What Is an Application-Specific Blockchain (AppChain)?
Crypto Basics

What Is an Application-Specific Blockchain (AppChain)?

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11 months ago

CoinMarketCap Academy takes a deep dive into appchains — blockchains that are designed to operate a specific application.

What Is an Application-Specific Blockchain (AppChain)?

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In the fast-moving world of blockchain scaling, appchains are one of the new contenders to help everyone make it to a decentralized utopia.

But what are they and where do they come from?

It can get technical with appchains, but that’s what you have CoinMarketCap Academy for. Here's what you will learn in this article:
  • What is an appchain and how does it work?
  • What blockchains use appchains?
  • A comparison of appchains to other blockchain solutions.
  • What are some of the most popular appchains in the market?

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What Is an AppChain and How Does It Work?

An appchain is a blockchain designed for a specific application. It can be seen as a specialized layer-1 solution that connects to a general layer-0 solution. The layer-0 solution provides the basic infrastructure and interoperability for the appchains, while the appchains provide the customized functionality and performance for the apps.

The benefit of appchains is greater freedom and control for developers. Additionally, they inherit the security and scalability of the layer-0 they are connected to.

Blockchain ecosystems may choose an appchain architecture for different reasons.

Scalability

Applications do not have to compete for block space in an appchain system. This improves the performance and throughput of the applications, as well as reduces the congestion and fees on the main network.

Customization

In an appchain system, developers are free to choose a consensus mechanism, governance structures and economic models. This gives developers more freedom and creativity to design their applications.

Interoperability

Applications can communicate and exchange value across the broader ecosystem, thanks to common protocols and standards. This creates a more connected and diverse ecosystem of applications.

Innovation

Developers are free to experiment with new economic and governance models without adversely impacting the main chain. This fosters a more dynamic and collaborative environment for development.

Which Blockchains Use AppChains?

There are different ways to implement appchains, but two of the most prominent examples are Cosmos and Polkadot.
Cosmos works as the “internet of blockchains” with the Cosmos SDK and the Tendermint consensus mechanism at its core. Appchains are called “zones” and connect to the Cosmos main chain, creating an interconnected web of chains.

Some examples of appchains built on Cosmos are:

Another example is Polkadot, which also uses a network of heterogeneous blockchains. These so-called parachains are connected to the Relay Chain, the central chain of the Polkadot network. Similar to Cosmos, this results in shared security without sacrificing scalability. It also facilitates the exchange of value for parachains.

Some examples of appchains built on Polkadot are:

  • Acala: A decentralized finance hub that offers a multi-collateralized stablecoin, a trustless staking derivative, and a decentralized exchange platform.
  • Litentry: A cross-chain identity aggregator, which offers decentralized identity verification and reputation management.

Comparing AppChains to Other Blockchains

Appchains typically focus on one application in a wider web of blockchains. How does this compare to other blockchain architectures?

Appchains vs Monolithic Chains

Monolithic chains are all-in-one solutions where all functionality, including applications, is executed on the base layer. Examples of monolithic chains include Bitcoin and Ethereum 1.0. These types of chains have several advantages:
  • Simplicity: Monolithic chains don't rely on external parties or protocols to operate, reducing network complexity.
  • Security: With a smaller attack surface, monolithic chains generally offer greater security.
  • Decentralization and Immutability: All nodes follow the same rules and validate the same transactions, ensuring a high degree of decentralization.

However, monolithic chains also come with significant disadvantages:

  • Scalability: Limited resources and bandwidth restrict the number of transactions and data storage, leading to network congestion and high fees.
  • Flexibility and Innovation: Upgrading or customizing the platform can be difficult without affecting or depending on existing applications.

Appchains differ from monolithic chains in several ways:

  • On appchains, one application uses all the blockspace but on monolithic chains, there are multiple applications.
  • Monolithic chains provide security for other applications, while appchains leverage the security of a layer-0 chain.
  • Appchains are flexible in terms of customization, while monolithic chains have fixed and rigid parameters for their platform.

AppChains vs Modular Chains

Modular chains split their core functions into separate layers or components, including consensus, execution, data availability and settlement. Examples of modular chains include Ethereum 2.0 and Solana. These chains offer several benefits:
  • Scalability: Modular chains can process more transactions and store more data by using parallelization and specialization techniques.
  • Resource Optimization: By outsourcing some tasks to other layers or chains, modular chains can optimize their resources and bandwidth.

