This article is a continuation and summarization of “[A Systematic Approach To Cryptocurrency Fees](https://fc18.ifca.ai/bitcoin/papers/bitcoin18-final18.pdf)” (hereinafter referred to as the paper) by Alex (Kushti) Chepurnoy, Vasily Kharin and Dmitry Meshkov. In the paper, the authors address the problem of storage resources utilization. There is a concern that once an element of the state is created, it exists forever and inevitably balloons node disk space. This will lead to unreasonable state growth of the blockchain.

While cryptocurrencies address transaction fees as an atomic concept, the paper suggests that it is reasonable to take this into account on a 3-dimensional scale.

![Figure A.](/img/uploads/3d.png)

## Blockchain Costs

Proof of Work blockchain technology relies on miners to guard the integrity of the blockchain. Miner resources, such as memory and electricity, are costly and therefore a revenue scheme is needed to incentivize miners. Miner incentives are currently comprised of the block rewards and transaction fees. Transactions fees are an important component in preventing spam attacks that exhaust miner resources.

Besides network utilization, transaction processing requires a miner to spend resources to maintain all the original blockchain data. In the case of Bitcoin, this might be less of a problem because it has yet to implement smart contract functionality. Cryptocurrencies that support smart contract languages such as Solidity (Ethereum) however, may require a lot of computations and corresponding costs will be included in the transaction fee.

The 3-dimensional scale shown above is based on storage-oriented load, computational load and network load.

* Storage-oriented load refers to the additional cost of storing old data in the blockchain. 
* Computational load is created by the execution of smart contracts. 
* Network load is all the transactions that do not  exist in the current block but will be added to the next block.

In Ergo, the total size of the state is the sum of the sizes of all UTXOs. That is to say that this data contains the execution of smart contracts, all the transactions and nodal information. Because the memory resources provided by miners are limited, a state deterioration fee should be added to miners' revenue streams in order to encourage decreasing the system load while securing future miners’ contribution.

## Storage Rent

Unreasonable state growth is an economic problem and it can lead to spam attacks and network congestion. Another problem could be the deflation of a cryptocurrency if coins are lost and/or forgotten. So instead of being used as the base for smart contracts, the currency becomes unreasonably scarce, making the system heavy and limiting coin flow.

This leads to a perpetually increasing state (e.g. the Bitcoin’s total UTXO size) and the state may grow faster during spam attacks. For example, 15 million outputs were created during spam attacks against Bitcoin in July 2015. An attack on Ethereum created 18 million new accounts added to the state - which previously held only 1 million - and performed successful “denial of service” attacks against the nodes.

To tackle the problem of unreasonable state growth, a "storage rent" fee is proposed by the paper. Storage rent is a scheduled fee that is based on the continuation of each UTXO created in the blockchain. This is achieved by the use of scheduled payments, which will eradicate the unused bytes after a certain time.

Additionally, the use of blockchains as cloud storage is gaining attraction, so permanently storing objects in the state without some form of recirculation procedure of the old data is not a plausible option.

For the purposes of research and this article, it is worth noting that the concept of storage rent was also proposed in 2014 by [Freicoin](http://freico.in):

“Demurrage forces freicoins to circulate at deliberately high rates. Separation of money's roles as store-of-value and medium-of-exchange allows money to flow when it is needed, in good times and bad. “

## Conclusions

An important consequence of storage fees is that they provide additional rewards (besides block and transaction rewards) for miners.

Storage fees decrease the storage load and eliminate extra costs that could be added during unreasonable state growth.

Storage fees encourage coin flow and prevent deflation, which can cause illiquidity and the congestion of a currency system.

Cryptocurrency Fees: A Solution to Unreasonable State Growth

## Why Ergo

Ergo is the inevitable next step in the evolution of Proof of Work blockchain technology, designed for
creating and implementing powerful, efficient and highly secure financial contracts. It is an open-source,
decentralized network that builds advanced cryptographic features and radically new DeFi functionality on
the rock-solid foundations laid by a decade of blockchain theory and development. It complements tried
and tested principles with the latest peer-reviewed academic research into cryptography, consensus
models, and digital currencies.

## Evolution of Ergo

Ergo’s native language, Ergoscript, was created by Alex Chepurnoy, the primary developer of Ergo.
Before his work and research with Ergo, Chepurnoy was an IOHK research fellow and served as the
project manager of Scorex where he helped design and build its modular blockchain framework. As a
core developer of NXT, Chepurnoy was integral in the development of its pure Proof of Stake
cryptocurrency, the first of its kind. The work on color coins at NXT was instrumental in developing the
necessary foundations for creating advanced markets operating on a blockchain.

## Ergoscript - Unlocking Financial Empowerment

Ergoscript’s language is founded on the use of non-interactive zero-knowledge proofs, or Σ-protocols
(Sigma Protocols). It is a Scala-based language and therefore benefits from the stateless framework
which allows for formal verification on contract logic, granting developers and programmers the ability to
create smart contracts with features such as ring-signatures, multisignatures, multiple currencies,
self-replicating scripts, anti-theft features, and enhanced security.

Ergoscript truly increases the creative potential of blockchain technology and allows for an incredible
variety of DeFi products and financial services. To further explore the intrinsic properties of Ergo’s
Σ-protocols, please see [Whitepaper II](https://ergoplatform.org/docs/ErgoScript.pdf) and [Whitepaper III](https://ergoplatform.org/docs/AdvancedErgoScriptTutorial.pdf) on the Ergo Platform website.

## A Commitment to Continued Open Source Community-Based Work and Collaboration

Community is integral to the identity of Ergo while it continues to build financial frameworks that benefit everyday users. The cryptocurrency industry would not exist if not for decades of collaboration between technologists, scientists and mathematicians. Ergo continues the spirit of collaboration for the benefit of humanity by providing tools to disintermediate power and give it to the people. This is paramount to Alex Chepurnoy’s life work. [The Ergo Manifesto](https://ergoplatform.org/blog/2021-04-26-the-ergo-manifesto/) provides a detailed and comprehensive discussion on Chepurnoy’s inspiration for Ergo.

> Cryptocurrency should provide tools to enrich ordinary people. Their small businesses
> providing no much above making ends meet, not depersonalized big financial capital. This
> is what inspired me. This is my dream.
>
> I hope Ergo will be useful here. Thousands of small cooperatives and individual
> entrepreneurs are more important to healthy and sustainable wealth growth around the
> globe than a couple of corporations hiding profits in offshore heavens.

