In this article, I have four ideas that I want to convey.
First, I want to paint a picture that places Cosmos in some historical context. Bitcoin launched 13 years ago (2009), Ethereum 7 years ago (2015), whilst Cosmos launched 3 years ago (2019).
Second, I want you to walk away with a high-level understanding of the difference between the Cosmos Hub (blockchain) and its native token (ATOM), the wider Cosmos ecosystem and the core technological components of Cosmos.
Third, I want you to understand the main use cases of the ATOM token.
Fourth, I want you to understand why the Cosmos ecosystem is going to continue growing.
Let’s dive in.
1. Historical context
The Bitcoin network launched in 2009 and was initially perceived as “digital cash”. Then came Ethereum, in 2015, with the goal to enable the construction of anything on the blockchain. Until Ethereum launched, we had blockchains that were independent and unable to interoperate. Ethereum was a game changer in the sense that it brought composability and connectivity to the applications running on top of the blockchain. This meant that applications were able to talk to each other, instead of being in silos.
Bitcoin was seen as the first-generation blockchain, and Ethereum, as the second. However, these two generations left some unresolved issues. The most significant issue was scalability, both from a technical and social angle.
From a technical angle, you can think of Ethereum as a large pipe, where data (instead of water) flows through it. When you suddenly have a few applications with millions of users, all of this data can cause the pipe to burst. Granted, Ethereum has plans to solve these problems, but that’s a topic for another article.
From a social perspective, we can use the analogy of political hierarchies. If Bitcoin is a kingdom, then Ethereum would be a grand empire.
On the one hand, empires come with some benefits. For example, they allow for economic integration between all of the applications running on the blockchain.
On the other hand, with large empires comes political infighting. Humans the world over, have differing opinions on how to run nation-states, religions and corporate entities. Inevitably, groups have formed within the Ethereum empire with divergent interests, and some of these factions hold a disproportionate amount of power/influence (the aristocracy). These dynamics have led to governance challenges which can be observed by looking at things like the Ethereum Improvement Proposals (EIPs), which are essentially descriptive documents outlining suggestions for new features regarding the Ethereum environment. Many of these documents are contradictory. You’ve even had historic disputes between Ethereum co-founders which resulted in Charles Hoskinson and Gavin Wood creating Cardano and Polkadot respectively.
Cosmos aims to not only solve these governance issues mentioned above but aspires to create an interoperable ecosystem of sovereign blockchains. This is why Cosmos is referred to as: “The Internet of Blockchains”.
Enter Cosmos — the world of nation-states
Cosmos was founded in 2014 and officially launched in 2019 with a fundamentally different system. Continuing with the analogy, if Ethereum is an empire then Cosmos is a world of nation-states.
Before diving into the layers of Cosmos, it would be helpful to consider a type of architecture called “hub-and-spoke”. You can visualize a wheel with a central hub connected to points along the edge of the wheel through multiple spokes.
The Cosmos Hub is a blockchain that specializes in connectivity. If you look at any large system that requires connectivity, you often find the hub-and-spoke architecture being used. As an example: at an airport, there are hubs that handle most of the traffic, the image below shows that this can lead to superior efficiency in time and cost.
In the world of Cosmos, replace air traffic with blockchain connections; this is what flows through the hubs. Imagine two hundred blockchains (or nations to aid your thinking) that all want to communicate with one another. Instead of there being thousands of connections across these different blockchains, these connections can flow through a single hub, hence, reducing the number of connections and boosting efficiency.
2. High-level overview of the technology
The layers of Cosmos
A word of warning, this part gets slightly technical. I have done my best to use plain English where possible, and have used links to resources where you can find further information.
Before we jump in, let’s first understand the three fundamental layers of any blockchain. These components can be found across Bitcoin, Ethereum and Cosmos.
By understanding these three components, it will help you see the difference between some of Cosmos’ software layers.
The three foundational blockchain layers
From an architecture standpoint, each blockchain can be divided into three conceptual layers:
Application: Responsible for updating the current state (condition) of the blockchain given a set of transactions, i.e. processing transactions.
Networking: Responsible for the propagation of transactions and consensus-related messages, i.e. communication of transactional data.
