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Liquid staking is optimal solution to improve interchain security.
The launch of the “super currency” Bitcoin in 2009 became a technological event that dominated the global financial market, ushering in a new era in the history of cryptocurrencies. Bitcoin exemplifies the immutability, transparency, and tamper-proof nature of blockchain ledger, setting the stage for establishing the cryptocurrency platform and other blockchain-based industries.
Today, just over a decade later, these industries are growing stronger. The total cryptocurrency market cap reached an ATH of $3 trillion in November 2021. Besides, the worldwide cryptocurrency market has more than 300 million users, while forecasts suggest that this number could exceed 1 billion by December 2022. However, this extraordinary journey has only just begun.
The success of the blockchain and cryptocurrency industry stems from a variety of factors. In particular, key features of basic technology such as decentralization, trustlessness, and data security have made an important contribution to this development.
Leading blockchain networks like Bitcoin operate on PoW consensus mechanism. Miners distributed all around the world ensure security of network by providing algorithmic power or hashing.
Meanwhile, Ethereum has moved to PoS mechanism through the Merge upgrade, validators secure by locking or staking digital assets.
The greater the number of miners or validators in PoW and PoS, respectively, the higher the security. Therefore, only large, more established blockchains will have optimal returns from conventional consensus mechanisms.
On the other hand, emerging blockchains, despite their potential for innovation and development, often lack the resources to implement network security in the best way.
Therefore, enhancing interchain security is an optimal solution to overcome this problem. Besides, with liquid staking improvements, larger PoS blockchains can protect emerging blockchains, facilitating the development of a safer and more stable cryptocurrency industry.
>> Related: Yield farming, staking and liquidity mining – The secret to success in DeFi
Interchain security issues of blockchains
Why do larger blockchains share validators with smaller ones? Isn’t it a matter of human rights competition, after all?
Of course. However, it is impossible to underestimate and ignore the role of mechanisms and cross-chain interoperability. Moreover, emerging blockchains with strong growth potential will benefit the entire blockchain ecosystem. And that is key for blockchain technology to be applied and become increasingly popular, which is the ultimate goal despite all the competition.
PoS blockchains are often more vulnerable than PoW. Billy Rennekamp of the Interchain platform shared:
“If one can control one-third of a network, they can do censorship attacks and if they control two-thirds of the network, they can control governance and pass a proposal for a malicious upgrade or drain the community pool with a spend proposal.”
More 80 blockchains have adopted the PoS mechanism, and this number is predicted to continue to increase in the future because the disadvantage of PoW is energy-intensive nature and environmental effect. Ethereum has made the “revolution” of the transition to PoS through the Merge upgrade.
The transition from PoW to PoS received widespread support and reception from the community. However, it could cause an industry-wide security crisis if there are not strong security measures. Investors will suffer property losses and lose believe in the cryptocurrency industry, even with larger blockchains with efficiently operated PoS setups. Therefore, enhancing interchain security is an important issue and a primary necessity to ensure the operation of the blockchain and the benefits of investors.
Liquid staking optimizes interchain security
In fact, interchain security has been developed by Cosmos Hub. However, the implementation is not yet complete. In particular, liquid staking is one of the solutions to help upgrade interchain security.
Liquid staking unlocks liquidity of assets staked (locked) in the PoS blockchain or other staking pools. This is significant, because, otherwise, liquidity remains untapped.
>>> Related: What is liquidity pool? The importance of liquidity pool in DeFi
Users cannot use staked assets in decentralized finance (DeFi) which limits the chances of generating optimal returns. By offering staked crypto Derivative assets, liquid staking allows individuals to profit simultaneously from both staking and DeFi. Besides maximizing yields, it also helps trigger add-ons.
If only focusing on profits, users ignore the more important aspect. This mechanism allows liquid staking protocols to release locked values, while enhancing interchain security. To put it simply, validators on PoS blockchains like Cosmos verify transactions on smaller chains. Validators are not be able to scam in this process as they will lose their staked assets on large chains.
However, the more significance of liquid staking is the ability to extend the scope of interchain security. Liquid staked assets can represent the value of assets staked in any large chain which can then be used to share validators with almost small chain. In other words, the main solutions on Cosmos can be widely accessed with liquid staking.