Chepurnoy works directly with a team of 15 developers, some of whom oversee and manage
development teams. Ergo’s growing environment strives to maintain a strong synergy between
developers, the Ergo Foundation, and other community contributors with the goal of creating high-quality
dApps that provide a rich user experience.

## Ergo Ecosystem

The user experience includes the [NFT Auction House](https://ergoauctions.org/#/auction/active?type=picture), a crypto-backed algorithmic stablecoin protocol,
[SigmaUSD](https://sigmausd.io/#/), secure and efficient [Oracle Pools](https://explorer.ergoplatform.com/en/oracle-pool-state/ergusd), and increased financial privacy with [ErgoMixer](https://github.com/ergoMixer/ergoMixBack). Users will
soon be able to access the non-custodial, decentralized exchange, [ErgoDex](https://ergodex.io/), and its ability to provide
efficient and secure transactions between the Ergo and Cardano blockchains. The Proof of Work
consensus algorithm and underlying extended UTxO model empowers Ergo to always offer scalable and
secure solutions. There are several other exciting projects in the works such as ErgoFund, LETS,
Ergo.Meta --- and more community made dApps are starting to appear on the back of the Hackathon.

## Ergo Partnerships

Ergo is proud to partner with EMURGO, the commercial arm of Cardano, in improving research on
blockchain and zero-knowledge ecosystems. The upcoming integration with Waves Network will also see
Ergo implement cross-chain functionality with all Waves enabled blockchains. Additionally, Ergo continues
to support the security and protection of individuals in the crypto space as a member of the blockchain alliance, BPSAA.

Ergo - The Future of Smart Money is Here

*The design of Ergo’s oracle pools are more efficient and programmable than using multiple single oracle data points such as in Chainlink’s oracle design. We build hierarchies of confidence using oracle pools and pools of oracle pools in Ergo. It's faster, cheaper, and more beneficial to the end user.*



## What are oracles?



Oracles in blockchain serve as messenger agents, connecting two distinct points of data sources while guarding the reliability of the information. This is indeed a valuable job as many people and decentralised apps rely on these datapoints to ensure continuous operation. Furthermore, because decentralized finance doesn't use middlemen, the *accuracy and speed* of oracles are even more vital to sustaining a functioning blockchain ecosystem. Oracles keep both internal and external communication of an application and ensure its consistent and robust operation.



A real-world example of this is the sigmausd.io stablecoin, which utilises an ERG/USD oracle pool and  refreshed every 12 minutes. When such large amounts of collateral are at stake, it is vital that these data points are accurate and reliable. 



In DeFi, 3rd parties can also benefit from oracles via incentives to keep the network safe. This makes personal investors valuable participants in the ecosystem. Not only the banks or big institutions - individuals can also participate and get rewards for contributing to the system. People can benefit from this immense transaction of data by acting as a data feed themselves.



## Hierarchy of Trust



Yet the internet deals with a great amount of data and it's not true that everything is right. That's why it's important to access real information. This can be done via assessing a *trust score* to data sources, regrouping them and putting them on a hierarchical trust level. That's how we can effectively use an immense amount of data easily and fast. Chainlink's design doesn't allow that because it has an individualist design, and it's hard enough encoding hierarchical trust scores to individual oracles, nevermind oracle pools.



Ergo Blockchain utilizes Multi-Stage Contracts with an extended version of the original UTXO model that Bitcoin is based on. This allows creation of hierarchical trust structures that the Account-Based model of Ethereum isn’t capable of. Later on, this facilitates rewarding oracle initiators in a *top to downward mechanism* based on a trust score. This implementation isn’t possible on an Account-Based model like Ethereum and can lead to errors and increased transaction costs. 

## Governance And Incentives



There shouldn't be more complex governance ideas we believe, anyone who has skin in oracle pools should have a vote. That's how participants can decide what's best and everyone will have a chance to directly participate in governance without any protocol tokens. Oracle pools are very flexible in design, and it can be designed as more than a passive reputation system and also enables DAO governance models.



Because it's in their best interest, individual oracles will choose to behave in order to earn money and vote on parameters. Oracle Pool design boosts this incentive and makes participants more prone to cooperation, securing reliable data sources for users and dApps. When users can access data directly from pools, there's no need for oracle users to *waste their tokens* as they do in the oracle design used by Chainlink. This would reduce the cost a lot by direct access to on-chain data. However, because oracle pools work faster and much more effectively, these small fees can take up to a lot of revenue.



*Alexander Chepurnoy(aka Kushti), in 2014, was working with Sergey Nazarov in smartcontract.com, the former Chainlink. Ergo Blockchain's Oracle Pools have greater longevity, effectiveness and accessibility than Chainlink's oracle design. Moreover, the UTXO design of Ergo brings cheaper and faster transfer with robust security. Oracles are the backbone of a functioning decentralized finance system. For a robust DeFi ecosystem, oracle solutions are of great significance and need to be dealt with care.*



##### Sources



<https://veriumfellow.medium.com/oracle-special-4e36cfa6a852>



<https://ergoplatform.org/blog/2020-11-09-first-steps-towards-interoperability-with-cardano-oracles/>



<https://github.com/Emurgo/Emurgo-Research/blob/master/oracles/Oracle-Pools.md>



<https://emurgo.io/blog/emurgo-releases-oracle-core-for-developers>

Chainlink Oracles vs. Ergo Oracle Pools

Blockchain interoperability refers to the ability of different blockchain protocols to become compatible with one another. Achieving true blockchain interoperability among heterogeneous protocols is a prerequisite step for mainstream adoption of blockchain technology. This is true because many businesses are reluctant to build within a locked platform environment.

In this article, we are going to look at how Ergo platform will help in the interoperability of Cardano.

## Bitcoin’s flawed UTXO Model

The UTXO model has been in cryptocurrency since the conception of Bitcoin. The term UTXO relates to the amount of digital currency someone has left after executing a cryptocurrency transaction. The letters stand for unspent transaction output. In an affirmed transaction in a proven blockchain payment system, only unspent outputs can be used as inputs to a transaction. When a transaction occurs, inputs are deleted, and outputs are created as new UTXOs that may then be consumed in future transactions.

In the Bitcoin network, a UTXO is an amount that is conveyed to a Bitcoin address during a transaction. Consumed amounts are used independently through a transaction, and new outputs are created – one for the receiver and, if appropriate, one for the part that is left over. The value sent to the receiver becomes a new UTXO in the recipient’s address, while the change output becomes a new UTXO in the sender’s address that can be utilised in a future transaction.

