Cosmos is a decentralized network of blockchain-based applications that aims to enable smooth transactions between them using open-source tools. Instead of focusing solely on its own network, Cosmos aims to create an ecosystem of interconnected networks that can share data and tokens programmatically, without the need for a central intermediary.
Key Takeaways
- Cosmos aims to create an ecosystem of interoperable blockchains that can scale and support a wide range of decentralized applications.
- The network allows developers to build their own independent, decentralized blockchain applications, known as “zones,” using the Cosmos software development kit (SDK).
- ATOM is the native currency powering the proof-of-stake blockchain called the Cosmos Hub.
- Each new independent blockchain created within the Cosmos platform, known as a “zone,” is connected to the Cosmos Hub. The Hub keeps a record of the state of each zone and facilitates communication between them. The ATOM network is often referred to as the “Internet of blockchains” due to its focus on connecting and enabling communication between various blockchain networks.
How does Cosmos work?
The Cosmos network can accurately be described as a decentralized ecosystem of interconnected apps and services that uses various technologies. The core ones here are hubs, the Tendermint consensus algorithm, and the Inter-Blockchain Communication (IBC) protocol, that securely facilitates communication between blockchains.
Smart contracts can be used by some of the platforms to exchange tokens with each other. This very process is called “wrapping,” where a token is locked on one network, with a corresponding amount minted on another.
ATOM offers open-source tools for developers to build their own independent, decentralized blockchain applications, known as “zones,” using the Cosmos software development kit (SDK).
This SDK allows for faster, simpler, and cheaper development of zones compared to other platforms like Ethereum. It offers common blockchain functionality such as staking, governance, and tokens through user-friendly software development programs like GO. Developers have the freedom to create custom plugins and add any desired features to their zones.
Cosmos Hubs
Cosmos connects blockchain apps that are independent of each other called “zones,” through hubs. The network’s main hub is the Cosmos Hub.
Every zone is linked to the Cosmos Hub, which keeps a record of the state of each and facilitates communication between them.
The Cosmos Hub also enables interoperability with other proof-of-work secured blockchains, such as Bitcoin, thanks to its use of bridges.
Each zone on the network is able to function independently, especially in tasks such as authenticating accounts and transactions, creating and distributing new tokens, and implementing changes.
Tendermint Core
Tendermint Core is the open-source software that secures the ATOM Network. It uses a Proof-of-Stake (PoS) algorithm that requires nodes to “stake” the native cryptocurrency, ATOM, in order to validate transactions and earn rewards. Tendermint Core is unique among PoS chains because it is separate from the application layer. It only handles the aspects of the base protocol of consensus between validator nodes.
This modular design makes it easier for developers to build on top of the Cosmos ecosystem. They don’t face the constrains of the monolithic structure of other blockchains like Ethereum. In contrast, every decentralized application (dApp) on Ethereum directly connects to the main blockchain’s consensus mechanism. Therefore, it must consider factors such as gas fees and network congestion. Tendermint Core equips Byzantine fault tolerance (BFT), meaning it can continue operating even if 33% of nodes fail, and it offers instant finality for all transactions.
Application Blockchain Interface (ACBI)
Tendermint’s application layer is known as the Application Blockchain Interface (ACBI). This is where Web3 developers can create blockchains with specific use cases within the ATOM ecosystem. The ACBI is distinct from the Tendermint Core layer, giving programmers more freedom to develop scalable blockchains. Additionally, the ACBI allows developers to choose from multiple programming languages rather than being limited to Solidity, as with Ethereum.
Inter-Blockchain Communication protocol
The Inter-Blockchain Communication (IBC) protocol allows for the secure exchange of messages and data between different blockchains and zones, connecting them to the Cosmos hub. This enables users to securely and freely transfer assets and data across autonomous, decentralized blockchains.
The Cosmos Hub acts as a service provider for chains that want to become interoperable with it. It allows any sovereign blockchain with different applications, validators, and consensus mechanisms to communicate and exchange data regardless of their functions and goals.
