Cosmos Network Review: ATOM & The Internet of Blockchains
One of the hottest projects and coins in early 2019 was Cosmos and its ATOM token. The initial surge began in 2019 when the mainnet that had been over 3 years in planning went live.
Cosmos is an exceptionally ambitious project in a realm of ambitious projects. It’s looking to become the blockchain that pulls all the other blockchains together in its blockchain interoperability platform. And as of February 2020 it looks like it could be succeeding.
However, can they really execute on such grand ambitions?
Given the recent launch of the Inter-Blockchain Communication Protocol on Cosmos I’d say they can. It took 5 years of research and development, but with the March 29, 2021 launch of the IBC different networks are now able to use Cosmos to exchange tokens and data seamlessly.
In this Cosmos Review I will take an in-depth look into the project, it’s technology and development roadmap. I will also analyse the use cases and adoption potential for the ATOM coin.
Cosmos calls itself the most customizable, scalable, powerful and interoperable ecosystem of connected blockchains. It’s a decentralized network of independent blockchains powered by Tendermint and other Byzantine Fault Tolerant algorithms. It is Byzantine Fault Tolerance that allows a blockchain to achieve consensus even in an environment that potentially contains malicious nodes.
The Cosmos Network has the potential to become the “Internet of Blockchains”, and is also called the Cosmos Hub. Cosmos is the first blockchain to be launched on the Cosmos Network and its task is to link other blockchains (called zones in the network). Once these links are complete tokens can be quickly and securely transferred from one zone to another seamlessly.
There are three primary parts to the Cosmos Network:
- The Tendermint Core – The Tendermint Core is a software implementation containing the Tendermint BFT algorithm for consensus and the interblockchain communication (IBC) protocol which connects the consensus and networking layers to facilitate communication between the hub and all the zones.
- Application Blockchain Interface (ABCI) – This allows for the replication of dApps in a variety of programming languages. Because ABCI is not constrained to any single programming language developers are able to create the application portion of their blockchain in any language. The ABCI acts as the connection between Tendermint Core and the Cosmos SDK.
- Cosmos SDK – This is the application layer of the Cosmos Network and provides developers with a basic blockchain framework. It reduces complexity by providing the most common blockchain functionality such as governance, tokens, and staking. Developers then add additional desired features by creating plugins.
Taken all together, the Tendermint Core provides consensus on the Cosmos Hub, while zone blockchains maintain their own consensus without needing to use Tendermint.
The Cosmos SDK provides developers with the means to build a blockchain and dApps while only worrying about the application layer. With the addition of ABCI application state is managed in a separate consensus process, allowing Cosmos to support a wide variety of scripting languages and cryptocurrencies.
Blockchains connected to the Cosmos Hub will be able to communicate with each other using the IBC Protocol, without regard for what consensus algorithm is used. This will allow the transfer of assets between blockchains while preserving any contractual features they may have.
IBC will work best with blockchains that have high finality such as Proof-of-Stake blockchains, but can also be made to work with Proof-of-Work blockchains through the use of peg zones. An example of this is Ethermint, which is basically a Tendermint-based Ethereum with its PoW features stripped out and working on top of PoS consensus.
Explaining the Tendermint Algorithm
Tendermint is the first Proof-of-Stake consensus algorithm created using the Practical Byzantine Fault Tolerant (PBFT) algorithm first proposed in 1999 by Castro and Liskov after 30 years of research. This BFT based PoS protocol assigns the right to propose new blocks in a pseudo-random fashion to validators in a multi-round voting process.
Finalizing and committing those blocks requires a supermajority of validators signing off on the proposed block, however. In the case of Cosmos, this is two-thirds of the quorum. Reaching consensus in this fashion may take several rounds to finalize blocks. A BFT system can only tolerate up to one-third failures, with failures including malicious and arbitrary behaviors.
The Tendermint algorithm has the following features:
- A safety threshold of 1/3 of validators
- Compatible with public or private chains
- Consensus safety
- Prioritization of consistency
- Instant finality in under 3 seconds
Cosmos uses a Proof-of-Stake consensus known as delegated PoS. This organizes the stakers into groups of validators and groups of delegators. The delegators decide which validators will participate in consensus and the validators work to validate transactions and add new blocks to the blockchain.
Rewards are given to validators and delegators in the form of ATOM tokens, but the Cosmos Network is designed in such a way that a wrapped form of any cryptocurrency could theoretically be used as a reward token. In this system any nod found to be operating in a malicious fashion is removed from the network and its tokens are taken away.
What makes Cosmos Superior?