Despite some tangible benefits of the UTXO model in its employment into a framework like Bitcoin’s, there are still some fundamental limitations, notably when the model is applied to a more complex, Turing complete platform such as Ethereum. For instance, building applications on the UTXO design forces developers to limit the amount of state changed by each output. Similarly, the UTXO transaction design intrinsically is not congenial with developing smart contracts since the concept is only fitting for use in applications where each output is only owned by one person and can break down if the output can be consumed by two or more people simultaneously.

Bitcoin uses “Bitcoin script” which while being not completely useless, missed a lot of features. This is why Vitalik Buterin decided that rather than making the Bitcoin script better (which is not that simple) and develop a better UTXO model, he had to throw the inefficient system away and go with the Accounts based model. Accounts-based models are better understood in the realm of the prevailing programming ecosystems. 

However, discarding the UTXO model also resulted in discarding its advantages: 

1. The Calculation is off-chain, and transactions are both results and proofs.
2. Transaction inputs always link to existing UTXOs. It is also easy to verify if a UTXO has been spent.
3. In the UTXO model, transactions are easily processed in parallel.
4. In the UTXO model’s stateless environment, users are encouraged to use new addresses for every transaction, enhancing privacy to some degree.

## Need for a better UTXO model - Cardano’s Extended eUTxO model

There was an explicit need for a better UTXO script from a restricted UTXO model and empowering it with the brand new UTXO model itself. Additionally, there was a need for the addition of new languages that help you to build Dapps. This is what the extent of the UTXO model is for both Cardano and Ergo. It is a crucial step forward from the initial design that Satoshi Nakamoto released. 

Cardano endeavored to consolidate Bitcoin’s UTXO model with Ethereum’s ability to handle smart contracts into an Extended UTXO (eUTxO) accounting model. The adoption of eUTxO facilitates the implementation of smart contracts into the Cardano chain.

An Extended UTxO model will exist on the Settlement Layer, and the Accounting Based model will exist on the Computation Layer. An extended UTXO solution would require two pieces of additional functionality that the existing UTXO model could not provide:

1. To be able to maintain the contract state.
2. To be able to enforce that the same contract code is used along the entire sequence of transactions.

A dominant feature of the eUTxO model is that the fees needed for a valid transaction can be prophesied accurately before posting it. A unique feature not found in account-based models.

Alternately of just having public keys (hashes) for locks and resembling signatures serving as keys, eUTxO enables arbitrary logic in the form of scripts. This arbitrary logic inspects Cardano's ledger model extends the UTXO model to support multi-assets and smart contracts without compromising the core advantages of a UTXO model. 

## Ergo is the first to adopt a smart contract language in the same eUTxO model as Cardano

Although PoS is a very secure protocol, some smart contracts may require the consensus-theoretic security features of PoW for some part of their execution. The fully Cardano-compatible PoW can make significant contributions to all developers in the Cardano ecosystem; Ergo facilitates this PoW compatibility. 

The larger a dApp is if it is doing collateralized DeFi, the larger the stake it has at its disposition, and since this is not yet fully resolved in the Proof of Stake consensus, it is a weak point. Ergo brings the proven confidence of PoW, with enough security for all more complex DApps implementations on top of the standard UTxO model rather than translating very natural cryptographic concepts integrated with PoW to PoS, where the game theory implications of the protocol are entirely different.

Ergo is working on an interoperability protocol that is not proof-based, which is not easy to blend with multiple blockchains but has a federated approach using reputation at stake. Opening up the entire Cardano ecosystem to interoperability with the Solana blockchain, chosen by large exchanges such as OKEX or Binance.

While all other blockchains will not copy all these advantages of the eUTxO model, thanks to interoperability, other projects or DApps will be able to borrow these unique advantages by bringing their tokens to Ergo. The cryptography exercised by the Ergo protocol is more advanced, running on sigma protocols where cryptographic signatures are highly flexible and composable.

Here’s how Ergo seeks to boost interoperability for Cardano’s eUTxO model 


It is no secret that the Ethereum ecosystem is broken, especially with the platform being plagued with rising congestion and gas fee issues on a near-daily basis. And while the altcoin’s dev team has been promising big things for many months now, the fact of the matter remains is that an increasing number of Decentralized Finance (DeFi) projects built atop the ecosystem — such as Harvest Finance, Yield.App, Value DeFi — have continued to expand their operations to other blockchains.

Enter, ERGO, an advanced UTXO-based blockchain protocol that has been built to serve as an efficient and secure financial contracts platform offering its users a radical twist to traditional DeFi functionality. It provides a clear solution for Ether’s Gas problem, which in essence, is not really a prerequisite for a smart contract platform if a scripting language is rich enough. 

Ergo’s native programming language — aka ErgoScript — enables the development of Turing complete contracts that completely bypass the need for any gas fee while providing other peripheral benefits such as estimation of script complexity before execution, a facet that helps in the active prevention of DoS attacks. 
 
## A closer look at what ERGO brings to the table

The number of use cases associated with the decentralized financial (DeFi) ecosystem has been growing at a rapid pace over the last few months, with stablecoins, non-fungible tokens (NFTs), and oracle pools being some of the many offshoots to emerge from the fast-evolving space recently. 

ERGO’s unique proof of work (PoW) architecture — called Autokylos — coupled with its Turing complete smart contracts ensures that users are provided with seamless access to a number of advanced features including zero-knowledge proofs, adjustable block size, etc.

To further elaborate on what sets Autolykos apart from the rest of the fray is the fact that while most existing PoW protocols feature certain intrinsic drawbacks — for example, they allow ASIC-miners to produce blocks substantially faster than regular CPU-GPU miners — Autokylos does not feature any such potential point of failure, thereby eliminating the advantage that ASICs traditionally hold.

## Next-level security privacy and decentralization

One of the core issues currently affecting today’s crypto ecosystem is that of individual privacy, especially when talking about digital currency transactions. However, implementing such measures can not only be quite costly but also require a trusted setup. 

That said, ERGO’s native Sigma architecture makes it possible to do such things and much more since it not only allows for a high degree of privacy but also ensuring that the ecosystem’s security is not compromised even in the slightest. 

For example, [ErgoMixer](https://www.youtube.com/watch?t=31s&v=03_2HH82Plw) is a service that can mesh a number of different streams of potentially identifiable cryptos, allowing for the trustless mixing of funds. As a result, users can send their tokens worldwide without anyone knowing the details of their personal transactions. 