Consensus: Enables nodes to agree on the current state of the system, i.e. a system of voting on the current state.
The three core components of all Cosmos blockchains
To quote Sunny Aggarwal (a Cosmos research scientist):
Tendermint Byzantine Fault Tolerance (BFT) — this is the key software that serves as a blockchain engine enabling developers to bypass the time-consuming and technical cryptography required to set up a blockchain. Tendermint comprises two out of the three layers (mentioned above): networking and consensus. Thus, it enables developers to focus on the application layer.
Inter-blockchain communication (IBC )— this is the communications protocol that allows you to move data and assets from one blockchain to another within the Cosmos ecosystem.
Cosmos SDK (software developer kit) — this is the open-source tool kit that allows developers to build application-specific blockchains (ASBs).
How do these three pillars tie together?
Using a very simple analogy, Tendermint is like a pizza’s crust or base, it forms the foundation that allows developers to start building blockchains. Using the already established base, you can add a variety of different toppings (the applications) using the Cosmos SDK. The different blockchains in the ecosystem are able to communicate using the IBC protocol.
Now that we’ve spoken about the three core pillars that make up Cosmos blockchains, let’s dive into each pillar to paint a slightly more vivid picture.
Tendermint Core is the software that makes up the different blockchains within the Cosmos ecosystem. It is an application-agnostic consensus engine that can be used to handle the networking and consensus layers of a blockchain.
Tendermint also comprises something called the Application Blockchain Interface (ABCI), which means that transactions can be processed in any programming language. Therefore, ABCI is a bridge that allows the application layer of a blockchain to “talk” to the Tendermint Core layer.
A key strength of Tendermint?
It is one of the fastest chains in terms of transactional finality; in other words, the guarantee that cryptocurrency transactions can’t be altered after they’ve been completed. It is used to measure the amount of time a user has to wait to receive confirmation that a transaction made on the blockchain won’t be changed, or canceled. On Cosmos, transaction finality is usually around one second, which is around the same as the Avalanche blockchain (renowned to have rapid transaction finality).
Tendermint Byzantine Fault Tolerance (BFT)
The Tendermint software is BFT, which means that the respective blockchain can still perform as expected if up to one third of the staked tokens (e.g. ATOM or LUNA) goes offline or acts in a malicious manner. The stake refers to the blockchain’s native cryptocurrency being deposited into a smart contract to help secure the network. Note the unbonding/unstaking period is 21 days.
Due to Tendermint-based blockchains favoring correctness over liveness, if more than one third of the network’s bonded stake goes offline for a significant period of time or acts maliciously, then the network will halt and require manual intervention from the community to fork the chain and address the issue.
For a great explainer of BFT, check out Binance’s 4-minute video here.
Inter-Blockchain Communication (IBC) protocol
In order for an ecosystem of independent application-specific blockchains (ASBCs) to thrive, a reliable communication standard must be established and adopted.
ASBCs (known as zones) are connected to the Cosmos Hub (the first blockchain in the ecosystem) via the IBC, a mechanism that enables information to travel freely and securely between each connected zone.
Once a zone is connected to the Cosmos Hub, it is interoperable with every other zone connected to the hub, meaning blockchains with vastly different applications, validators and consensus mechanisms can exchange data/value.
Just as the Transmission Control Protocol and Internet Protocol (TCP/IP) is basically the backbone of the internet, I can imagine a future whereby the IBC becomes the backbone of the crypto economy / token economy / Web3.
You can read more into the IBC technicalities here.
Cosmos SDK (software development kit)
The Cosmos SDK provides a framework that enables the construction of ASBs. The building blocks provided by the Cosmos SDK are designed so that they can be forked (modified) and improved without losing compatibility within the ecosystem.
Cosmos SDK-based blockchains are built using composable modules, most of which are open-source and available for any developer to use. SDK modules handle nearly all application-related processes and business logic, while (as mentioned earlier) Tendermint Core handles consensus, networking, and the lower-level wiring needed for module composability.
