Crypto.org Chain is a public, open-source and permissionless blockchain – a fully decentralized network with high speed and low fees, designed to be a public good that helps drive mass adoption of blockchain technology through use cases like Payments, DeFi and NFTs.
Cronos Chain is a smart contract platform that is parallel to Crypto.org’s Chain which is powered by CRO, the native coin of Crypto.com Exchange. The future direction of Crypto.com is, decentralizing their services by Crypto.org when the protocol and its community are ready to self-govern as Cryptocurrencies’ ethos. Bringing programmability is what Cronos Chain adds as value to Crypto.org Chain, breeding more functionality to the whole ecosystem of Crypto.com.
EVM is what brings more functionality to the blockchain technology where it turns it into a distributed state machine. The role of the EVM is to deploy several extra functionalities to the blockchain to ensure users face limited issues on the distributed ledger. You can imagine this as when you add EVM to Bitcoin, it becomes Ethereum. EVM compatible means, the chain built with EVM can support all of the other applications those built in the same standards as well. A contract built-in Ethereum can be built in Cronos chain too. A couple of examples of EVM compatible protocols would be Cronos Chain, Ethereum, Binance Smart Chain, Matic Network, Tron Network, etc. When it comes to Cronos Chain, it supports rapid porting of apps & smart contracts from Ethereum and other EVM-compatible chains.
A concept of allowing blockchains to be compatible with each other and build upon each other’s features and use-cases. This allows Cronos Chain to speak with other blockchains, incorporate their functions, or bridge the tokens in. This is a common practice of many other blockchains. For example, WBTC(Wrapped Bitcoin) is the bridged version of Bitcoin that is incorporated inside Ethereum by locking Bitcoins into a smart contract and using them inside the Etherum blockchain even though Bitcoin is a different blockchain than Ethereum. WTC is one on one interchangeable with regular Bitcoin that lives in the blockchain of bitcoin. This is also possible with Cronos Chain.
This is the same case with USDC in that it is interoperable with a lot of chains In the Crypto.com application. Interchanging USDC is seamless within the chains of Ethereum, Polygon, Binance Smart Chain, Arbitrum, Avalanche, Solana, Cronos Chain.
This show gives us a hint about the future, there will be not a protocol that gets the whole pie instead there will be many protocols that will speak to one another which will make a whole ecosystem.
Scalability has been a trade-off since the inception of blockchain over time as they gain a significant amount of traction within users. Blockchains are designed to be decentralized and the trade-off has been taking the security against the high speed of transactions. The blockchain networks are relatively fast when you compare them to international bank wires, but the blockchain offers many application capabilities other than just transferring money. Historically, many different functions that are being built in blockchain have been clogging the network due to its security measures. This is why other consensus algorithms are being developed relative to Proof of Work which was the native and first consensus algorithm that powers Bitcoin.
Proof of Work & Proof of Stake
Proof of Work is a consensus algorithm that requires a tremendous amount of computation with advanced hardware that secures the blockchain. Bitcoin and Ethereum currently use Proof of Work consensus. In 2021, Ethereum has started a transition to Proof of Stake where the validators(people who keep the network secure and functional and earn rewards in cryptocurrency) don’t participate by the processing power of their computers as it happens with Bitcoin, instead, they keep the network secure by staking(locking their Ethereum for a while in the protocol) their Ethereum as that grants them authority to keep the blockchain secure. Proof of Stake is more advanced than Proof of Work but it is not necessarily better on all grounds. The goals of Ethereum and Bitcoin differ as to their consensus algorithms because they are both trying to accomplish different things which are out of the scope of this article.
When it comes to Proof of Authority, it is considered to be a modified Proof of Stake which leverages identity instead of coins. Due to the decentralized nature of most blockchain networks, PoS(Proof of Stake) is not always suitable for certain businesses and corporations. In contrast, PoA systems may represent a better solution for private blockchains because their performance is considerably higher.
Proof of Authority
Proof of Authority (PoA) is a reputation-based consensus algorithm that introduces a practical and efficient solution for blockchain networks (especially the private ones). The term was proposed in 2017 by Ethereum co-founder and former CTO Gavin Wood who is now developing Polkadot Parachain.