## Backed by  some of the industry’s best

The ERGO team features some of the brightest minds operating within the global crypto ecosystem today. Alexander Chepurnoy — aka Kushti —  the co-founder of ERGO possesses more than 15 years in software development. Prior to his work with ERGO he served as the co-founder of smartcontract.com (later rebranded as Chainlink) as well as a core developer for the open-source cryptocurrency and payment network NXT. 

Dmitry Meshkov, co-founder and a core dev team member for ERGO, holds a Ph.D. in physics and possesses more than a decade worth of experience in software development. In the past, he has worked for a number of prominent crypto projects including Scorex and was even an R&D researcher at IOHK, with his prime focus being the creation of a blockchain prototyping framework.

Other core members of the ERGO team include Alexander Slesarenko, Robert Kornacki, and Mike Askarin, all of whom have previously worked for established tech players including Huawei, Siemens Business Services, Gazprom, and Yandex. 

ERGO’s has repeatedly been praised for its novel design and immense potential by many from within the industry, with Charles Hoskinson, co-founder of Ethereum and Cardano, hailing Ergo as  "one of the most interesting and exciting projects in the crypto space". Not only that, Hoskinson has also time and again referred to Chepurnoy as his “favorite technologist”.



Ergo seeks to fix what Ethereum can’t… Here’s how

*The concept of ‘marginal gains’ enables Ergo to push the capacity of first-generation blockchain technology further than other platforms.*

With the explosion of interest in DeFi, perhaps the most compelling use case for smart contract blockchain platforms, one thing has become abundantly clear: blockchain is not ready for DeFi.

DeFi dApps have overloaded the Ethereum blockchain, causing long delays and soaring fees for transactions. Ethereum and many other platforms besides have researched and implemented fixes to address the lack of capacity. However, all of the solutions are imperfect in one way or another. Larger blocks are the obvious but clumsy fix, resulting in centralisation as fewer miners can afford the bandwidth, storage and CPU cycles to participate. Reducing the number of block validators – another approach taken to increase throughput – also necessarily centralises the blockchain. Sharding, while potentially very promising, has yet to be implemented successfully, and in some proposed implementations, breaks atomic composability because shards cannot communicate seamlessly.

Thus many of the ways projects seek to ensure their blockchains are fit for purpose result in greater centralisation or loss of critical functionality. 

**Marginal gains**

Ergo’s developers are watching developments in the DeFi space closely, especially some of the proposals that aim to scale blockchains while maintaining security, decentralisation and atomic composability. In the meantime, there is much that can be done to improve blockchain capacity. The concept of ‘marginal gains’, often applied in sports, is useful: a number of small, incremental gains in different areas all add up to a substantial compound effect.

For Ergo, there are several design principles and choices that have been taken to realise efficiencies in different areas.

* [Storage rent](https://ergoplatform.org/blog/2020_04_21_ergo_positioning/) is akin to ‘on-chain garbage collection’, reducing blockchain bloat and lowering the long-term costs of mining, improving economic sustainability.
* NiPoPoWs (non-interactive proof-of-proof-of-works) enable [mobile SPV clients](https://ergoplatform.org/blog/2020_05_1_spv_security/) and [even lite full nodes](https://ergoplatform.org/blog/2020_05_08_lite_full_nodes/), again reducing the barriers to maintaining the network and improving decentralisation.
* A [smart contract language](https://ergoplatform.org/docs/ErgoScript.pdf) that is finite and clear, without the messiness and possible chain bloat of Turing-complete languages and their unintended consequences.
* [Sigma Protocols](https://ergoplatform.org/blog/2020_03_16_ergo_sigma/), which allow for powerful cryptographic use cases, implemented elegantly and efficiently.

As DeFi emerges as a major use case for blockchain, the stakes could not be higher. Blockchains that are fit for purpose will thrive; those that do not allow the functionality to sustain the required transaction load simply cannot establish a foothold. At the same time moving too fast and implementing untested technology is equally dangerous. 

There are efficiencies to be gained in first-generation blockchains. Ergo continues to prioritise this approach while researching future upgrades.

How Ergo Makes the Most of Blockchain

*Most users won’t care about the underlying blockchain they’re using – they will just want its functionality. That means DeFi interoperability will be critical.*

Despite the open source nature of the blockchain world, crypto projects have always tended to have an ‘us-and-them’ mentality. The assumption is that for one platform to succeed, it must be at the expense of all the others. Hence marketing strategies that position one or other platform as the ‘Ethereum killer’, and other such claims.

The reality is quite different, as 2020 should have proven beyond doubt. New DeFi projects bring users and volume to each other; [composability is important](https://ergoplatform.org/blog/2020-12-18-2021-the-next-battlegrounds-for-defi/) because it allows dApps to provide reciprocal benefits and build mutual network effect. So why should the blockchain platforms themselves be any different?

**Seamless interoperability**

To date, different blockchains are still relatively siloed. It’s possible to plug different blockchains into each other, but it’s not nearly as easy as it is to do with dApps on the same platform. But what if that was different? What if true cross-blockchain composability was possible?

That would truly be a game changer, since it would no longer matter which platform developers launched their dApps on. 

At present, the majority of developers choose Ethereum because that’s where the users and volume are. Opting for a different blockchain might make sense on technical grounds, but you then risk having a well-functioning dApp with a fraction of the potential user base.

If blockchains were fully interoperable, developers could make their infrastructure choices based on their preferred programming language and other technical criteria, knowing that the users would come from all over the blockchain space, whatever network the dApp was hosted on.

**Blockchain agnostic dApps, powered by Ergo**

This is the future that Ergo would like to see and bring about. Each blockchain platform will have its own strengths, but all will be interoperable, meaning that tokens and dApps will be able to cross the chasm to other chains where desired.

This allows Ergo to focus on its core features, such as Sigma Protocols, rather than seek shortcuts to adoption like yield farming projects.

The use of the [Gravity Protocol](https://medium.com/wavesprotocol/waves-partners-with-ergo-to-foster-interoperability-solutions-via-gravity-e184bca91d71) will enable interoperability between Ergo and other participating blockchains, while Ergo’s unique features will be available to everyone.

How might this look in practice? Here’s just one potential use case.

Imagine a project raises funds via a crowdsale. It makes sense that cash should be raised in BTC, among other currencies, since this is the largest community and pool of funds. But Bitcoin does not offer the optimal way to administrate and disburse the money.

Using [Ergo’s ZK Treasury](https://ergoplatform.org/blog/2020-09-04-announcing-the-zk-treasury-on-ergo/), an address is created with bespoke conditions. A team of seven people needs to create a digital signature to access the funds. Five of seven accounts need to sign a transaction, or else the CEO, CTO and CFO together.