Cosmos is working to solve both scalability and usability limitations in blockchain technology. Scalability has been the greatest issue among the world’s largest blockchains over the past few years, and none have been able to implement a solution yet that allows them to get anywhere near the scale they will need to accommodate mainstream adoption rates.
When usability is considered, both developers and users are limited. Developers lack flexibility when creating blockchain applications, and users have been limited by the lack of easily accessible applications. Cosmos believes it can solve this through the use of the Go programming language and a multi-layer structure.
There is a huge push behind the Cosmos project, including a number of companies, teams, and foundations. The idea for Cosmos came from Jae Kwon and Ethen Buchman, but the main support for Cosmos comes from the Swiss non-profit foundation The Interchain Foundation (ICF).
ICF has contracted with All in Bits Inc. (dba Tendermint Inc.) to develop the Cosmos Network and the ecosystem that surrounds it. That ecosystem is extremely broad as you’ll see later.
The connection is made slightly clearer given that Jae and Ethan are the founders of Tendermint. The broader Tendermint team is indeed quite large with over 30 members.
Finally, there is the IRIS Foundation, which has found support from ICF to create the Cosmos Hub IRISnet, which is meant to facilitate the construction of distributed business applications. All of these entities work together very closely, and it can be difficult to distinguish between the different organizations and how they contribute to the development of Cosmos.
The team is also quite active when it comes to community engagement. They run an active official blog where they detail all of the important development updates. They also have a Twitter account and Telegram Channel. I took a dive into their 10,000 member strong Telegram channel the conversation was quite encouraging with more tech focused participants.
The Cosmos Ecosystem
Cosmos has had no problems attracting partners to its ecosystem. There’s a huge number of projects already developing on top of the Cosmos technology and part of its ecosystem. Here’s just a small group of them:
- The Binance Chain, which is the token emitting platform of the decentralized Binance Launchpad project, is built on the Cosmos ecosystem. They use a forked version of Tendermint and the Cosmos SDK, as well as Cosmos SDK features such as "bank" which is used for basic token transactions.
- Akash is working to bring serverless computing to Cosmos, functioning as a peer-to-peer supercloud for serverless computing that will provide developers with an open, secure, permissionless marketplace for unused compute cycles. They expect to reduce the cost of cloud computing resources by 90% in comparison with services such as Microsoft Azure, AWS, and Google Cloud.
- e-Money is a European stablecoin issuer. Their stablecoins are backed by fiat currency and are unique in that they bear interest and are protected by an insolvency fund.
- IOV is creating a protocol between blockchains and wallets that will make it possible to send and receive any cryptocurrency at all from a single address of value.
- IRISnet is a BPoS blockchain that was built using the Cosmos SDK and will allow interoperability between blockchains to provide a foundation for the next generation of distributed business applications. It launched its mainnet in September 2019.
- Kava is working with the Cosmos network to provide wallets, exchanges and blockchains with the liquidity and interoperability of Interledger technology. More recently they launched their mainnet in November 2019, and the project is now at the forefront of the blooming DeFi ecosystem.
- Loom began on the Ethereum blockchain and later switched to Cosmos to take advantage of the Tendermint technology in its development of highly scalable-games and user-facing dApps. More recently it has been branching out to tackle DeFi, and usage by governments and ecterprises.
- Decentralized exchange dYdX said it would move away from Ethereum and develop its own blockchain on Cosmos.
Other projects are aimed at tokenizing the music industry (Playlist), creating a truly decentralized peer-to-peer network (Sentinel Network), creating a decentralized autonomous content economy (Lino), building a social network to determine when information is true or not (TruStory), and launching a stablecoin meant for mass adoption (Terra).
There’s a more complete list of nearly 100 projects looking to build on top of the Cosmos Network and Tendermint technology that can be found here.
The ATOM Token
The Cosmos team held an ICO in April 2017, raising $17.3 million in just 28 minutes as they sold 168 million tokens at $0.098 each. The team also withheld 50 million tokens for themselves to fund strategic partnerships and business development.
The ATOM token was somewhat unique however as the actual tokens were not released until after the main net went live. There were some exchanges trading IOU tokens for ATOM prior to their release, but the actual token went live on March 14, 2019.
Two days later it reached an all-time high of $8.31 but dropped from that level quickly. It jumped again to nearly $7 on April 22 when investors learned the token had been listed on the Binance Exchange.
The price dropped back again, but trade volumes have continued increasing steadily. The broad based crypto rally of 2021 took ATOM to a new all-time high of $28.49 on April 15, 2021, but as of April 24, 2021 the price has dropped back to $18.80.
There is no cap on the number of ATOM that will be released as the team plans on increasing the number of ATOM annually based on an inflationary model.