3. The ATOM Token
The ATOM token is the native currency of the Cosmos Hub blockchain. You’ll remember from earlier that I mentioned hub-and-spoke architecture. The image below details the relationship between the Cosmos Hub and the zones (blockchains) connected to it. The different zones connected to the central hub are able to communicate with one another by virtue of being connected to the hub.
Cosmos Hub and Zones
The Cosmos Hub was the first blockchain to be launched on the Cosmos network. It was built to act as an intermediary (i.e. the central hub) between all the independent blockchains created within the Cosmos ecosystem.
The Cosmos Hub is tasked with facilitating interoperability between all the zones within the network by keeping track of their states. “States” referring to transactional activity occurring in the respective zones.
Additionally, the hub has the capability to provide security to the zones (e.g. validate the chain’s transactions), however, the zones don’t have to implement this set-up. Instead, the zones have the choice to retain their sovereignty. This includes authenticating accounts and transactions, creating and distributing new tokens, and executing changes to its own blockchain. One of the most successful zones measured by market capitalization and TVL (total value locked) is the Terra blockchain.
Further, there is another hub in the ecosystem called “IRISnet”. Developed by Bianjie AI and Tendermint Inc, the IRIS Hub is the second Cosmos Hub to support IBC enabling cross-chain interoperability within the Cosmos ecosystem. IRIS Hub is the first regional hub connected to the Cosmos main hub, which means all zones connected to the IRIS Hub will be able to interact with any other hub or zone in the Cosmos ecosystem. All part of the vision of the internet of blockchains.
Note that you can track the total number of zones in the ecosystem at any point in time using this link. There were 38 zones at the time of writing.
What is the ATOM token?
The Cosmos Hub (i.e. the central blockchain) is powered by its native ATOM token. One of the lead researchers Sunny Aggarwal has said that “ATOMs are not money”. It is not a currency, nor your normal token that you invest in and just HODL on your ledger. It is a staking token used to secure the Cosmos Hub. ATOM is inflationary, which rewards those that stake the token and punishes those that don’t, due to the increased supply decreasing the purchasing power of each unit of ATOM.
Aggarwal further elaborated and compared ATOMs to ASICs. Just as ASICs are a piece of capital you need in order to mine Bitcoin, ATOMs are a piece of capital that you need in order to stake on the Cosmos Hub and earn transaction fees going through that hub. If a lot of ASICs are already in use, it is very difficult to attack the network, and similarly, if a lot of ATOMs are staked, then it is very difficult for someone to buy a large portion of the ATOMs to attack the network.
An attacker would need to purchase enough ATOMs to have more than 50% of the staked supply which would equate to billions of dollars and would simply be unfeasible.
For a deep dive into the ATOM token, check out this article.
4. Why Cosmos is going to keep growing
The Cosmos ecosystem enables an unprecedented level of interoperability between blockchains through central hubs. There is no surprise, then, to learn about the huge growth metrics below.
These are the key players within the crypto ecosystem; without them, nothing would be built. That’s why it’s useful to track the blockchains with a growing developer headcount.
The below image shows that Cosmos is one of the largest chains in terms of developers with an absolute total of circa 1,000, up around 70% from Dec 2020 to Dec 2021.
Delegators (i.e. individual stakers)
There are more than 173,000 delegators on Cosmos Hub alone.
There are over 595,000 unique ATOM wallet addresses.
The number of zones is steadily increasing at almost 40, with renowned projects such as Terra, Binance Smart Chain, Crypto.com and the Secret Network.
2022 Road Map — huge amounts of development are in the works.
Interoperability at its core
Chris Dixon and Naval Ravikant are undisputed blockchain experts. The quote above emphasizes the importance of composability, which happens to be at the heart of Cosmos.
It’s commonly understood that the value of a system is greater than the sum of its parts.
For example, in the case of sovereign nations, each country can feasibly provide for its residents on its own, but may have surpluses of one resource or not enough of another. A global trade network provides more value than the sum of its international parts, with the ability to easily trade surpluses of necessary goods, providing more value to citizens than the creation of those goods on their own.
Blockchains are no different in this sense, and interoperability between chains with distinct use cases can drive a greater utility than the sum of their parts. Cosmos is driving interoperability and creating the internet of blockchains.