BTC is then locked in a bridge to the Ergo blockchain, so that an equal amount of BTC proxy tokens on Ergo (much like RenBTC on Ethereum) are deposited to the treasury account. The team can disburse funds from this account, and either use ErgBTC on the Ergo chain, or unlock them on Bitcoin to pay for development and marketing.

This allows the developers to add Ergo’s benefits of Sigma Protocols and custom signatures to Bitcoin.

In another version of this use case, an address might be created using multi-party computation using Ergo, such that no private key actually exists at all. A signature can be created using Ergo, and then used to push a transaction to a separate blockchain (e.g. Ethereum). This allows Ergo to be used as a layer for highly secure account creation and transaction management on other networks.

This is just one possibility that seamless interoperability raises. There will be many more that we look forward to exploring as Gravity and additional protocols come online.

What Ergo can contribute to DeFi interoperability

*The new scheme developed through the Emurgo-Ergo partnership will see oracle pools – core blockchain infrastructure – run as a public service, accessible by any dApp and developer, free at the point of use.*

Oracles are a crucial element of DeFi infrastructure. They are the bridge between the siloed world of the blockchain and data from the real world, and so are vital for [DeFi to reach its full potential](https://ergoplatform.org/blog/2020-08-13-building-ergo-our-vision-for-defi/). The integrity of major use cases, including [stablecoins](https://ergoplatform.org/blog/2020_05_05_stablecoins/) and lending platforms, rely on oracles that are fit for purpose.

Current oracle implementations fall short of the ideal. One of the first projects undertaken as part of the [Emurgo-Ergo partnership](https://ergoplatform.org/blog/2020_06_09_press_release/) is research into Oracle Pools: a new way of bringing data from the outside world into the blockchain, and making it readily available for any dApp.

**The shortcomings of current implementations**

Oracles already underpin many decentralised applications on Ethereum, and typically work in the following way:

1. A dApp wishes to acquire information from the outside world and makes a request to an oracle by paying into its smart contract (payments are typically made using a dedicated oracle token).
2. The oracle obtains the data and submits it back to the contract that called it via a separate transaction.
3. The information is sent solely to the dApp that requested it, and no one else can use that data without paying.

While this works relatively well, typical oracles can essentially be considered as private services that employ a ‘pay-to-play’ model. As this was clearly insufficient for many use cases, the concept of data feeds was developed in order to improve the user experience for common pricing information.

Current data feeds on Ethereum, however, tend to be implemented in a very trusted manner. They lack a generalized approach that provides assurance about the reliability of the data, both in regards to its accuracy as well as its posting schedule. Furthermore, such approaches tend to have no clear decentralized funding mechanism to make them sustainable over the long term, but instead rely on sponsorship by centralized actors.

Ergo and Emurgo’s view is that oracles are too important to be restricted in this way. They should be public infrastructure for the DeFi sector. The oracle pools model developed through the partnership addresses this need.

**Oracle pool design**

[Ergo’s UTXO model](https://ergoplatform.org/blog/2020_03_03_building_utxo/) offers benefits for oracle systems that were not previously available. Pools of oracles act to decentralise the provision of data, ensuring that both the process and the data itself are more reliable.

At their simplest, oracle pools break up time into fixed epochs (e.g. 6 hours), which are subdivided into blocks (e.g. 180 two-minute blocks). The group of oracles within the pool agree on the data sources and each post their data points to the blockchain in their own UTXO.

At the end of an epoch these data points are averaged, after removing outliers, in a final transaction which reads each data point UTXO. This results in the oracle pool producing a new finalized datapoint, and moving forward towards the next epoch.

This is not particularly complicated to understand, but lays a solid foundation. One critical factor to note is that the whole process occurs on-chain. Moreover, the use of UTXOs enables the addition of incentives and governance mechanisms, allowing far greater sophistication and flexibility of oracle pools and data provision than was previously possible.

**Building on the foundation of UTXO-based oracle pools**

As mentioned previously, it is possible to implement incentives and penalties in the pools to help ensure the quality and timeliness of the data they provide. Oracles put up collateral – a certain amount of ADA, ERG, etc – to participate in a pool. Coins are removed from their balance (‘stake slashing’) if they fail to do their job properly, e.g. if they fail to collect other oracles’ datapoints, if they submit a wildly inaccurate datapoint (an outlier), or if they do not submit a datapoint in a timely fashion. This ensures that oracles do their job well. The collateral is the blockchain’s native currency, not a separate token, simplifying matters and improving economic incentives.

The model also enables governance voting to determine key parameters for oracle pools. The governance community can decide variables such as how long the epoch is, how much oracles get paid for posting valid data points, the minimum collateral they require, the number of oracles per pool, and so on. There is a high degree of flexibility, and parameters can be changed based on current needs. New oracles can be invited to a pool, others removed, and so on.

This model incorporates a strict posting schedule (epochs) and governance directly, which projects such as Chainlink do not have. Effectively, oracle pools become mini DAOs that aim to provide the best service and can compete according to the service they provide in a free market, thereby improving the overall quality of data that everyone uses.

**Payment model**

The UTXO model means that results are posted to the blockchain and are available for anyone to use for the cost of a transaction fee. This is not the standard pay-to-play approach: dApps can access data for next to nothing. Furthermore, this access to oracle pool data scales cleanly and at no extra cost even if more complicated protocols are built on top of oracle pools (such as hierarchies, or time-weighted averages).

Oracle pools are paid for by the dApps that use them over time. While everyone can use oracles and everyone who uses them has an incentive to fund them, this costs very little – a small percentage of extra fees on a given dApp. It is expected that these oracle pool payments will be implemented in major dApps, therefore ensuring that pools always have the funds they need to function.

It makes most sense that large, flagship applications like stablecoins, wallets, decentralised exchanges, lending protocols, and so on, would pay for key oracle pools – in much the same way that key blockchain companies run their own nodes. It’s part of their operation and part of their Corporate Social Responsibility, to borrow a term from the business world. It’s how they guarantee access to the data they need, help keep the ecosystem healthy, and show they are serious about staying the distance in the DeFi sector. At the same time, oracle pools are designed so that even small actors can run their own and have a funding mechanism baked in if they find a sufficient user base.

The pools model means the funds paid can be disbursed effectively, within a range of different pool structures. It would be possible to have a pool-of-pools, with several oracle pools aggregating data and those results being pooled and averaged. The payment goes to the top pool, which pays funds out to the next pools down in the hierarchy according to how reliable they are, and those pools distribute funds to the most reliable oracles within them. The main advantage is that it is simple for the user, since only one payment to the top pool is required.

