Cross-chain Staking (Cross Staking) — the technology that chan

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    Introduction
    Since 2009 the Blockchain technology is known to us as a distributed ledger protected from unauthorized access. This registry keeps records of transactions in a peer-to-peer network which can be either public or closed. For a non-specialist in the crypto industry the very concept of blockchain is associated with the mining of cryptocurrencies, bitcoins and crypto exchanges.

    However, the blockchain serves as the basis for a variety of new technologies of the post-industrial era and is only going through the initial stage of its development. Nowadays, blockchain is changing business models, governance and e-voting systems, real estate and car rental principles, the gaming and entertainment industry, and many other industries.

    The next significant event in the crypto industry after the appearance of bitcoin was the development of the Ethereum cryptocurrency and the platform, the concept of which was proposed by Vitalik Buterin in 2013, and the platform itself was launched in 2015.

    Ethereum is the second most important cryptocurrency, the main advantage of the Ethereum platform is the ability to create smart contracts. And this opens up the widest prospects: smart contracts allow not only to send cryptocurrencies to each other but also to conclude various transactions in cryptocurrencies, regulate them with “smart contracts”, much like lawyers do with contracts, only much more efficiently. These opportunities give us the basis for a completely new economy of the sixth technological order which will perhaps be more free from the control of states, regulators and banks.

    However, there are also negative aspects in the development of the crypto industry: since the emergence of the blockchain, the Ethereum platform and smart contracts, for more than 10 years, not so many technologies have been developed in this area. We, of course, mean truly disruptive technologies.

    In our article we will try to talk about new approaches and technologies in blockchains that have appeared over the past few years and how they have changed the blockchain. Specifically we will touch upon solutions of the second level / layer (L2-solutions), namely channels and sidechains. Let's keep an eye on such a new technology as Cross-chain staking.

    New technologies in the field of blockchain - second level solutions

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    Let's start with the fact that the classical blockchain has a serious problem: how to create a fast, decentralized and secure network at the same time? Developers tend to choose two of the three priorities. This problem is known as the scalability trilemma. It's no secret that blockchains are inferior to centralized systems in terms of speed (the number of transactions per second).

    What kind of solution to the problem do blockchain experts see? The easiest way was applied in Bitcoin Cash: they increased the block size and lowered the transaction fee. However, such a solution has its own technical problems and leads to the centralization of the blockchain, the split of the community, etc.

    Therefore, another method was found: sharding, the meaning of which is the horizontal separation of network data, but sharding has big problems with communications between segments and cybersecurity vulnerabilities.

    The most optimal solutions to the “scalability trilemma” are L2 solutions (second level, Layer 2 solutions) which are frameworks deployed on top of the existing main blockchain. L2 solutions are designed to reduce the load on the main network.

    There are two types of such solutions:
    — status channels;
    — sidechains.

    Status channels allow users to make a large number of private transactions that take place outside of the main blockchain. Sidechain technology allows the user to securely use tokens from one blockchain on another blockchain and, if necessary, return them to the original blockchain.

    There are also two important parameters that classify L2 solutions:
    — cryptographic verification;
    — data availability (DA) off-chn or on-chn.

    The two types of cryptographic verification are reality verification and fraud verification. On-chn data availability means that all state and transaction data is processed and verified in the L2 network, while off-chn means all data and state data is processed outside L2.

    Below we will talk about projects that work on the basis of status channels:
    1. The Lightning Network (LN) serves to increase network bandwidth and provides a p2p payment network for microtransactions. LN works with Bitcoin, Litecoin and other cryptocurrencies. In 2018, this technology was officially launched, and in April 2021, LN is already represented in more than 19,000 nodes and 40,000 payment channels. The following teams are developing the Lightning Network technology: Lightning Labs, Blockstream, ACINQ, Bitfury.

    What blockchain problems does the Lightning Network project solve? The main advantage of LN is the scalability and much faster operation of blockchain networks, for example, users can make instant micropayments with more favorable fees than regular bitcoin transactions.

    Thus, to pay for goods in an online store, a client does not need to record a transaction in a public blockchain, wait a long time for confirmation and pay a high commission, now users can use channels and nodes to conduct fast and cheap transactions. However, this network still has problems with security and with carrying out large transactions.
    2. The Rden Network project has been developed since 2015 as an analogue of LN for Ethereum, it supports the exchange of tokens and shows a speed of over a million transactions per second. On July 19, 2018, at the Dappcon developer conference in Berlin, the latest Rden payment channel testnet for the Ethereum blockchain was launched.

    According to the lead developer of the project Lefteris Karapetsas: “At its core Rden is a network of payment channels for Ethereum. It is designed to help scale the transfer of tokens. In the long term we plan to allow people to use Rden from mobile devices and thus make off-chain transactions.”