The PoA consensus algorithm leverages the value of identities, which means that block validators are not staking coins but their reputation instead as transactions and blocks are validated by approved accounts therefore, PoA blockchains are secured by the validating nodes that are arbitrarily selected as trustworthy entities.
Essentially, in PoA, the whole blockchain isn’t validated by hundreds of validators because that way blockchains take a lot of time to be updated to many nodes to validate upcoming transactions. This introduces more accountability to the validators because their reputation is at stake instead of the coins they hold. It is a bit similar to how people are voting for senators as validators of governing the country as they are staking their reputation within their accountability.
An inclusive analogy could be for all three algorithms, Proof of Work is a consensus that everybody in the country can vote in presidential elections but it is very inefficient and slow, that is why it only happens every four years. Proof of Stake is like capitalism where the amount of resources you have gives you voting power in the free markets. The Proof of Authority is like elected senators where their ability to vote is determined by the number of people who are supporting them.
Decentralized Finance (or simply DeFi) refers to an ecosystem of financial applications that are built on top of blockchain networks. You can use varying financial services without a permission of a person or an entity. For example, if you are using Coinbase to make your trade as a centralized entity you need permission from Coinbase to accept your operation. A bank can stop you from using your funds for cryptocurrencies. The reason for that is, those services are constantly controlled, maintained, and permitted by an organization or an entity.
In decentralized finance, everything is automated and immutable(unchangeable or controllable after the deployment of the code that allows the service). This means, there is not an entity that can constantly change some rules as they have control over all the processes as centralized entities do. Once the smart contract is live on the blockchain, it cannot be changed arbitrarily. It behaves the same for every participant in the platform. The users are not enumerated as the state does(for example social security number). Instead, everybody is conceived as a bit of code where their wallet is dissociated from your identity and the code just sees the transaction they want to execute. This is called account abstraction which the blockchain doesn’t see age, race, nationality, occupation, or social security number; the blockchain only sees the pseudo-anonymous wallet when a transaction wanted to be executed.
Yield Farming(in DeFi)
Yield generation is the practice that involves pseudo-anonymous investors locking in their crypto assets in liquidity pools based on smart contracts. Now, the assets locked in the liquidity pools are available for other users to borrow in the same protocol.
How does this happen in decentralized protocols? How can someone borrow without disclosing their identity? Simple. Collateralized lending. For example, if someone wants to borrow 50 thousand dollars worth of USDC to turn it into US dollars, they can lock their cryptocurrencies in a smart contract. Generally, the collateral should be double the amount that is desired to be borrowed. So, they should lock up 100 thousand worth of coins/tokens into a contract. If they are wondering why would anyone lock their 100 thousand dollars worth of coins to borrow 50 thousand dollars, the answer is because they want to keep their exposure to cryptocurrencies meanwhile they need cash in their hands. Exposure the cryptocurrencies mean, they don’t want to miss out on the price appreciation their cryptocurrencies might have meanwhile they need the cash on hand.
Liquidity mining(in DeFi)
Liquidity mining differs from Yield Farming where it capitalizes on the new technology that Uniswap created called AMM(Automated Market Maker). It is not a lending/borrowing practice. Instead, it is a protocol that makes it possible for a market to be efficiently decentralized.
AMM is a market that works differently than exchanges, trading there doesn’t require ongoing sellers or buyers. It is just code, locked tokens, and mathematical algorithms that define the properties of the contract.
Participants can offer their crypto assets to liquidity pools in DeFi protocols for crypto trading. This allows them to get paid by the fees that are generated from executed trades.
We learned about EVM, Interoperability, Scalability, Consensus Algorithms(PoW, PoS, PoA), DeFi as along with Yield Farming and Liquidity Mining.
Making use of these concepts doesn’t require understanding them completely. Over time, the practice of using them make everything to be easier. The more you know about these concepts, the more you understand the risk and how to capitalize on opportunities.
This is the end of Cronos Chain Level One: Fundamental Properties and DeFi Introduction article. I’ll be seeing you at Level Two!