lock your coins on the governance platform for 90 days and participate in the votes during that period. Think about that for a minute. If you have $1 in ALGO, you can have a tiny stake in the future of the network. In the short time I have been subscribing to the governance program, most of the votes were on narrow choices. Algorand could be a blockchain for all. We’ll see.

Popular wallets for Algorand include the Pera Algo, My Algo mobile wallets, and the AlgoSigner browser extension, enabling the secure use of a Web-based wallet.

As with Polkadot, Ethereum, and most other PoS blockchains, Algorand makes much of its environmental credentials. For example, Algorand uses some gas fees to purchase carbon credits. If you are going to replace the banking system, you have much scope to use energy before you should start worrying about how much you use. It is thought that Bitcoin uses 0.05% of global energy, in my view, a small price to secure a global currency. On the other hand, it takes the entire US military, Federal Reserve, and banking system to secure the dollar, and it’s still going down in value.

MultiverseX

MultiverseX previously known as Elrond has the EGLD token. It is very early with little liquidity compared to the chains we have discussed so far. However, it does have excellent interoperability. Very cheap transactions, NFT minting direct in the MultiverseX wallet and staking is simple too. You can even mint your own token and control its distribution, right from your wallet. This new project could easily fail but it does have a loyal following boasting 2,163,122 accounts, although accounts don’t equal people, and 15,972,025 EGLD locked in staking, much of this is probably owned by the organization and the founders. Here is a screenshot from https://explorer.multiversx.com/ where you can see these stats.

MultiverseX stats

In chapter xxx we will see how you can buy a tiny amount of EGLD and stake it to earn more EGLD while helping to secure the network. And in chapter xxx we will see how to mint an NFT direct in the MultiverseX wallet and put it up for sale. As mentioned, there isn’t much to do on MultiverseX at the moment but you can buy and sell NFTs on https://xoxno.com/, you can swap tokens on https://xexchange.com/ and they are building a metaverse – duh – and you can see their promotional video here https://www.youtube.com/watch?v=oYAa0FD0FGc.

Ethereum scaling solutions

Ethereum’s answer to Polkadot parachains, Cosmos IBC, and superfast, supercheap competitors like Algorand is L2 scaling solutions. Chains that connect to and use Ethereum but provide their additional scalability and features.

When the NFT project Crypto Kitties launched in 2017, it single-handedly halted the Ethereum Network. Congestion and gas fees were so high that it was unusable. In 2020 as DeFi was making leaps and bounds in popularity, it happened again. I remember trying to buy some obscure token on Uniswap, and I gave up because the gas fee was more than I intended to spend on the token. So let’s learn about some layer two scaling solutions.

Polygon MATIC

Polygon, previously called Matic, is an Ethereum sidechain. Despite rebranding from Matic to Polygon, the gas token is still MATIC. Sidechains are technically their own blockchain and are connected to the base chain. Polygon is a PoS chain with its validators and stakers but is significantly more centralized (fewer validators) than Ethereum itself.

Polygon allows users to lock tokens in a smart contract on Ethereum and release the equivalent token on Polygon. Once the user is done using Polygon, they can unlock the tokens on Ethereum and destroy or burn them on Polygon. While the tokens are on Polygon, users can use them with any dApps built on Polygon. The critical point being you can have your tokens on either chain but never both. Also, note that if there is any doubt, the “real” token is always on Ethereum.

If something went wrong and the tokens locked on Ethereum were released while the pegged tokens were still available on Polygon, the likely result is that the tokens on Polygon become worthless. Bridges have been hacked in the past. For example, the Ronin chain bridge, home to the Axie Infinity game, was hacked for hundreds of millions of dollars, and the Harmony chain bridge was also hacked, causing the near-death of the entire project. However, to date, the Ethereum to Polygon bridge is secure.

Polygon is an EVM-compatible sidechain and, as a result, has many dApps. Most of the big names from Ethereum, such as Uniswap, Aave, and Curve, have an equivalent dApp on Polygon. In addition, because the fees on Polygon are a fraction of the fees on Ethereum, it opens the door for new use cases that are not viable on Ethereum, such as decentralized social media. An example of this is the Lens protocol https://www.lens.xyz/apps. In addition to new use cases, it makes the original use cases like DeFi and DEXs viable for regular (poorer) users like me. We will use Polygon a few times throughout this book.

However, polygon is more than just a PoS chain you can bridge to. Polygon processes transactions much cheaper and faster than Ethereum and commits these transactions back to the Ethereum chain. By batching the transactions, the ecosystem can handle significantly more transactions while the censorship resistance of Ethereum is maintained through the batched commits.

The connection between Ethereum and Polygon starts with smart contracts on Ethereum. This is significant to consider because while Polygon is less decentralized than many blockchains, it didn’t need anyone’s permission to exist. Anyone can build a sidechain on Ethereum. Assuming you have the technical ability, you don’t need to be buddies with Vitalik. And as we will see, many more Ethereum scaling solutions use diverse techniques and technologies.

Immutable X

Immutable X is another scaling solution for Ethereum. Immutable X specializes in NFTs and blockchain gaming. Its native token is the IMX token. It is used for staking and governance.

