Cosmos Guide

The Cosmos Network is a network of independent, scalable, and interoperable blockchains.

Its major blockchain is called the Cosmos Hub: its goal is to enable blockchains to exchange tokens and messages throughout the Cosmos ecosystem. Transaction fees can be paid in ATOM, the ecosystem’s native token - but also via other tokens.

- Launch date: 2019
- Number of active blockchains on Cosmos: 45*

(*Source: Cosmoscan, Big Dipper, Map of Zones, CoinShares, data as of 22 June 2022)

Cosmos technology can be used to build both public and private blockchains - and it doesn’t impose validation methods. Yet, all blockchains in the Cosmos ecosystem can interact with each other.

Cosmos provides developers with a growing set of modules, allowing anyone to easily create applications and connect them to the wider Cosmos network.

Cosmos relies on a byzantine fault tolerant (BFT) consensus algorithm, which enables the system to work even if up to 33% of machines fail.

Cosmos has the potential to become the future of the internet, creating a new ecosystem of  interconnected blockchains in fields such as DeFi, gaming, healthcare, or real estate.

Cosmos positions itself as the third generation of blockchains, after Bitcoin and Ethereum, which it views as siloed, difficult to use and limited in capability. 

Cosmos intends to create an “Internet of Blockchains”: a network of blockchains interacting with each other in a decentralised way. 

To do so, it builds upon a stack of open-source tools:

• Tendermint BFT: a solution that handles the networking and consensus layers of a blockchain, letting developers focus on the application layer (instead of complex underlying protocols). 

• Cosmos SDK: showcased by Cosmos as the world's most used framework for building blockchains - this software development kit provides developers with ready-to-use models, further simplifying the creation of apps.

• Inter-Blockchain Communication protocol (IBC): this is the equivalent to the internet’s TCP protocol, as it enables blockchains to connect to each other.

More than a set of products, Cosmos is an ecosystem that leverages modular, adaptable and easy to use tools, powering innovation across a variety of industries:

• Decentralised Finance (DeFi). Cosmos solutions makes trades across connected token economies easy. 

• Gaming. Cosmos technology can be used to create in-game currency, seamlessly tradable. 

• Healthcare. Thanks to Cosmos’s customised permission system, health data hubs can be accessed by authorised healthcare providers.  

• Real Estate. Store and transfer ownership of property rights on the blockchain.

• And much more. Any project can be built on Cosmos, and start integrating with others.

To create its Internet of Blockchains, Cosmos had set up an architecture made of two classes of blockchains:

• Zones:  Regular blockchains in the Cosmos Network.

• Hubs: Blockchains specifically designed to connect Zones together.

The Cosmos Hub is the first Hub to be launched in the Cosmos Network. It’s a public, Proof of Chain Blockchain, whose native token is called the ATOM - but transaction fees can be paid in a variety of tokens.

The entire Cosmos ecosystem relies on Tendermint, a consensus mechanism which provides validators with a common rule set to determine whether a block is acceptable. 

Tendermint is a Proof of Stake algorithm: users lock up (stake) ATOM and are then randomly selected to validate transactions or add new blocks. In doing so, they help secure the network - and that’s why they are paid for doing so through staking rewards (9,7% APY at time of writing).

In 2014, then 19-year-old computer scientist Vitalik Buterin published a white paper entitled A next-generation smart contract and decentralized application platform. Building on Bitcoin’s invention a few years earlier (2009), it aimed to show “how the blockchain concept can be used for more than just money.” Almost 10 years later, the bet paid off: as of Q4 2022, Ethereum settles an average value of $21bn daily.

Cosmos was initially built by the team at Tendermint, a software development company, to develop open-source tools powering a new vision for blockchain. 

• 2015 : Ethereum is launched as a network and blockchain, following the creation of the Ethereum Foundation and an intense testing period.

• 2017: In order to develop Ethereum’s business uses, the Ethereum Alliance is launched, including companies such as  Accenture, Intel, JP Morgan and Microsoft.

• 2021: Following a months-long bull run, ETH reaches its all-time high at US$ 4,815.

• 2022: The Merge -  Ethereum switches to Proof of Stake, significantly lowering transaction costs while maintaining flexibility and security. 

• 2023: Shanghai upgrade - Ethereum now allows staking withdrawals for validators and gets ready for further scalability with upcoming upgrades.

   

Upcoming upgrades include interchain security.

Cosmos aims to facilitate the “internet of blockchains”, connecting blockchains with each other, and securing and scaling the ecosystem in the process. 

Cosmos’s tools could be foundational in creating tomorrow’s decentralised internet, as long as its adoption curve keeps growing. 

Strengths 

• Strong native currency. ATOM (listed on many centralised exchanges) serves as the on-ramp to the broader Cosmos ecosystem, which drives trading volumes and liquidity.

• Security and Decentralisation. Cosmos’s modularity and design allow developers to decide on the trade-offs they wish to make for their applications.

   

Weaknesses

• Poor value accrual mechanisms. ATOM was initially designed to only serve as a staking token, but the Cosmos Hub does not need ATOM as transaction fees, which reduces its value.

Opportunities

• Network effects. The more projects are created on the Cosmos ecosystem, the more value flows through the system.

Threats

• Competition. Newer Cosmos blockchains like Osmosis and Juno could overtake the Cosmos Hub to become the main hub. 

• The mono-chain approach dominates. If blockchain users prefer to use only one or very few blockchains separately along their adoption path, the Cosmos Hub would not be in line with this vision.