There is also scope for using signed data – data from trusted entities like large exchanges. These can submit signed data to ‘first-to-post’ pools, where the funds are distributed to the first oracle to record data to the blockchain; because they are trusted, the averaging process is not necessary. Or there can be pools that aggregate partially signed and partially unsigned data, giving the best of both worlds. Signed and unsigned data points can be pooled and brought together into a single datapoint, and payouts can still be made cleanly by paying the top pool.

This is the first implementation to come from the Emurgo-Ergo collaboration: the first steps in building out the UTXO-based DeFi ecosystem. There will be much more to come, and new developments promise to be very exciting.

For further background, watch Emurgo researcher **[Robert Kornacki explain oracle pools](https://www.youtube.com/watch?v=NfSrNxA-MPo&t=1s).**

Ergo’s Oracle Pools, and what they mean for the ecosystem

**Robert Kornacki**

I'd like to officially announce that [Oracle Pools](https://github.com/ergoplatform/oracle-core/) are live, running on mainnet, with all the code + detailed instructions available for you to start/run your own, and we have a beautiful frontend created by DeadIT now implemented in the explorer <https://explorer.ergoplatform.com/en/oracle-pools-list>

**Can Ergo Oracle Pools be used on Eth projects?**

A similar system could be developed & deployed on Eth, but all the data is posted on the Ergo blockchain so available to all Ergo users.

**So the data can’t be pulled from the Ergo blockchain to the Eth blockchain?**

Eventually, if Eth implements NiPoPoW, but it wouldn't make any sense financially.

**What about Cardano?**

It would make more sense to post unique data from the Ergo blockchain to Eth or Cardano, rather than oracle data. We're researching cross-chain compatibility with Cardano in the background right now. 

And these oracle pools are now fully usable on-chain for any dApp anyone wishes to create. Simply use the oracle pool NFT id as a reference to find the latest oracle pool UTXO, and you can have oracle data immediately available for your dApps.

**So the incentives for the Oracle Pools will need to constantly be filled, this means users pay as they go or do they just send a large payment and it slowly depletes as it is used?**

Good question. The idea is that with the UTXO-model, large dApps can enforce that users pay out a single output a very small % of a fee that goes to the Oracle Pools automatically.

As such, well used/popular dApps fund key oracle pools via usage, and almost no one has to end up feeling the cost.

For more specialized data, it may be that the pools will have to be more directly funded, but for key datapoints like Erg/USD, that will likely be the equivalent of core infrastructure available for everyone.

**Sort of how Uniswap takes fees to pay LP?**

Indeed, but it can be a lot more generic, cheaper, and easy to implement in the UTXO model.

**Robert.. how is any of this good for Cardano??**

Great question. Here's a response I just wrote that touches on this from Reddit:

Sure, I'll help clarify. Essentially when external oracle data is posted on-chain, it needs to be encoded in a very precise way within a transaction. Furthermore, oracle pools have a bunch of different moving parts that require transactions to be issued to move between the different stages of the pool protocol.

As such, the oracle core is the piece of software that creates all of the complex transactions which post the data on-chain & runs the oracle pool protocol on-chain (such as averaging datapoints).

The current oracle core is designed for the UTXO-based system in Ergo, which is quite similar in many ways to the UTXO-based system in Cardano.

We at Emurgo are supporting both Cardano ADA, and upcoming Ergo ERG in Yoroi, with a focus on moving forward into smart contract & DeFi support, especially with Gougen on the horizon. As such we are now investing a lot of resources in developing key UTXO-based smart contract infrastructure that's required for the ecosystem as a whole, first on Ergo which is already launched and running, and soon on Gougen as well.

**What does oracle pool payout mean? you get paid for funding oracle pools?**

Each oracle who submits a datapoint gets paid for doing their job. The oracle pool payout is the amount of nanoErgs (the smallest measurement of Ergs) that an oracle gets paid per oracle pool datapoint finalizing/posting.
So if you take a look at the frontend page https://explorer.ergoplatform.com/en/oracle-pool-state/adausd You can see the oracle payout price is 2500000 and the posting schedule is 60 minutes (30 blocks). So oracles make 2500000 every 30 blocks in this pool.

**Could Daedalus use the ADA oracle to add the current value at the time staking rewards are paid?**

Yes/no. The current oracle posts data to the Ergo blockchain, and so it'd require Daedalus to also support Ergo to have a setup like that.

It would typically just be easier for Daedalus to also source the pricing data itself via http requests, but it's technically feasible. Once we have Cardano oracles that should be doable (and since Daedalus is a full node it will scan all txs/blocks so the data will be available for use, so it can definitely be done)

**Sounds very doable with Yoroi pretty soon though right?**

Haha, again yes/no. To source data in UTXO systems, you need to scan the UTXO set, so you need your own node. Light wallets like Yoroi don't have this, because it will cost theoretically an infinite amount of money if everyone just spams Emurgo's full nodes and forces us to pay for everyone's UTXO-set scans.

**Do you imagine IOG or Emurgo will make use of the Ergo blockchain for services/products like a stable coin or decentralized exchange?**

We (Emurgo) are currently working with the Ergo Foundation to create a stablecoin on Ergo. We are also looking into direct interoperability, and how practical it is to deploy dApps we develop on Ergo also on Cardano.

Since Ergo has superb privacy features thanks to Sigma protocols, there is a great chance that we can have interesting interoperability use cases in the future, where you may hold wrapped Ada and use that wAda in privacy-preserving smart contracts.

**I believe the same stable coin which will come on the Ergo blockchain will come to the Cardano blockchain. In the future, we might see ergo and Cardano talking to each other?**

We are putting in a lot of effort, and beginning to speak with IOG more about making this a reality (in terms of blockchains talking with each other).

**So in this case the only limitation would be the variety of data sources for the request to make this useful?**

With simple hierarchies of Oracle Pools, that indeed would be the case. We are also looking into mixing signed data together with unsigned data.

So you have pools sourcing signed data from CoinBase for example, and then others from other unsigned sources, thereby decreasing the chance of corrupting any one source.

Besides just simple hierarchies as I initially stipulated in the writeup, I've spent more time thinking about even more complex schemes which can be built on top of oracle pools that use a lot more game theory in different ways, and maybe we'll release something about that by EOY.

**Where does Emurgo get its funds to develop these things?**

Emurgo is one of the founding companies which built Cardano + is now partners with the Ergo Foundation which allows us to develop in this ecosystem as well.

