Inter-Blockchain Communication (IBC) is a communication protocol that allows different blockchains to relay messages to each other.
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What Is Inter-Blockchain Communication (IBC)?
Inter-Blockchain Communication (IBC) is a communication protocol that allows different blockchains to relay messages to each other. It guarantees reliable, ordered and authenticated communication between the chains. Blockchains can trustlessly exchange value like tokens. IBC does not work like a bridge. Instead, blockchains send packets of information via smart contracts that allow them to not only exchange value but relay any form of data, such as communication, via the communication protocol.
How Does Cosmos IBC Work?
IBC is at the heart of the Cosmos blockchain and allows blockchains using the communication protocol to interact with each other. It is comprised of two layers: the transport layer and the application layer.
The transport layer transports, authenticates and orders data packets communicated over IBC. It does not define which data should be transported or how the receiving chain should interpret it. From its perspective, data relayed is just a collection of bytes. Its components are light clients, relayers, connections and channels.
Light clients are representations of a blockchain. They do not store a blockchain’s full history or execute transactions. Instead, they are designed to connect a full node and verify block headers. That makes light clients an efficient solution for storage and computation. Two IBC chains interacting with each other store light clients of the other blockchain. That allows them to exchange messages without relying on third parties. However, instead of sending these messages directly to each other, blockchains store the hashes of the data packets containing the messages in their state machines. Relayers pick up these messages and pass them on to the target chains. Anyone can run a relayer since they are permissionless.
Connections connect light clients on different chains. Channels transfer data between modules on the different chains. Thus, connections are chain-specific and channels are module-specific.
The application layer is visible to users and consists of applications using the transport layer. These can be tokens, NFTs, oracles, and other applications. IBC has its own token standard similar to the ERC-20 standard. This ICS-20 standard specifies how data packets should be structured and how they are to be interpreted by receiving chains. For example, for token transfers, the data packets contain information about the sender, receiver, token amount transferred and denomination.
IBC is equivalent to a mail delivery system for blockchains. Its transport layer acts as the postal service relaying communication between different senders and recipients, which are different blockchains. However, the transport layer does not communicate anything about the letter’s contents or how it should be interpreted.
The equivalent are data packets sent in the IBC protocol from one chain to another. They contain information about the sending party, specified by the channel ID, and the receiving party, specified by the counterparty channel ID. The receiver (the application) interprets the content of the data packets.
How Secure Is IBC?
IBC facilitates security through Interchain Accounts and Interchain Security.
Interchain Accounts enable chain-to-chain interaction without switching the chains. For example, different chain interactions on a second blockchain can be performed “remotely” from the first blockchain. These accounts increase the composability between the host chain and the controller chain.
Interchain Security allows blockchains in the IBC ecosystem to lease security from other chains. For instance, new blockchains can use the validator set of the Cosmos hub without having to bootstrap their own. These mechanisms increase the interoperability between blockchains without sacrificing security. Thus, each chain in the IBC ecosystem can focus on specialized use cases, which is why the Cosmos hub that is central to the IBC protocol has been dubbed the “blockchain of blockchains.”
What Blockchains Are Compatible With IBC?
IBC is compatible with almost 50 blockchains, which are called “hubs” in the Cosmos ecosystem. Some of the most important include:
Cosmos: The layer-zero chain of the IBC protocol.
Osmosis (OSMO): An automated market maker enabling cross-chain trading in the Cosmos ecosystem.
Juno (JUNO): A high-speed layer-one blockchain.
Evmos (EVMOS): An EVM-compatible layer-one chain
dYdX (DYDX): A decentralized exchange (DEX) for perpetual future contracts.
Kujira (KUJI): A layer-one chain for community-selected projects aiming to build real value.
Secret Network (SCRT): A blockchain with customizable privacy.
How to Use the IBC?
Developers can use IBC to easier build applications and not worry about consensus mechanisms, full nodes, and other technical aspects of ensuring decentralization. They can use the Cosmos SDK to build applications for the blockchains using the IBC.
Users benefit from the IBC by using the blockchains that are built with it. Classic use cases are token swaps, staking, margin trading, lending, providing liquidity and more. The fees for IBC transactions depend on the individual blockchains users interact with. However, since all blockchains in the Cosmos ecosystem use some form of proof-of-stake, gas fees are generally fairly low and do not significantly obstruct value transfers.