It’s hard to imagine a single blockchain would suffice for all our society’s use cases.
A multi-chain future seems inevitable. However, a multi-chain future without interoperability between the blockchains could be paralleled to the Internet before TCP/IP.
Today’s blockchains are too fragmented and are by-nature not interoperable, hindering
mass adoption of the technologies. For example, a decentralized application (dApp)
must be married to a specific blockchain. If a user onboards into the crypto ecosystem through a given dApp, this fragmentation makes immense barriers for the user to
fluidly adopt or try a dApp on another chain. To address the issues of interoperability,
there have been a few proposals and projects that specifically emphasize the ability
to inter-operate. However, the majority of interoperability systems only apply to specific blockchains, standardize their protocols within their own systems requiring other
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blockchains to adopt or through complicated, restricted, and/or less secure bridges to
join (see Figure 1). In this whitepaper we propose a novel, public L1 blockchain that
actively and agnostically connects blockchains and facilitates interoperability. Furthermore, we propose a generic smart contract on blockchain that can hold and manipulate
assets on external blockchains directly, thereby enabling generic smart contracts that
can custody assets on external chains. This opens the door to boundless cross-chain
dApps.
Blockchains are naturally closed systems. The goal of this whitepaper is to design
and specify a practical system that is generic in its inter-blockchain capability, without
forcing existing blockchains to adopt new standards or a new blockchain that every
assets needs to move to, and do so in a decentralized, byzantine fault tolerant way. In
other words, we aim to create a public blockchain that supports real cross blockchain
transactions, message delivery, and general cross-chain smart contracts. According to
our extensive survey, to satisfy this goal, the best pragmatic approach is the decentralized
notary scheme on top of an incentivized Proof-of-Stake replicated state machine (aka
blockchain) which we call ZetaChain.
ZetaChain is first of all a public blockchain with Proof-of-Stake validators. It’s trusted
that a super majority (>66% nodes) of the validator nodes are honest and act according
to protocol, and collectively serve as notaries. In addition to being a blockchain,
interoperability requires observing other blockchains. Thus each ZetaChain validator
node is attached with an observer that scans other blockchains for relevant events (event
log, transaction, or state at a certain time). The observers report the relevant events
to ZetaChain and reach consensus. ZetaChain uses custom logic to update its state
in response to the reported events. On the other hand, in order to change state on
other blockchains, each validator is also attached with a signer holding a key share.
Collectively all the validators hold a single public/private key pair which can initiate
transactions on other blockchains to change state directly. The signature scheme can be
some kind of threshold signature scheme such as GG18/GG20 ECDSA/EdDSA, or BLS
threshold/aggregate signatures, depending on the cryptography on different chains and
their smart contract capability/cost. The presence of a single public key and address in
the ZetaChain system allows ZetaChain to custody assets on external blockchains which
might not have adequate smart contract capability such as Bitcoin. Such ability allows
powerful cross-chain (or omnichain) dApps to be built on top of native ZetaChain
cross-chain smart contracts. This capability looks much like on Ethereum where a
smart contract can be trusted to manage assets according to predetermined rules, except
on ZetaChain, a smart contract can leverage and manage assets on any connected
blockchain.
In summary, ZetaChain is designed to be a decentralized cross-blockchain smart contract platform. The vision of ZetaChain is to be a public computer on all important
blockchains, on top of which cross-blockchain decentralized applications can be easily
built as public, trustless, and persistent smart contracts.

Externally Managed Vault/Assets
The ZetaChain validator set can manage vaults on connected chains just as an account on that chain can, through its TSS architecture. This functionality allows even non-smart-contract chains like Bitcoin to be managed by contracts on ZetaChain.

Hyper-Connected Node
ZetaChain's node observes and processes transactions from all connected chains. By being "hyper-connected" the node is able to support chain-agnostic observation and thus interoperability.

Interface Contract
Smart contracts on connected chains like Ethereum or Arbitrum interact with ZetaChain by passing/receiving messages from ZetaChain's Interface Contracts, which are deployed on each connected chain. This makes

Multichain
Blanket term for apps or concepts that span multiple blockchains.