    3. Another interesting project is Liquidity Network which is enabling Ethereum wallets to use the off-chain protocol in the form of payment channels. A demo version of this solution was first published by Swiss Ethereum researcher Arthur Garweiss in November 2017. Unlike Lightning Network and Rden, Liquidity Network solved the problem of routing and rebalancing payment channels. Rebalancing is the redistribution of funds from channels with excess bandwidth to those channels  that require replenishment.

    4. Plasma — More Viable Plasma (MoreVP). The Plasma project was proposed by Vitalik Buterin and Joseph Poon for Ethereum based on the use of smart contracts and Merkle trees, which leads to the unloading of the main blockchain and makes it possible to make fast and cheap transactions. The way Plasma works is similar to the Lightning Network: a set of smart contracts is created on the network that allows many third-party chains to fix their state in a compressed form in the root chain. What makes this project different from others? It has economic incentives that are applied to prevent fraud. In June 2020, OMG Network began beta testing OMG Network V1 based on the specifications of the latest version of Plasma, More Viable Plasma (MoreVP).

    Here are examples of well-known sidechains:
    1. LiquidNetwork is a bitcoin sidechain designed to organize a settlement and payment network for cryptocurrency exchanges, brokers, etc. Liquid Network is based on the Elements source code and uses Strong Federation technology. In 2014, Blockstream published the White Paper of Sidechain Elements sidechain technology, and in October 2018, the official release of Liquid was presented to users.

    The Liquid Network project solves the problem of blockchain scalability, moreover, it allows users to carry out Confidential Transactions ("confidential transactions"). The Liquid Network also has a unique Issued Assets tool that allows users to create their own tokenized assets on the Liquid sidechain.

    The Liquid Network Federation includes exchanges, trading platforms, etc. With Liquid, federation users and members can transfer bitcoin between exchanges on the network and Liquid Network-enabled wallets.

    2. The Polygon project (formerly Matic Network) is implemented based on the support of the Plasma framework and uses a decentralized network of PoS validators. In October 2017, the platform's test network began its work. The Polygon founding team stated that this platform serves to solve the problems of scaling and increasing the efficiency of blockchain networks. In April 2019, the company launched an IEO of the MATIC token, thus attracting funding in the amount of $5.6 million. In February 2021, the name of the project was changed to Polygon. The advantages of Polygon are the presence of a modular Polygon SDK package, with which developers can create decentralized applications and any elements of the network infrastructure.
    3. Separately I would like to note the Rollups solutions which are designed to reduce the load on the main blockchain - they support the grouping of transactions and take part of the calculations outside of Ethereum (to sidechains). For example, there are 2 types of Rollups: ZK-Rollups and Optimisticrollups. Rollups solve the problem of blockchain security, they are more efficient in terms of speed and decentralization than classic sidechains but they have lower liquidity and higher transaction fees.

    Further on we will talk in detail about another interesting L2 project - Cross Staking.

    Basic principles of Cross Staking. Briefly about the emergence of Cross Staking technology

    Cross Staking is a new technology that represents a second layer (L2) solution. The technology was developed by the Matrix Network team in order to carry out transfers between blockchains, to work with additional functions such as smart contracts in order to transfer assets between different trading platforms in a more convenient way, and for other purposes.

    Cross Staking technology was created to enable staking providers to stake PoW (proof-of-work) coins. From a technical point of view Cross Staking is an add-on to the main blockchains, it can create sidechains with local PoS (proof-of-stake) consensus algorithms, which allows staking in the corresponding additional chains. Thus, the staking provider can freeze the cryptocurrency in the main blockchain while activating it in the sidechain (in an additional chain), where staking is carried out.

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    How did the Cross Staking project develop?

    In 2016, at the international crypto conference Matrix Network CEO Owen Tao announced the possibility of staking proof-of-work coins. However, at that time it was still too early for such innovative solutions since staking did not have much popularity in the crypto industry at all.

    The presentation of Cross Staking at the BlockShow Asia 2017 international event in Singapore aroused genuine interest among developers and experts in the field of blockchain solutions. At the conference a lot was said about the limitations of the proof-of-work consensus in terms of scalability and environmental issues.

    In 2017, the Ethereum blockchain began the process of transitioning to proof-of-stake consensus. Over the three years of development the Matrix Network team has done a great job of implementing the very possibility of staking proof-of-work coins, as well as building a secure, fast and decentralized network.

    This opportunity came about thanks to the development of an innovative hybrid system that was able to combine the “proof of work” (based on the work done) of the main  blockchain and the “proof of stake” of the side chain. The system uses multi-level protection and carefully distributed rewards.

    “This system has absorbed the best of both worlds, making it much more expensive to attack against it than systems built solely on proof-of-work or proof-of-stake,” according to Matrix Network experts.

    Staking organized using this technology is 2.5-3.5 times faster compared to standard PoS blockchains. Thus, Cross Staking is attractive to both staking providers and token holders who can increase their passive income.

