AppChains: Application-Specific Blockchains
Appchains are specialized blockchains engineered to power specific applications, offering a suite of tailored functionalities, scalability, and the ability for customization, including unique tokens, access control, and enhanced security.
While initially, blockchains like Bitcoin and Litecoin were envisioned primarily for decentralized financial transactions, the community quickly adopted them as foundational platforms for launching new ventures. Ethereum, with its capacity for hosting parallel blockchains, stands out as a notable example.
The increase in both projects and user base, however, introduces significant strain on these networks, rendering them expensive and challenging to scale. A viable solution is to allocate a distinct blockchain space for the development and management of each app individually.
For those looking to bypass the complexities of creating such architecture from the ground up, platforms like Cosmos and Polkadot provide robust support for appchain development.
Compatibility: Crypto ecosystems often operate in silos, with a significant portion of assets concentrated in Ethereum and the remainder distributed across various networks. This separation complicates interactions, such as transferring tokens from Arbitrum to Solana without cross-chain bridges.
Appchains are designed with built-in compatibility, facilitating seamless interactions among different applications. For instance, Polkadot’s parachains interact through the relay chain, while Cosmos ecosystem apps use the Inter-Blockchain Communication Protocol (IBC).
Customization: Appchains enable developers to independently set specific parameters for their applications, directing resources where needed and enhancing the project's adaptability to updates.
Customization options include:
Project founders might opt to utilize the application's network token or create a native one. This token is essential for maintaining consensus, transaction payments, voting, and more.
Osmosis stands out as a key application within the Cosmos ecosystem, functioning as the primary Decentralized Exchange (DEX). It supports the exchange of tokens and the formation of liquidity pools across various zones.
Another application is the decentralized exchange dYdX, which, in July 2023, transitioned into the Cosmos ecosystem. Previously leveraging Ethereum, the platform was upgraded to become an independent blockchain, significantly improving its transaction processing speed. Developers have noted that dYdX is now capable of handling up to 500 orders per second.
Appchains' inherent modularity offers projects the ability to efficiently allocate resources, thus achieving greater scalability. Furthermore, the established infrastructures of ecosystems like Cosmos and Polkadot provide developers with user-friendly tools for bringing their ideas to fruition.
The future remains uncertain, yet given the heightened interest in appchains during the previous bull market cycle (2020-2021), it's plausible that this concept might regain momentum.
The increase in both projects and user base, however, introduces significant strain on these networks, rendering them expensive and challenging to scale. A viable solution is to allocate a distinct blockchain space for the development and management of each app individually.
Appchain Architecture
Appchains are designed more akin to modular blockchains, such as Celestia, rather than monolithic structures like Bitcoin or Litecoin. This modular approach allows developers to tailor the technology stack to their application's specific needs. A common strategy involves leveraging an L1 blockchain for robust data storage and security while employing an L2 layer for efficient transaction processing.
5 Layers of an Appchain. Source: simpleswap.io
Conceptually, the appchain architecture can be segmented into several layers:
- Network Layer: Facilitates secure peer-to-peer node interactions and data processing within the network.
- Application Layer: Offers developers an interface for engaging with the appchain and accessing underlying data.
- Data Layer: Guarantees the secure storage of critical information, including the blockchain's state, user addresses, and transaction data.
- Consensus Layer: Ensures network consensus through mechanisms like Proof-of-Work, Proof-of-Stake, or any other consensus algorithm.
- Smart Contract Layer: Essential for the analysis, agreement, and execution of smart contracts.
For those looking to bypass the complexities of creating such architecture from the ground up, platforms like Cosmos and Polkadot provide robust support for appchain development.
Although the concept of appchains was proposed by the latter in 2016, it only came to fruition after 7 years. In December 2021, Polkadot rolled out parachains—individual blockchains within the project's ecosystem, connected by the relay chain.
For more details on Polkadot's parachains and their operation, consider reading our article.
Key Advantages of Appchains
Scalability: The deployment of numerous applications on a single L1 blockchain can diminish each app's performance and lead validators to prioritize certain projects over others. Appchains solve this by employing distinct protocols for the operation of specific applications, thus achieving scalable and efficient performance.
Compatibility: Crypto ecosystems often operate in silos, with a significant portion of assets concentrated in Ethereum and the remainder distributed across various networks. This separation complicates interactions, such as transferring tokens from Arbitrum to Solana without cross-chain bridges.
Appchains are designed with built-in compatibility, facilitating seamless interactions among different applications. For instance, Polkadot’s parachains interact through the relay chain, while Cosmos ecosystem apps use the Inter-Blockchain Communication Protocol (IBC).
Customization: Appchains enable developers to independently set specific parameters for their applications, directing resources where needed and enhancing the project's adaptability to updates.
Customization options include:
- Network Security Type: This can either be isolated, where security is provided by the application itself (e.g., Cosmos), or inherited, where security is managed at the consensus level of the main blockchain (e.g., zkSync, Optimism).
- Data Availability: This involves storing network state information either on Ethereum or other L1 blockchains.
- Access Level: Options include either a public or a private appchain. In a public appchain, the blockchain state is accessible to all, whereas in a private appchain, it is only accessible to certain nodes.
Project founders might opt to utilize the application's network token or create a native one. This token is essential for maintaining consensus, transaction payments, voting, and more.
Platforms for Appchain Creation
Polkadot Parachains
These are distinct blockchains tethered to Polkadot's relay chain, utilizing a special Nomination Proof of Stake (NPoS) mechanism for validator selection and consensus participation. This design ensures application compatibility and scalability.
Simplified Polkadot Architecture. Source: elliptic.co
Using a parachain can be costly, as the number of slots is limited to only 100. A slot can be obtained at auction, but its duration is only 2 years. Then, it must be won again.
Cosmos Zones
Cosmos is a protocol designed to enable interaction within a "universe" of interconnected blockchains. Its foundation includes the Cosmos SDK, a comprehensive software development kit, and the Tendermint consensus mechanism.
Map of Cosmos Zones. Source: mapofzones.com
Within the Polkadot ecosystem, individual blockchains are referred to as parachains, but in Cosmos, these entities are termed zones. These zones are linked to the Cosmos Hub, which serves as the central node, facilitating their mutual interactions through the Inter-Blockchain Communication Protocol (IBC).
Osmosis stands out as a key application within the Cosmos ecosystem, functioning as the primary Decentralized Exchange (DEX). It supports the exchange of tokens and the formation of liquidity pools across various zones.
Another application is the decentralized exchange dYdX, which, in July 2023, transitioned into the Cosmos ecosystem. Previously leveraging Ethereum, the platform was upgraded to become an independent blockchain, significantly improving its transaction processing speed. Developers have noted that dYdX is now capable of handling up to 500 orders per second.
The Future of Appchains
As the digital landscape continues to evolve, introducing new narratives, there arises a need for matching applications. From NFT games to new DEXs, appchains are well-positioned to fulfill the requirements for such diverse solutions.
Appchains' inherent modularity offers projects the ability to efficiently allocate resources, thus achieving greater scalability. Furthermore, the established infrastructures of ecosystems like Cosmos and Polkadot provide developers with user-friendly tools for bringing their ideas to fruition.
The future remains uncertain, yet given the heightened interest in appchains during the previous bull market cycle (2020-2021), it's plausible that this concept might regain momentum.