Cosmos Hub 3
After the March 2019 launch of the mainnet for Cosmos, and prior to the February 2021 launch of IBC, the only other major update from the project came in December 2019, when they launched Cosmos 3. This update was primarily focused on improving the governance mechanism at Cosmos.
One of the most important changes made by Cosmos 3 is that governance proposals are no longer just a signaling mechanism. Before Cosmos 3 any proposed changes that were passed by the community needed to be enacted by developers and released as new software that was then run by participating validators. This is also known as a hard fork.
With Cosmos Hub 3 voters are now able to change how Cosmos works at a fundamental level, and those changes can be implemented without the need for a hard fork. Some of the changes that can be made include increasing or decreasing the inflation rate, changing the minimum threshold at which staking influences inflation, the community tax rate, and many more.
The upgrade to Cosmos Hub 3 has also made it possible for proposals to spend government pool funds, which are currently nearly 250,000 ATOM worth over $1 million.
The upgrade to Cosmos Hub 3 has also eventually made it possible for the community to vote for the launch of IBC and for the creation of Gravity DEX.
Cosmos is entering the DeFi space by creating the Gravity DEX, which will serve as an Automated Market Maker (AMM) with decentralized liquidity providing and coin swap functions.
The module enables users to create a liquidity pool, make deposits and withdrawals, and request coin swaps from the liquidity pool.
Gravity DEX enables decentralized trading between any two Cosmos tokens — a $90 billion market that includes ATOM, BNB, LUNA, and CRO — or any of the galaxy of tokens beyond the Cosmos ecosystem.
Gravity uses the Inter-Blockchain Communication (IBC) protocol to enable swaps and pools of digital assets between any two blockchains within the Cosmos ecosystem or beyond. Gravity also achieves superior efficiency compared to other AMMs due to its groundbreaking Equivalent Swap Price Model.
The Cosmos Hub AMM should have strong philosophy of inclusiveness of users from different blockchains because its prime utility is inter-blockchain communication.
To possess such characteristics, the liquidity module should provide most convenient ways for external users to come in and use the services provided by the Cosmos Hub.
The liquidity module should not anticipate specific assets, such as Atom, into the process of user-flow in a forced manner. It is repeatedly proved that unnatural anticipation of native coin at unavoidable parts of process resulting in poor user attraction.
Development & Roadmap
Of course, with most of these blockchain projects, the proof is in the pudding. In order to get a sense of just how much work is being done, we need to take a look into the project code commits.
One of the best ways to get a sense of this activity is through the project's commit activity on their public GitHub. In the case of Cosmos, you have a number of different GitHub repos both from the main project to the Tendermint repositories.
I decided to take a sneak peak into these to see the amount of activity that is present. Below are just some of the most active repos in the ecosystem.
This is indeed quite extensive and shows just how much work has been taking place on the protocol. You should also bear in mind that these are only 3 of the top repos. There are over 86 repositories in total!
I have not seen this level of development on many other projects (including those with larger ICOs). This should further reinforce the notion that this is anything but a run-of-the-mill ICO and blockchain project.
This voluminous and frenetic coding activity is most likely related to their ambitious roadmap. Over the past year the team has been meeting a number of important milestones almost to a tee.
There are also quite a few upgrade proposals that are lying ahead for the project. These include Hub Support for the IBC protocol which will allow some of the SDK applications to connect to the Hub. You can see the roadmap here.
The launch of the Cosmos main net came with huge amounts of excitement among the community as evidenced by the surge in the price of the ATOM token. The unsolicited addition of the token at Binance and dozens of other exchanges, and the rapid jump of ATOM to the #15 spot in total market cap supports the premise that this is a serious project worthy of following and investing.
Even with the limited updates over the year since the mainnet launch, the ATOM token remains the 35th largest token by market cap, highlighting the communities belief in the project.
The move to IBC takes Cosmos to its next phase of development. With the mainnet launch now complete, and the whitepaper vision finished the team can move on to creating additional value in the chain through the use of IBC features.
Now that the Galactic Era is reached the development team will begin work on the decentralized Gravity DEXas well as bridges for Ethereum and Bitcoin, and various cross-chain projects to unlock value from every chain connected to Cosmos.
It’s clear to see that the Tendermint and Cosmos teams are extremely serious about what they are doing. While some were calling the project vaporware even in 2020 for a lack of features listed in the whitepaper, there are literally hundreds of partner projects who believed in the Cosmos Network and have begun using it.
With the launch of IBC, if Cosmos can pull off becoming the internet of blockchains it will inhabit an extremely important and powerful position in the future of blockchain development and technology.
So far the project appears to remain on track to do just that, and if the excitement of the community is any gauge this could be a project to watch closely in coming months and years.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.