However, modular chains also face some drawbacks:

  • Complexity: Modular chains depend on external parties or protocols to operate, which increases network complexity.
  • Security: The increased attack surface and reliance on external parties can present security concerns.
  • Decentralization Trade-offs: Different layers or chains may have varying levels of trust and validation, impacting overall decentralization.

Appchains share some similarities with modular chains but also have key differences:

  • Appchains still dedicate blockspace to a specific application, while modular chains run multiple applications.
  • Appchains connect to a general layer-0 solution, whereas modular chains use specialized layer-1 or layer-2 solutions.

AppChains vs Layer-2 Chains

Layer-2 chains are scaling solutions that operate on top of a layer-1 blockchain, handling some or all of the execution and settlement functions of a network. Examples of layer-2s include Optimism and Arbitrum. Layer-2 chains offer a number of advantages:
  • Speed: Compression and aggregation techniques allow layer-2s to process more transactions and charge lower fees.
  • Faster finality: Layer-2s can provide faster finality and confirmation times by using optimistic or zero-knowledge proofs.

However, layer-2s also come with some limitations:

  • Dependency: Layer-2s rely on the layer-1 blockchain for consensus and data availability, which can limit their autonomy and sovereignty.
  • Security Risks: Layer-2s have the potential for fraud or censorship by malicious actors due to their dependence on the layer-1 blockchain.

Appchains differ from layer-2s in several ways:

  • Appchains handle all core functions on their own chain, while layer-2s handle some or all of the execution and settlement functions on their platform.
  • Appchains connect to a general layer-0 solution, instead of operating on top of a specific layer-1 blockchain.

AppChains vs Sidechains

Sidechains are blockchains that are compatible with another blockchain. They handle all core functions on their own chain but do not use the security or scalability of the other blockchain. Examples of sidechains include Polygon. Sidechains offer several benefits:
  • Performance: Sidechains can process more transactions and store more data by using their own resources and bandwidth.
  • Flexibility: Sidechains can customize their parameters and features according to their needs and preferences.

However, sidechains also face some challenges:

  • Security: Not relying on the security or scalability of the other blockchain exposes sidechains to more attacks and vulnerabilities.
  • Interoperability: Sidechains may face difficulties in communicating and exchanging value with the other blockchain, as they require bridges or adapters to enable cross-chain transactions.

Appchains have some similarities and differences with sidechains:

  • AppChains and sidechains both have their own native tokens and governance models and handle all core functions on their chains.
  • AppChains leverage the security and scalability of a larger network, while sidechains do not.
  • AppChains connect to a general layer-0 solution, while sidechains are compatible with a specific blockchain.

Popular AppChains

Many appchains are either live or in development, but here are some of the most notable ones:

Osmosis

Osmosis is a decentralized exchange platform that allows users to create and trade custom liquidity pools across different zones in the Cosmos network. It is an appchain built on Cosmos using the Cosmos SDK and Tendermint. It has its own native token (OSMO) and governance model and leverages the security and interoperability of the Cosmos Hub. Osmosis offers users and developers a high-performance and customizable platform for automated market-making and liquidity provision.

Litentry

Litentry is a decentralized identity aggregator that enables users to link their identities across different blockchains and platforms. It is an appchain built on Polkadot using Substrate and parachains. Litentry has its own native token (LIT) and governance model, and it leverages the security and interoperability of the Relay Chain. It offers users and developers a privacy-preserving and cross-chain platform for identity verification and reputation management.

dYdX

dYdX is a decentralized margin trading platform that allows users to trade perpetual contracts and spot markets with leverage. It is an appchain built on Ethereum using StarkWare's zero-knowledge rollup technology. It has its own native token (DYDX) and governance model and leverages the security and data availability of Ethereum. dYdX offers users and developers a fast and low-cost platform for advanced trading features and derivatives.

Acala

Acala is a decentralized finance hub that offers a multi-collateralized stablecoin, a trustless staking derivative, and a decentralized exchange platform. It is an appchain built on Polkadot using Substrate and parachains. It has its own native token (ACA) and governance model and leverages the security and interoperability of the Relay Chain. Acala offers users and developers a fast and low-cost platform for Web3 finance applications and assets.
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