IBC enables ATOM-powered blockchains to perform wide-ranging tasks, including crypto and NFT transfers and cross-chain smart contracts. Developers can use the protocol to build any type of cross-chain application.
The IBC protocol allows for the transfer of digital assets between two different chains through the following four steps:
- Tracking: Both chains track the validators of the other chain.
- Bonding: ATOM tokens are locked, or “bonded,” on chain A.
- Proof of bonding: Proof of bonding establishes and the network sends it from chain A to chain B.
- Validation: The network verifies the proof, and ATOM vouchers generate on chain B. The transfer from chain A to chain B completes.
Cosmos Development
The Cosmos network developed through a collaboration of various teams. Funding and resources provided by the Swiss Interchain Foundation (ICF) and the Tendermint team – they make up the Cosmos team. The ICF is a non-profit that supports open-source blockchain projects.
Jae Kwon and Ethan Buchman co-founded Cosmos in 2014 and developed Tendermint, the consensus algorithm powering the network. They wrote the Cosmos white paper in 2016 and released the software in 2019.
The Interchain Foundation held the first fundraising event for ATOM in the form of a two-week initial coin offering (ICO) of the ATOM token in 2017. Jae Kwon left the project in early 2020, but remains involved. Ethan Buchman is currently the president of the Interchain Foundation Council.
Cosmos SDK
The Cosmos Software Development Kit (SDK) is a collection of open-source tools that allow developers to build decentralized applications (dApps) and blockchain-based smart contracts called zones. These zones can connect to the Cosmos Hub, a central hub that enables cross-chain interoperability among them.
Using the Cosmos SDK, developers can save time and money by creating a single zone that serves as a smart contract for a dApp, rather than building a separate blockchain for each zone. This vertical approach, built on top of consensus and networking protocols, not only speeds up transactions but also reduces transfer fees.
The Cosmos Ecosystem
The Cosmos network consists of numerous notable projects built with the Cosmos SDK.
Axelar
Axelar is a cross-chain transfer and composability platform built with the Cosmos SDK. It enables the translation of messages between different blockchain networks, such as converting messages from Ethereum to the Inter-Blockchain Communication (IBC) standard and vice versa.
Axelar supports 15 blockchains, known as the “Hub for non-IBC assets,” as it is the main issuer of non-IBC assets in the ecosystem. For example, it issues USDC on IBC, which is not an IBC-native asset.
dYdX
dYdX is a decentralized exchange (DEX) for perpetual futures contracts that offers deep liquidity, no fees, and up to 20X leverage. It developed on an Ethereum layer-two solution called Starkware, but the team decided to develop a Cosmos app chain for its v4 version. The protocol made this change in order to achieve full decentralization and higher throughput for improved performance.
Celestia
Celestia is a modular blockchain that outsources traditional blockchain components like execution, settlement, consensus, and data availability to a separate chain. This allows anyone to deploy a blockchain without needing to set up a consensus network.
Celestia orders transactions but does not execute them. Thanks to this security-on-demand approach, developers can choose their preferred execution environment (such as the Ethereum Virtual Machine) and update applications without implementing any forking from the main chain. Celestia is in early development stages. Its mainnet is on schedule to go live in 2023.
Cosmos FAQ
What does ATOM solve?
Cosmos seeks to create a decentralized network of blockchains that can scale. Users would easily build on top the platform – allowing for the creation of complex applications.
What makes ATOM unique?
The Cosmos platform, deemed as “Blockchain 3.0,” is emphasizes modularity. This allows developers to easily create networks by using pre-existing chunks of code. Developers believe that this will make it simpler to build complex applications in the future.
How does the Cosmos network secure itself?
The Cosmos network operates on proof-of-stake, where validator nodes that hold a greater quantity of ATOM tokens have a higher likelihood of the network choosing them to validate transactions and earn rewards. However, if a validator node happens to be acting unethical and malicious, it may incur penalties, including a loss of the ATOM staked. The circulating supply and market cap determines ATOM price.
Final Thoughts
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