Thoughts on Cross Chain Communication, Sidechains, NiPoPoWs and Litecoin

Goguen development is going swimmingly, with about 120 to 150 days of work left before the hard fork, and the July product update will cover native assets in depth.

Bitcoin and Litecoin are single asset ledgers, the least sophisticated and flexible systems in crypto since each only understands its own coin, BTC or LTC.

Multi asset ledgers like Ethereum use a base native asset such as ether to pay transaction fees, while smart contract tokens like ERC-20 ride on top of it.

Cross chain communication would let an asset move between chains as freely as if it had its own chain, but Ethereum's multi asset approach falls short since ERC-20 tokens stay coupled to the native ether standard.

In an ideal world Bitcoin, Litecoin, Ethereum, and Cardano would all be able to talk to each other, an idea IOG has researched since 2016 starting with the colored coins standard and NXT's multi asset experiments.

That research produced a proof of stake sidechains paper and a cross chain communication SoK paper after more than four years of work, and Cardano is now moving from a single asset ledger to a multi asset ledger version one, where transaction fees stay in ADA but user issued assets are treated the same as ADA in the UTXO system, unlike Ethereum's ERC-20 tokens.

Future iterations of the multi asset ledger could let the native asset itself pay transaction fees instead of ADA, rolled out as extensions to the standard.

NIPoPoWs (Non-Interactive Proofs of Proof-of-Work) give a succinct proof, about the size of a single transaction, that coins exist and have not been double spent without needing the full chain; if Litecoin adopted them, a Litecoin transaction plus proof could be sent into Cardano to mint a wrapped Litecoin, nicknamed cLitecoin.

That wrapped Litecoin could fuel Plutus smart contracts on Cardano, and stake pool operators would earn both ADA and Litecoin, redeemable as cLitecoin, for processing those contracts.

Burning the cLitecoin gives a proof to redeem real Litecoin back on the Litecoin network, and the pitch to Litecoin is that they gain Cardano's capabilities without a hard fork by partnering with Cardano as a service layer.

ADA holders benefit too, diversifying beyond a single token as this blockchain partnership model gets them compensated for each token's use in the network.

With more than 5000 blockchains in existence, commentator Max Keiser represents the maximalist view that only Bitcoin matters and every other chain is a scam.

The alternative model has chain A paying chain B's token when it consumes chain B's services and vice versa, the direction Cardano is starting to move in with its community.

Bitcoin maximalism is a regressive philosophy; the IOG alternative envisions hundreds or even thousands of blockchains, where what matters is the cross chain communication standard that lets them move value and transact with each other.

IOG is reaching out to the Litecoin and Bitcoin Cash communities to explore this partnership model and plans to write a formal Litecoin Improvement Proposal.

The plan is to test the native asset standard on the Incentivized Testnet, where wrapped Litecoin could act like a native asset and pay its own transaction fees, with those fees flowing to ADA holders and stake pool operators.

If this model works, hundreds of chains could eventually transact into Cardano through bridges and proofs, turning stake pool rewards into something like an ETF of the industry.

Cardano's original whitepaper called this primary and secondary chain design master and slave, language that is now falling out of use in favor of SL for the main chain and CL for the secondary chains.

ADA lives on the SL primary chain and can power CL secondary chains that each run different network logic, consensus rules, ledger rules, and computational models, with stake pool operators making a block for every chain they support.

One CL could run the EVM while another runs IELE, and since neither has its own native asset, wrapped ADA would power transactions on them instead.

ADA inflation would come from the current 6 percent staking reward plus the transaction fees collected across all these CL chains, something proof of stake makes straightforward to implement.

This SL and CL design echoes Blockstream's original sidechains concept, where Bitcoin would be the simple, secure primary chain and Ethereum could run as a side chain; a whole team at IOG works exclusively on cross chain communication, sidechains, and proof of burn mechanisms.

Adopting NIPoPoWs would also give Litecoin a better light client experience and the ability to verify transactions without holding the full blockchain, with several chains already implementing the technology.

On the Cardano side this opens promising new business models around native transaction fees paid in wrapped assets, with future partnerships potentially decided by Democratic consent under Voltaire governance.

Looking to 2025, the choice is between consolidating around Bitcoin as king, with every other chain dismissed as a scam, or building a more meaningful internet of blockchains where Cardano could offer governance as a service.

Communities like Litecoin could vote on their own proposals through Cardano's governance system by sending in wrapped Litecoin, or even signal with a phantom Litecoin balance for voter registration without moving real coins.

This governance as a service model works for any cryptocurrency, Bitcoin Cash included, since a chain only needs a bridging mechanism rather than building its own sophisticated governance system.

Cardano has come a long way since entering the space in 2011, when altcoins were mostly cosmetic forks of Bitcoin; Litecoin, for example, swapped in scrypt proof of work and an 84 million coin supply instead of 21 million, while Ethereum and NXT were built from entirely new code.

Maximalist, sum zero thinking remains counterproductive and divisive, and IOG invests heavily in trying to get chains to partner on technology instead, even if CEOs are rarely known for humility.

Native asset standards should firm up with an update at the end of July, followed by a testnet letting users issue their own assets from the command line.

IOG plans to write a formal Litecoin Improvement Proposal for NIPoPoWs and, if the Litecoin community is interested, begin experimenting with wrapped Litecoin on the Incentivized Testnet.

A future proposal for after Cardano's first five years is a captive sidechain model, generalizing Ouroboros so it can express different ledger rules, computational models, consensus models, and network logic for each chain.

This generalization work builds on the Scorex project with Alex Chepurnoy, who went on to create Ergo, and it should be low cost, a matter of months, to support new computational models once developers show a preference.

Litecoin's nine years of network effects and strong community make the partnership model worth pursuing alongside the captive sidechain approach, as Cardano keeps evolving its multi asset ledger standards.

Charlie Lee is reviewing these ideas after IOG emailed the Litecoin Foundation, and wrapped assets are already being explored for bringing pre-existing stablecoins onto Cardano so stake pool operators can diversify beyond one income stream.

The captive sidechain model also suits experiments too risky or data intensive for the main chain, letting a permissioned CL cluster run something like Hyperledger Fabric or Atala while still moving assets and information between chains.