**Will we see additional exchange listings for Ergo in the near future?  Visibility and liquidity are a pain point currently.**

We (the EF) are constantly talking with exchanges.

**I love this offchain to onchain tunneling stuff**

This is completely off-topic, but one of my side interests that is super untapped and I think will be a major breakthrough is when interoperability between off-chain distributed messaging networks integrate together with blockchains.

**My assumption is that the Ergo token will be supported in the Yoroi wallet eventually, yes?**

Yes, Erg support will be added to Yoroi in the coming future. No dates for you yet, unfortunately, but stay tuned!

**Robert in a sentence or two, what is the primary driver of value appreciation in the Ergo ecosystem, besides speculation? This is the number one question my friends ask.**

In my opinion a clear vision of the future: permissionless DeFi with in-built privacy capabilities on top of a new model (UTXO) that offers capabilities to streamline and improve the whole experience of both crypto and DeFi for the average user.

We're not there yet for having a streamlined and easy experience for the average user, that's quite obvious, but there are certain things that aren't possible (or aren't easy/aren't economical) that you can do on UTXO, like allowing anyone else to spend a UTXO you "own".

**You have said that Oracle Pools are cheaper and eliminate the middleman, but the rumor mill is saying that threshold sigs are coming to LINK and will reduce tx fees by 99%. Any validity to this?**

We already have threshold signatures in Ergo, so we could likely do the same thing if that approach is that much better. 

That said, on-chain provides a lot of benefits with implementing incentives/disincentives like stake slashing, which aren't possible off-chain with threshold-sigs. We don't have such tx congestion on Ergo, and future plans for sidechains research for scaling, so we get a lot more game theoretic benefits for doing it on-chain, and it's all cheap at the moment.

Transcript of the Oracle Pools Q&A session with Robert Kornacki

*Ergo is building the most effective programmable currency in history.*

Money is changing. It’s interesting that, at a time when money is increasingly being trivialised and devalued through enormous quantitative easing, evolution and innovation in a parallel sphere is qualitatively improving money. One of the key ways in which blockchain is enhancing money is programmability.

Money is just information. Once that basic principle has been accepted, it opens a whole new arena and value proposition for cash. Money becomes more valuable – not because it’s worth more per unit, but because it’s more versatile. Programmable Money (PM) has far-reaching implications for productivity and economic regeneration, and there may never have been a point when that is more needed.

**Open Banking: Programmable Money 0.1**

Despite moving to the digital realm decades ago, money has evolved very little. The recent development of open banking APIs is only a tiny step in the right direction – something we might call PM 0.1.

Open banking APIs enable developers to code new applications that interface with consumers’ bank accounts – within a tightly-controlled environment – but do not provide nearly as much value and freedom as they might. That very limited new functionality is, of course, provided within the existing, highly centralised system.

The upshot is a little like giving someone a remote control for a black and white TV that only receives four channels (anyone remember the early 1980s?).

**Bitcoin: PM 1.0**

Money forever changed with the advent of Bitcoin, the first truly decentralised online currency. Bitcoin is programmable; it allows users to attach certain conditions to addresses and transactions. The options are limited, though that’s not a bad thing in Bitcoin’s case. Satoshi originally envisioned – and built – a much more extensive, flexible system, but much of that functionality was taken out by later developers. As digital gold, it’s understandable that Bitcoin should be treated conservatively. The chain stores hundreds of billions of dollars of value, and limitations are a feature, not a bug.

Ethereum launched in 2015, with the emphasis on decentralised computing. ETH is highly programmable money, a currency for dapps. The Ethereum platform is immensely powerful, but as we’ve seen too often, that can be risky. The nature of Solidity, Ethereum’s programming language, means there can be grey areas and edge cases that mean smart contracts do not execute as expected or required. Its complexity also opens the way to exploits, which even professional audits don’t always catch in time – when they’re conducted at all.

**Ergo: PM 2.0**

Ergo takes the best features of Bitcoin and builds on top of them, enabling Turing-complete decentralised money that is fit for purpose. It is highly composable, and its smart contract language – ErgoScript – is powerful while also avoiding the major problems that have plagued Ethereum.

Using ErgoScript, developers can neatly and reliably attach customisable conditions to coins and addresses. It’s a Turing-complete system, which means that any computational task – that is, any set of programmed conditions – can be applied. (While the same might theoretically be true of Ethereum, it’s dangerously complicated and expensive in practice.) ErgoScript has been designed to ensure it’s always known how much a smart contract will cost to execute up-front, and that a contract will always run as planned, without errors. It’s the ideal mixture of safety and versatility.

Ergo is therefore the next stage in the evolution of programmable money: a qualitatively better currency, at a time when money is losing its value before our eyes.

**Learn more about [ErgoScript and Ergo’s Sigma Protocols](https://ergoplatform.org/discover/#DiscoverERG/).**

The Evolution of Programmable Money

*As blockchain technology gains traction, central bank digital currencies are among the most significant applications being developed. But these will inevitably fall far short of the ideal, for one simple reason: control. In particular, that has implications for composability and privacy, and much else besides.*

Central bank digital currencies are no longer a theoretical application of blockchain technology. The list of countries developing CBDCs is growing rapidly, with several now trialing state-backed digital cash.

CDBCs are not built on classic, open blockchain technology. While there are various approaches, they are all based on permissioned ledgers that restrict the role of securing the network and processing transactions to a group of approved entities. They also include a control layer that gives administrators the ability to intervene in transactions, blocking or reversing those they deem invalid.

It’s a far cry from the ideals of Bitcoin, and the Ergo platform that aims to build on these. But it’s only to be expected. The state has a role and a remit, and it’s unlikely to give up the control it exercises. Unfortunately, though, there are two ways that holding onto control will mean that CBDCs fall far short of what they could be, meaning they may ultimately cede ground to open platforms like Ergo.

**Composability**

As we wrote in a recent blog, composability is a core feature of DeFi. It’s what gives applications network effect, instantly adding value by plugging into existing dapps’ user bases and functionality.

Programmable money is a huge development. The current system is clunky and complicated to use, at best. It’s not possible to attach detailed conditions to transactions, and have them interact seamlessly with software, as can be done with blockchain and smart contracts.

Imagine the value that could be unlocked if CBDCs were programmable, and smart cash could be integrated frictionlessly into new applications – banking interfaces, investment services, stores, social networks, games. The list is endless. But this is hardly likely. The freedom to program money will exist, for many years at least, in the open blockchain space alone.

