What is Blocknet?
Blocknet is creating a protocol (software) that serves as the plumbing between different blockchains. These connections would allow blockchains to expose their services through APIs (interfaces), which anyone can use for a fee.
Two key components of Blocknet are:
- X Router: A network of hosted blockchains which connect to X Bridge
- X Bridge: Blockchain connector, where different blockchains can “talk” to each other.
Why is Blockchain interoperability important?
Before the internet, computers could not harness the economies of scale, of connected computers. TCP/IP changed this, it allowed the creation on the internet. BlockNet is building the TCP/IP equivalent for blockchains.
Blocknet is potentially a game changer because it would allow developers to build dApps (decentralised apps) or standard Apps which use the services from multiple Blockchains.
Imagine a game dApp could make use of Dash user accounts (When Evolution?), then execute a financial payment on the EOS sister chain Worbli, then buy skins and weapons from Phore’s marketplace, the data would be stored on Storj decentralized storage and the processing would be done by SONM decentralized computing power all the stats of the game and the user avatar would be stored on DADI hosting and users can use Exscudo’s chat application to interact.
To build all of the above from scratch would be very difficult for one developer but plugging these services in would allow developers to develop fast and scale quickly. It will also be easier switch for the best provider of a particular service easily.
WordPress changed the blogging world by offering a standard platform, on which many developers could create plugins. Blocknet’s use of microservices is very similar to this.
Blocknet infrastructure is serviced by a set of service nodes (similar to Masternodes). These nodes can host multiple different blockchains. The XBridge and Xrouter protocols would allow coins, token and blockchain information transfers between any blockchain who is serviced by the service nodes.
One obvious use of the Xbridge and Xrouter is a pure and true Decentralized exchange. Decentralized exchanges do not all have the same level of decentralization. They can decentralise some parts but not others.
An exchange is made up of; Transfer of coins, Storage of Funds, Orderbooks, Order Matching and Asset Exchange. BlockNet claims that their protocol carries out these functions in a more decentralized manner than other cross blockchain protocols.
Interacting with a blockchain can take place in two ways. The first by downloading the whole entire blockchain, verifying it and then sending requests to it, the second option is to interact with a blockchain hosted by a third party.
Blocknet XBridge and XRouter
Service nodes can host other third party blockchains through the XWallets feature. A full list of the supported blockchains can be found here https://www.blocknet.co/coins/
Ther service nodes can then connect to each others blockchains through the XRouter. The XRouter can be thought of as an “light wallet” or inter-blockchain SPV client. The advantage is that dApp developers would not need to download or maintain these blockchain they could access it through the XRouter.
The XBridge primary purpose is to route information between the different blockchains hosted on the Xrouter network of different blockchains. (Wish they chose less confusing names!) This serves as an inter-chain data transport.
The X Bridge would allow for atomic swaps, smart contract execution and data transfer. An additional coin exchange protocol allows for instant cross chain swaps without any third party.
All these blockchain services, provided by different providers need an address book. Like a Yellow pages. Blocknet will provide a Blockchain Yellow page service directory or “Blockchain DNS” this would make these services visible to the developers. See more:
Blocknet Decentralized Exchange
Blocknet itself is using XBridge and Xrouter to build a decentralized exchange. It will have several innovations such as a private order book which could facilitate Cross Exchange liquidity, OTC trades and Dark pools. It has strong potential for scaling with shared order books.
Nix is building a privacy layer on top of BlockNets protocols. Nix is also a masternode project, with the potential for passive income.
Blocknet’s Passive Income potential
Blocknet is a PoS blockchain and wallets which support staking will be rewarded.It seems that stakers will share a part of the exchange fees in the future. TBC.
- Naked Service Nodes (Masternodes without XWallets)
Service nodes can host third party blockchains, if they do not they will just be supporting the Blocknet chain. At this time masternodes have a higher reward than stakers but in the future, this may no longer be the case.
- Active Service Nodes (Masternodes with XWallets)
These service nodes would be hosting third party blockchains. They have the potential to earn fees from
- exchange fees (XBridge)
- fees from from microservices and APIs between the different chains (XRouter)
- Block rewards from the blocknet chain
Crypto Exchanges provide a stream of passive income in both bear and bull markets, that is as long as they have volume. When the developers will use the APIs fees will be charged. This passive stream of income could prove resistant to market fluctuations.
Several elements need to be considered to evaluate BlockNet’s position in the crypto space and their position in the crypto space.
In terms of financing some other players are very well financed; Binance, Bitfinex and Poloniex have incredible war chests which most likely dwarf the resources of the Blocknet team. Funds are important because they are used to hire good developers and project managers. Developers are not obliged to stay with any projects.
The most important interoperability competition comes from
- Komodo BarterDEX
- ARK. ARK’s Smart Bridges are similar to Blocknet’s XBridge
- EOS, cross blockchain functionality (yet to be launched)
Pure Decentralised DEXs
Other Decentralized Dex
- Binance decentralised exchange
- EOSFinex new decentralized exchange.
- Poloniex’s new decentralized exchange.
Learn more on how to anaylze business risks of crypto projects.
The BlockNet newsletter states “Please also be aware that a community project is run by a diverse group of people with varying time-constraints (in a number of time-zones) and personal lives, so remember to be kind and patient!” This sounds like a decentralised and well-spread team but is short on details on the human resources available to BlockNet. Which makes it difficult to determine the full set of developers working on the project. Full details of the team can be found here https://sites.google.com/view/blocknet/contributors
Forking and Copying
BlockNets like many other similar projects is open source, meaning the software source code is available for all to see, analyse and potentially copy. Consider how many 100s of Dash clones were created and how CryptoBridge successfully forked Bitshares. The same might happen to BlocKnet.
KYC and AML
The DEXs being built by Binance, Bitfinex and Poloniex are probably being built in the interest of their shareholders. Which means that most likely there is be a catch it would lie somewhere between the spirit of decentralization and shareholder interest.
However the amount of decentralisation required by all the users is not the same. Some might need fully decentralised no KYC or AML. Others users may prefer DEXs which make a compromise between regulatory requirements and the security of keeping their own keys.
In the future even DEXs might be shut down or made illegal to use if they are not GDPR, KYC and AML complaint.
Service Node Owners and Third party chains
The Service node owners responsibility towards the network is to service as much third party block chains as possible. Some service node owners might be investors who use third party masternode hosting services. Their technical abilities can only take them so far. There is a risk that there might not be an extensive variety of chains available on the Xbridge network.
No Web interface (yet)
At this time Blocknet dex does not have a web interface, which adds another obstacle for the user who prioritizes time over convenience.
Blocknet has many challenges and opportunities. The team needs to traverse tough ground before they can become the standard for blockchain interoperability. The price of BLOCK has collapsed both because of the crypto bear market and the increased pressure from competition and regulators.
There is a clear need and demand for an API market which serves across block chains and BLOCKNET are well positioned for this race; they have been early in the game and their protocol has benefits over the competition. If they do manage to get market share, the opportunities are great.
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