    According to Matrix Network representatives, an agreement has been reached with the following staking providers: PRIME STAKE and OREOL STAKE. These companies are launching Cross Staking solutions as early as 2022.

    Further on we will briefly analyze the advantages of the technical implementation of staking.

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    Advantages of PoS (proof-of-stake) in relation to PoW (proof-of-work)

    Initially, blockchains used the PoW (proof-of-work) consensus algorithm based on the mining procedure. However, as PoW was used, its serious shortcomings appeared:
    - high energy consumption of mining;
    - network congestion and high commissions;
    - low speed and poor network scalability;
    - organization of pools of miners which lead to greater centralization of the network;
    - security issues, etc.

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    Proof-of-Stake aims to correct the shortcomings of PoW, namely, slow speed and poor network scalability. The main difference between PoS and PoW is that there is no mining in PoS. Participants mine new coins through staking, a special mechanism that allows you to add new blocks by proving ownership of the cryptocurrency of this network. Network participants are validators, and their balance is a stake.

    In general, the benefits of PoS are clear:
    — low power consumption (compared to PoW);
    — there is no need for expensive special equipment (as in mining);
    — high speed and scalability;
    — low commissions.

    New Cross Staking Technology: Relevance for the Crypto Industry

    Recently, interest in blockchain projects has only been growing, and the crypto industry has taken an important place in the post-industrial economy. However, PoW (proof-of-work) is rapidly becoming obsolete, and due to its non-environmental nature, low speed, high centralization and high commissions, it no longer meets the needs of modern blockchain projects. New projects are being launched based on Proof of Stake, and even well-known blockchains are planning to switch to PoS.

    In 2018, the developers of the Ethereum project began work on the transition to proof-of-stake. The main reason for this transition is concern for the environment and energy saving. Indeed, after the transition to PoS, the Ethereum blockchain will consume 99.95% less electricity. However, such a transition is labor intensive and takes more than 5 years. According to Vitalik Buterin, this could happen in the second half of 2022.

    At the same time, energy consumption for mining is growing every year. Therefore, there are proposals to generally ban mining in the EU, i.e., the operation of PoW-based blockchains, while this ban will not affect PoS-based projects.

    It is natural to assume that the demand for L2 solutions and specifically Cross Staking technology will increase significantly which has a number of advantages and solves the problems that classical blockchains have, for example, in terms of scalability, speed, security and high transaction fees.

    With the help of technologies such as Cross Staking it will be easy and simple to make micropayments in cryptocurrency in online stores, receive passive income on exchanges instead of engaging in energy-intensive cryptocurrency mining using expensive equipment and electricity.

    Advantages of Cross Staking
    1. Confirmation of blocks with higher speed. From a technical point of view, the created sidechain does not even form blocks in the usual sense. The term "block" in this improved consensus is the sequence of entries that are voted on by validators and produce a confirmation. In the current implementation of this technology the block confirmation speed is already 2.5–3.5 times faster than in the main network.
    2. More advanced security model. When deploying a sidechain in Cross Staking technology the protection of the main and secondary chains is combined. The main proof-of-work chain receives the security benefits provided by the hashing power of the proof-of-stake chain. A group of notary nodes is created adding information from the first block chain to the second one. Thus, an attacker, in order to break the first chain, must also break the second one.
    3. Green, energy efficient protocol. The classic PoW blockchain is hardly a technological revolution because it consumes more electricity than some countries. Cross Staking is designed to bring real innovation to the Internet economy while significantly reducing the power consumption of the crypto industry. At the same time, in the future, it is possible that the energy-consuming mining of cryptocurrencies will no longer be relevant.

    Conclusion

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    Cross Staking and similar L2 technologies are a significant step forward in the development of the crypto industry.

    The introduction of Cross Staking technology will solve many of the problems that the classic blockchain has, namely:
    - improve network scalability and performance;
    - increase the level of security;
    - reduce the energy costs of blockchain projects by several times, thereby increasing energy saving and developing a “green economy”.

    The development of staking technologies in the future will give impetus to building platforms for increasing passive income for crypto investors. Also, staking technologies, like Cross Staking, can become the basis for a new financial system and Web 3.0 technologies. Namely, in the near future we will be able to observe the processes of tokenization of a wide variety of assets and the formation of a new type of blockchains (based on L2 solutions) as the basis for a new economy.

    The widespread adoption of cryptocurrencies and their transformation into a real means of payment facilitated by technologies such as Cross Staking, with the help of which multiple micropayments are possible, will contribute to the development of a new, more innovative financial system in the global economy.

    In such a financial system it will be possible to save free money (cryptocurrencies) of the population in blockchains, as well as passive income through staking on crypto exchanges. We believe that this is a positive trend that will lead to the creation of a new middle class and the strengthening of its position in society.

    This is how new technologies like Cross Staking are revolutionizing both the blockchain and the crypto industry itself.