Observer
The observers watch externally connected chains for certain relevant transactions/events/states at particular addresses via their full nodes of external chains. The observers can be further divided into two roles: sequencer and verifier. The sequencer discovers relevant external transactions/events/states and reports to verifiers; the verifiers verify and vote on ZetaChain to reach consensus. The system requires at least one sequencer and multiple verifiers. The sequencer does not need to be trusted, but at least one honest sequencer is needed for liveness.

Omnichain
As if all blockchains or layers were connected into a single chain. ZetaChain is an 'omnichain' solution, since it is chain-agnostic and allows interoperability between all connected chains.

Omnichain messaging
Messaging value and/or data between chains seamlessly (via ZetaChain).

Omnichain smart contracts
ZetaChain's native smart contracts are omnichain, meaning that they can manage, read, and write state to/from external chains. These smart contracts are the first of their kind, and unlock a new paradigm of dApps that transcend individual chains and layers.

Revert
During a cross-chain transaction, the case that a destination transaction fails (insufficient funds sent, unforeseen changes on the destination, etc.) ZetaChain is capable of reverting the transaction and returning funds to the sender on the source chain.

Signer
The ZetaChain collectively holds standard ECDSA/EdDSA keys for authenticated interaction with external chains. The keys are distributed among multiple signers in such a way that only a super majority of them can sign on behalf of the ZetaChain. Its important to ensure that at no time is any single entity or small fraction of nodes able to sign messages on behalf of ZetaChain on external chains. The ZetaChain system uses bonded stakes and positive/negative incentives to ensure economic safety

TSS
Threshold Signature Scheme. To avoid any single point of failure, ZetaChain uses state-of-the-art multi-party threshold signature scheme (TSS) (see whitepaper for more details). To the outside world, the ZetaChain validators collectively possess a single ECDSA/EdDSA private key, public key, and address, and the signature signed by ZetaChain can be verified efficiently and natively by standard ECDSA/EdDSA verification procedure by the connected blockchains. Internally, the private key is generated without a dealer, and the private key is distributed in all the validators. At no time is a single entity or a minority of validators able to piece together the private key and sign messages on behalf of the whole network. The key generation and signing procedures are done by Multi-Party Computation (MPC) which reveal no secret of any participating node. Because ZetaChain can hold a TSS key and address, ZetaChain can support smart contracts that can manage native vaults/pools on connected chains including Bitcoin. This effectively adds smart contract capabilities to the Bitcoin network, and potentially other non-smart contract blockchains. The TSS employed by ZetaChain gives the performance and convenience of hot wallet with cold wallet level security.

Validator
ZetaChain uses the Tendermint consensus protocol which is a partially synchronous Byzantine Fault Tolerant (BFT) consensus algorithm. Each validator node can vote on block proposals with voting power proportional to the staking coins (ZETA) bonded. Each validator is identified by its consensus public key. Validators need to be online all the time, ready to participate in the constantly growing block production. In exchange for their service, validators will receive block rewards, and potentially other rewards such as gas fees or processing fees, proportional to their bonded staking coins.

ZetaChain’s coin ZETA is used to pay the gas fees for ZetaChain smart contracts and additionally used to secure the PoS ZetaChain blockchain by bonding/staking/slashing. ZETA is also at the core of ZetaChain’s cross-chain transfer, swaps, message delivery, and security. ZETA is one of the first multi-chain coins that is natively issued across multiple chains and layers.

Users can directly move the ZETA coin from any chain A to chain B. The mechanism is a one way peg (i.e. burning X amount on chain A and then minting X amount on chain B).

We use our own coin ZETA to represent value cross-chain because:

Unlike the more common two-way pegging, there is no wrapping and therefore no multiple representation of the same underlying asset.
The only (native) value that can go cross-chain is via the ZETA coin, which reduces attack surface substantially, resulting in an easier to understand audit and therefore higher security. For example, we can check total supply at the contract mint site.
Users can pay ZETA for the cross-chain service that ZetaChain provides, and for gas on the destination chain, in a single step/bundle.