**Privacy**

Secondly, we consider privacy to be a core requirement of DeFi. Money is too important to be used as a tool of surveillance, but there is no question that this is what it will become as soon as the first CBDCs are rolled out to a large user base.

China is one of the furthest ahead in its creation of state-backed digital cash. This is a state that is notorious for its internet censorship and online surveillance of its population. Its human rights record is dire, and in recent days we have learned more about its oppression of the Uighur minority. Moreover, China already uses a social credit system, which grants or denies citizens access to certain services and amenities depending on their social score, with model citizens enjoying greater privileges.

There is, again, no question that a state-backed, traceable CBDC will be used as a tool of surveillance on a scale that is unprecedented in human history. And it will be the same across any nation that implements money within the same framework.

That giant eye on the dollar bill? You ain’t seen nothing yet.

**Private, programmable financial services**

Ergo has a very different vision for blockchain-based cash and financial services. In the new paradigm of blockchain, value is not retained by constraining it. It is only maximised through open systems that make it as accessible as people want it to be. Money without borders, in both senses: cash that can be programmed, sent and received freely but privately, between any two individuals or organisations – and even blockchains – anywhere in the world.

This is what money needs to be, and what Ergo is building.

Ergo’s Vision for DeFi: Ergo vs CBDCs

*Everyone is talking about DeFi. Few people are asking what DeFi should look like. Ergo has a vision for what the sector can become.*

2020 is shaping up to be the year in which [Decentralised Finance](https://ergoplatform.org/blog/2020-07-02-ergo-and-the-explosion-of-defi/) rose to mainstream attention, in the same way that Bitcoin and blockchain did in 2016 and 2017. In July alone, Total Value Locked – the amount of funds committed to DeFi dApps’ smart contracts – doubled from $2 billion to $4 billion, largely driven by Compound’s distribution of its COMP governance tokens.

DeFi is all the rage, with several well-known projects pioneering the space before our eyes. But while the crypto world is gripped with the short-term opportunities of DeFi, fewer are talking about what it actually is – and fewer still about what it should be. In building a DeFi platform like Ergo, though, that’s exactly the kind of question we have to ask.

**DeFi dislikes limits**

In talking about what DeFi ‘should’ be, it’s easy to fall into a trap of being prescriptive, of introducing arbitrary conditions and limits. But that’s not what blockchain is about. As we’ve seen with Bitcoin and blockchain more generally, there’s a free market of ideas and nothing is off the table. It’s reasonable (though not particularly helpful) to say that DeFi should be ‘anything and everything’.

Just like blockchain, DeFi brings advantages of transparency, immutability and efficiency (often including speed and/or cost) to financial processes. But in terms of what we believe this new set of technologies should offer, and what decentralised finance can bring to the conventional financial system, it’s worth focusing the conversation on a few other key areas that have been overlooked or under-represented to date: **Privacy, Scalability, Interoperability**, and **Decentralisation**.

**1. Privacy**

As Eric Hughes wrote in [A Cypherpunk’s Manifesto](https://www.activism.net/cypherpunk/manifesto.html) back in 1993, ‘Privacy is necessary for an open society in the electronic age.’ That is never more true than for financial privacy. Privacy must be a built-in feature of DeFi – not a bolt on extra or a desirable feature. It must be integral.

But, as Hughes continues, ‘Privacy is the power to selectively reveal oneself to the world.’ There is always a balance to be struck between privacy and compliance, between transparency and anonymity. Large scale adoption of DeFi requires auditability, and the regulatory approval that enables.

Thanks to the latest advances in zero-knowledge proofs, Ergo can offer both privacy and transparency, where required. The platform’s [Sigma Protocols](https://ergoplatform.org/blog/2020_03_16_ergo_sigma/) offer robust, customisable cryptography – and, at the same time, the ability to selectively reveal information where necessary.

**2. Scalability**

The ability to process thousands of transactions per second is also a non-negotiable feature for a thriving DeFi sector. How this is achieved is less important than that it is achieved; in practice, there will be many different approaches, with different users and protocols selecting the ones they prefer.

For example, while we have seen the rise of sidechains and child chains, the reality is that exchanges remain a gateway to the blockchain world for a large proportion of users. Popular exchanges are increasingly integrating DeFi functionality, allowing their vast user bases to access it from their individual accounts, without interacting directly with the protocol.

While this may be less than ideal from a security perspective, it’s a simple reality that centralised services are not going out of fashion, but are integrating decentralised technologies thanks to the advantages they offer. [Ergo has its own approach to scalability](https://www.ergoforum.org/t/a-scalability-plan-for-ergo/226), but we can’t and won’t ignore the importance of businesses in driving forward user adoption.

**3. Interoperability**

One of DeFi’s key strengths is composability: the ability to build new applications from existing components, leveraging the network effect of established dApps and tokens. This is one of the main factors that has enabled TVL to explode over the past month.

But composability currently has its limits. Cross-platform composability currently isn’t possible. Even atomic swaps – the first stage of interoperability – are in their infancy, though [Ergo is working on an atomic swap-powered DEX](https://ergoplatform.org/blog/2020_04_24_atomic_swaps/).

Full interoperability means the ability for a user to execute a smart contract on one platform and have it seamlessly interact with another blockchain. This would allow truly frictionless cross-protocol interaction, and is what is needed to enable the flow of liquidity fully throughout the DeFi world. At that point, applications become blockchain agnostic, and the platforms are really more like the programming languages for accessing dApps’ functionality.

**4. Decentralisation**

Lastly, and specifically in the context of scalability and interoperability, we cannot forget the importance of decentralisation – [something Ergo has always taken seriously](https://ergoplatform.org/blog/2019_12_12_new_quest/).

Of course DeFi is decentralised – but there are different types of decentralisation. Ethereum, the home of almost every major DeFi dApp, is just one platform.

Ethereum’s developers are working on a plan for scaling, but even if this is successful, it is still one blockchain. Should we entrust all our funds to one network? What if a critical bug or exploit is found?

Interoperability does more than enable cross-chain liquidity. It decentralises the decentralised infrastructure for DeFi, adding layers of redundancy and security. In the process, it strengthens every blockchain that is a part of that ecosystem, creating a whole that is more than the sum of its parts. At a time when relatively large blockchains still suffer double spend attacks and [serious reorgs](https://hackmd.io/@cUBb4hAvQciAEPoU2yfrzQ/Skd4X6MZw), and catastrophic vulnerabilities are found in smart contracts holding tens of millions of dollars of value, we cannot assume that one single blockchain will or should rule them all.