Replicated Security (RS)

Replicated Security (RS) is a new technology that lets a Cosmos blockchain share its economic security with another using the Inter-Blockchain Communication protocol (IBC).


What Is Replicated Security?

Replicated Security (RS) is a new technology that lets a Cosmos blockchain share its economic security with another using the Inter-Blockchain Communication protocol (IBC). Replicated Security recently launched on the Cosmos Hub, and has already attracted applications from Neutron and Stride, two projects looking to secure their respective blockchains using replicated security.
As opposed to the Ethereum ecosystem, where every application is a set of smart contracts on a shared blockchain, in Cosmos, every application can have its own dedicated appchain. This approach allows developers to tailor the blockchain to the needs of their applications. It can not only help improve performance and user experience but also makes appchains responsible for their own security.
As a result, launching applications as appchains can be difficult or costly. It requires attracting a set of validators with inflationary token rewards while ensuring that the value of the staked token remains sufficiently high to deter attacks. 
Replicated security provides a solution to this challenge by enabling developers to leverage the Cosmos Hub’s established validator set and its staking token, $ATOM while retaining the ability to customize their blockchain. 

How Does Replicated Security Work?

Cosmos blockchain is secured by Proof-of-Stake, a consensus mechanism in which computers, called validators, compete for the right to propose the next block of a blockchain (and earn the associated reward) by staking valuable native tokens. If a validator misbehaves, the blockchain can punish them by slashing a portion of their tokens. 

Replicated security adds to this mechanism, but across multiple blockchains: the Provider Chain provides the validator set and staking token, and the Consumer Chain provides rewards and checks that validators are not misbehaving.

This requires communications between the Provider and Consumer chains, which are handled by sending messages over IBC. For example, the Provider chain regularly sends information about validators and their stake to the Consumer chains. If a validator misbehaves, the Consumer chain sends a message to the Provider chain to trigger the slashing of their tokens.

Replicated Security on the Cosmos Hub

As the most secure and valuable blockchain in the Cosmos ecosystem, the Cosmos Hub is the designated Provider Chain. In turn, Replicated Security enables the Cosmos Hub to generate additional rewards for its stakers and reinforces its network effect by bootstrapping an ecosystem of tightly integrated Consumer chains. 

Replicated Security also enables the Cosmos Hub community to release new features as Consumer chains without compromising the security of the Hub itself. This allows the Hub to continue evolving while achieving Practical Hub Minimalism, a design philosophy that enables the hub to launch new features without increasing the complexity or risk of the hub itself. 

Challenges and Limitations

There are challenges and limitations to the upgrade that will have to be tackled collectively by the Cosmos community.

The most notable challenge is that there is an economic limit to how many chains a validator could secure. If too many chains are onboarded, the cost of running a Cosmos Hub validator node becomes increasingly expensive, which would be harmful to smaller validators. 

The other issue is that running a new node for each Consumer chain has increased operational cost, but there is little guarantee of returns because most consumer chains’ revenue starts very low and increases with the adoption and use of the chain. 

The concern then is that, in the short term, these challenges may undermine the financial security of node operators and the ability of RS to scale.

How Do We Solve These 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 operational costs.

The limited number of chains that can initially be onboarded creates an incentive for the Hub to vet the projects that launch on RS carefully. 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 revenue streams, revenue distribution becomes the key to the scalability of RS. The better the distribution, the faster the validator set meets its expenses, and the sooner another chain can be onboarded. 

Currently, the distribution of revenue is weighted by stake: validators receive tokens proportional to 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. 

Finally, RS can also be monetized outside of the validators. ATOM 2.0 envisioned mechanisms to allow the Hub to accrue value from its economic zone of consumer chains. The proposal was eventually rejected, but some of the mechanisms it depicted may still be relevant to the Hub. Token swaps, for example, could be used to provide significant upside to the Hub while bootstrapping liquidity for the Consumer chains. 

Author: Avril Dutheil, General Manager of Neutron

Avril Dutheil, General Manager of Neutron, the most secure cross-chain smart contract platform for DeFi. Avril is an experienced digital specialist with a background in marketing, community management, digital services, and infrastructure, with a longstanding interest in computing systems and privacy. Having purchased his first Bitcoin in his high school cafeteria, Avril has been active in the Web3 community since 2016. He worked for major DeFi protocols including Lido and P2P growing communities and leading strategic business initiatives. He is now focused on contributing to Neutron and the Cosmos ecosystem, ushering in secure cross-chain DeFi.