Replicated Security and Why it Matters for Cosmos

Security is fundamental to the growth of any crypto ecosystem. If a blockchain is not secure, there is little incentive to build on it as any successful endeavour would become a target to capture. However, it's not quite as simple as writing secure code, as anyone who has been part of building a blockchain can attest to. But this doesn’t mean there isn’t work being done to crack the security hurdle. For the Cosmos Hub, this means the introduction of Replicated Security (RS).

Proposed in June 2022, the approval of Proposal 72 marked a soft consent in favour of RS. It also accelerated its development through the earmarking of 150k ATOM from the community pool to fund projects that support and that are supported by RS, including Neutron. Recently approved by the Cosmos Hub community, the arrival of RS will provide a ground-up framework for new projects to securely deploy within the Cosmos Hub’s ‘ATOM economic zone’ by leveraging the Hub’s validator set.

What is Replicated Security?

At the moment, Cosmos tech is working well to build an ecosystem of application-specific blockchains. The problem is that it’s difficult to reach a high level of security across numerous blockchains and expensive to cover the cost of security to keep these applications running. RS is the solution to lowering this barrier to entry and increasing the growth potential of Cosmos chains.

But what is RS, and how can it support the Cosmos ecosystem?

RS is a shared security system that allows a larger chain, known as the provider chain, to provide security to a smaller chain, known as the consumer chain.

Using the Inter-Blockchain Communication Protocol (IBC), the provider chain sends a series of messages to the consumer chains’ consensus engine (Tendermint). These messages will notify the consumer chain of the validators participating in its validator set as well as the share of voting power that these validators obtained by staking on the provider chain. In exchange, the provider chain receives a percentage of the gas fees from the consumer chain as part of a flexible security agreement.

As with any Proof-of-Stake (PoS) consensus mechanism, the Cosmos Hub’s native validators are required to stake ATOM tokens and risk having their stake slashed in the event of misbehaviour on a consumer chain.

In essence, RS replicates a traditional PoS mechanism, but with its components (assets at stake, validator sets, slashing, etc…) distributed across two blockchains.

Securing the Hub

As the most secure and valuable blockchain in the Cosmos ecosystem, the Cosmos Hub is the designated provider chain, sitting at the centre of the network and communicating with the other appchains through IBC. By drawing on its redesigned security features, the Hub creates a symbiotic relationship between itself and a tightly integrated economic zone of consumer chains.

From a security standpoint, the Hub’s ability to secure itself allows it to achieve Practical Hub Minimalism. This strategic philosophy says the Hub should minimise the number of working features in order to reduce the risk that it faces security vulnerabilities such as hacks and network attacks. In turn, RS allows the Hub to monetise its minimalism by generating revenue from consumer chains attracted by its high security and stability.

Practical Hub Minimalism also aims to reduce the chances of a conflict of interest between user groups. The launch of RS will allow new features to be released as independently operated chains – therefore maintaining credible neutrality and minimalism – while drawing utility and revenue to the Hub.

From a tokenomic standpoint, RS strengthens ATOM’s role as the de-facto unit of account on Cosmos. ATOM will likely serve as the gas token on multiple RS networks, be well integrated within the DeFi ecosystems of consumer chains and serve as the reserve asset within Cosmos treasuries. This solves one of the biggest issues that plague Cosmos’ native token – its lack of utility.

Replicated Security – What we need to keep an eye on

The launch of RS is an exciting step forward for Cosmos and is designed to strengthen the Hub and bolster the adoption of IBC and its ecosystem. That being said, there are challenges and limitations to the upgrade that will have to be tackled together as a community.

The most notable challenge is the limitation around RS’ economic model in the short to medium term. Following the launch of RS, there will be an economic limit to the validator’s ability to achieve break-even while securing an increasing number of consumer chains. If too many chains are onboarded, the cost of running a Cosmos Hub validator node becomes increasingly prohibitive, pushing smaller validators into financial duress.

Running an additional node for each consumer chain leads to an instantaneous increase in operational cost, whereas the revenue from consumer chains starts low and increases with adoption. This effect is further compounded by the uneven distribution of stake on the Cosmos Hub. As consumer chain revenue is distributed to validators according to their share of the stake, a situation in which the top validators reap significant rewards while the bottom validators struggle financially is technically possible.

In the short term, this may undermine the financial security of node operators and the ability of RS to scale.

Tackling the issues

For RS to successfully scale and become economically sustainable, it will need to meet the following conditions: (1) successful consumer chains, (2) better revenue distribution, and (3) reduced infrastructure costs.

The limited number of chains that can initially be onboarded creates an incentive for the Hub to carefully vet the projects that launch on RS. To maximize its own expected value, the Hub should assemble a roster of the most promising applications and provide them with the support they need to be tremendously successful.

Once consumer chains start producing meaningful streams of revenue, revenue distribution becomes key to the scalability of RS. The better the distribution, the faster the validator set breaks even, and the sooner another chain can be onboarded.

Currently, the distribution of revenue is stake-weighted: validators receive tokens pro-rata their share of the ATOM stake. Improving the distribution of the stake itself on the Hub would not only make RS more scalable, but it would also improve the decentralization of the network. In this regard, implementing the New Interchain Foundation Delegation Policy and sponsoring sensible validator set management in liquid staking could go a long way.

Finally, RS can also be ‘monetised around’. ATOM 2.0 envisioned mechanisms to allow the Hub to accrue value from its economic zone of consumer chains. While the proposal was eventually rejected, some of the mechanisms it depicted may still be relevant to the Hub. Tokenswaps, for example, could be used to provide significant upside to the Hub while bootstrapping liquidity for the consumer chains.

Conclusion

The upcoming launch of RS will change the complexion of the Cosmos ecosystem, both in its security architecture and its overarching economic model. It will allow projects such as Neutron to launch, which as the most secure smart-contract platform in Cosmos, will have a notable impact on the ease and speed with which leading dApps are able to reach the Interchain market.

Such an upgrade is unprecedented across other PoS blockchains within the crypto industry and highlights Cosmos's ambition and innovation.

The lead image for this article was generated by HackerNoon's AI Image Generator via the prompt "security guard clones".