Its key USP is that there are no transaction fees for minting NFTs, and its gas fees for other transactions are meager compared to Ethereum. Furthermore, for NFTs and only NFTs, Immutable X has a global order book. Finally, because NFTs are a special asset the blockchain handles, all NFTs on Immutable X are easily visible to any dApp interacting with Immutable Xs NFT programmable interface. So an NFT market on Immutable X can easily make available for sale every NFT that is currently for sale.

Immutable X works using ZK rollups or Zero-Knowledge proofs. It batches hundreds of transactions at a time to the Immutable X smart contracts on the Ethereum main chain for verification. This is different from the batching on Polygon. In addition, it is more technical, using Zero Knowledge technology developed by StarkWare.

ZK roll-ups have hundreds of batched transactions processed off of Ethereum and bundled together in a roll-up, and one single cryptographic proof is created for all the transactions combined. The math makes Bitcoin ECDSA look like 2+2, and I will not try and explain the mathematics. The quick explanation is that each transaction, including complex transactions like smart contract computations, is verifiable on the Immutable X smart contracts on Ethereum. Still, only a single cryptographic computation is required. An overly simplistic explanation is like a roll call in a school. You count the number of heads, match the names to a register, and you can be reasonably sure nobody is smoking behind the bike sheds. The technical term for this spectacular mathematics is a SNARK or a Succinct Non-Interactive Argument of Knowledge.

This is more than mathematically superior to the likes of Polygon. It is more secure and more scalable. VItalik Buterin, the co-founder of Ethereum, has suggested that ZK Rollups are the likely future for Ethereum scaling. At the time of writing, Polygon is also working on a ZK rollup called Polygon Zero.

Games on Immutable X include the collectible card game Gods Unchained https://godsunchained.com/ and Illuvium, the Pokemon-like RPG https://illuvium.io/.

While I was working on the second edition of this book Immutable X and Polygon made a joint announcement (20^th March 2023) that they were joining forces. Immutable would be using Polygon’s ZK technology to launch multiple zk Immutable chains. They will offer gaming companies their own ZK environment – with apparently no limit to scaling; but this is the important part – every ZK-powered chain would have cross liquidity with all things Polygon and Immutable X. Imagine trading Call of Duty weapons for Diablo skins or Gods Unchained trading cards – all in-game. Expect some more announcements by the end of 2023.

There are many more Ethereum layer two solutions. For example, if interested, you could explore Arbitrum and Optimism as a starting point. Ethereum is the most used blockchain, and if you add the activity on all the layer two solutions to the activity on Ethereum, then even more so.– but things change fast in the crypto world.

Bridging

We have already talked about interoperability between cryptocurrencies. For example, we learned that Cosmos and Polkadot facilitate multiple interconnected blockchains and that Ethereum is connected to numerous layer-two scaling solutions. However, if the vision of the Internet of Blockchains is to be realized, then what about connecting everything to everything else? The connections provided by Ethereum to its layer 2s and Cosmos and Polkadot between their ecosystems are extremely reliable, at least so far, but connecting disparate blockchains that weren’t designed to be connected is more complicated and comes with security risks. So let’s go into a bit more depth about these bespoke bridges.

If you want to use your ETH on BSC or your Bitcoin on Ethereum, you can do so by bridging those assets between the chains. Many bridges exist, and often multiple bridges exist between the same chains. For example, several projects bridge Bitcoin to Ethereum, allowing BTC holders to use DeFi dApps in Ethereum to earn interest. The word bridge implies that the assets cross over the bridge and enter the other blockchain – but they do not.

For example, when you bridge BTC to Ethereum, your BTC is locked by a centralized custodian on the Bitcoin blockchain. A new token is minted on the Ethereum blockchain, one example being wBTC which stands for wrapped BTC. If you bridge your wBTC back to Bitcoin, your wBTC is destroyed or burnt, and your original BTC is released back to your Bitcoin wallet. It is vital to understand that this centralized custodian of BTC or whatever token you are bridging is at risk of theft or smart contract failure. A bridge is only as good as the custodians are honest or the smart contract has been competently coded.

Some bridges have proved reliable, like Ethereum Polygon and Bitcoin Ethereum bridges. Still, many bridges, like the Harmony and Ronin bridges, have been hacked or exploited for millions of dollars. So don’t bridge because it sounds like fun. Instead, just bridge when there is a specific, preferably temporary, requirement.

Other types of bridges do atomic swaps. This is where you can swap between assets on blockchains without the risk of a custodian controlling your tokens. These atomic swaps are managed by inserting a network between the networks, which contains pools of tokens on all the networks you can swap between. The best example of a network that facilitates atomic swaps is ThorChain. ThorChain is decentralized, self custody, and permissionless and is the ideal vision for the future of bridges, but it still suffers from technical teething problems. I would leave the reader with the suggestion that you should never bridge more than you can afford to lose, but I suspect the technology will eventually catch up with the user’s desire to use their tokens anywhere.

Summary

We understand the advantages and disadvantages of blockchains, layer 2s, relay chains, and more. However, there are many more projects and blockchains to discuss, and I hope to expand this chapter in later editions. I chose the projects to cover because they are interesting, not because they are the “best,” most secure, or a good investment. You will need to decide about that. Instead, I hope the selection was a good introduction that gives you the background knowledge to explore any project that interests you. In the next chapter, we will see more blockchain projects and some exciting projects building on the layer 1s and 2s we have already discussed.

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The Internet of Blockchains