Cosmos (ATOM) Explained: What Makes Cosmos “The Internet of Blockchains”

Crypto blockchains have been around for more than 12 years now. It all started with good, old Bitcoin back in 2008, and it seems that every year we get more blockchains. Some use proof-of-work, while others prefer proof-of-stake.

But no matter how many new blockchains we get, most of them aren't interoperable. This means that they can't talk to each other. Sad reacts only 😞 This is the problem that Cosmos is tackling.

Read on to learn more about Cosmos and how it approaches the blockchain network. It's one of the few projects that focus on blockchain interoperability, something we desperately need right now.

Let's take a deep dive into the Cosmos ecosystem.

What is Cosmos (ATOM)?

Cosmos offers a different take on your typical layer 1 (L1) blockchain. Most L1s focus on expanding their network, so they can offer various use cases, e.g. NFTs, DeFi, and other decentralized applications (dApps). But this approach leads to congestion, and results in high network fees for end-users (that's us!).

Cosmos flips this dynamic on its head. It doesn't focus on its blockchain at all. Rather, Cosmos is building an ecosystem of "application-specific blockchains".

"Sounds fancy, what is that all about?" Application-specific blockchains are blockchains that run a single application. So instead of having one big blockchain that handles all the apps and their transactions, each blockchain handles its own. This approach makes it easy for developers to optimize application-specific blockchains for their own use cases, thereby being able to provide (at least in theory) better sovereignty, security, and performance. Think of Cosmos as Apple's iOS. It provides the platform and tools for developers to create apps tailored to the users' needs.

The goal of the Cosmos ecosystem is to make it easy to create new blockchains. It's an ecosystem built around different modular and adaptable tools. Developers could use the existing tools or create new ones. Its vision is to build the "Internet of Blockchains"; this would be a network of blockchains that can all talk to each other in a decentralized way. Let's take a look at the team that founded Cosmos and created this ambitious vision.

Who’s the team behind Cosmos

Jae Know and Ethan Buchman are the two developers that created the Cosmos network, but it wasn't a very straightforward process. First, they built the Tendermint consensus algorithm in 2014. This is the consensus mechanism that powers the Cosmos ecosystem. The two developers then created Tendermint Inc - the oldest company in the ecosystem. It has raised more than $9 million in a Series A funding round to continue developing Cosmos.

In 2017, during the initial coin offering (ICO) craze, Cosmos launched via an ICO conducted by the Interchain Foundation. Interchain is a Swiss non-profit that invests in the Cosmos ecosystem via grants. They raised more than $17 million during the ICO. These funds allowed the two developers to focus on building. They co-wrote the Cosmos whitepaper and released the software in 2019.

Fast forward to today, and the core contributor, Jae Know has stepped down as CEO of Tendermint in 2020 and now focuses on other initiatives. The company's entire board of directors is different at this point, but the goal remains - to create an interoperable ecosystem of application-specific blockchains.

Now let's take a look at the tools that could make this vision a reality.

The Tools that Power the Cosmos Ecosystem

© Cesar Carlevarino Aragon | Unsplash

In the past few years, blockchain technology has improved tremendously. We have thousands if not more blockchain networks in existence. But there's one big issue - they can't speak to each other. Why is this a problem? Because it's hard to send data and assets from one blockchain to another. If you have a Solana NFT, good luck trying to send it to Ethereum. Cosmos aims to solve that problem. It provides blockchain development tools that make it simple to build interoperable blockchains.

Let's explore them.

Tendermint BFT

We won't understand how Tendermint BFT works before we explore the three blockchain layers:

Application layer - the code that creates some type of functionality.
Networking layer - it broadcasts the transactions and consensus-related messages.
Consensus layer - allows nodes (a fancy word for computers) to agree on the current state of the system.

The problem with these layers is that you have to build them from the ground up when creating a blockchain. One of the biggest innovations in the space was the Ethereum Virtual Machine (EVM). It allows anyone to customize and deploy smart contracts on a blockchain. But, it doesn't make it easier to build the blockchains themselves. Bitcoin and Ethereum tech stacks remain difficult to customize.

Tendermint BFT combines the networking and the consensus layers of the blockchain into a single engine. It allows developers to solely focus on the application layer, saving them a lot of time. Tendermint engine employs a byzantine fault-tolerant (BFT) consensus algorithm. It connects to the application layer via the Application Blockchain Interface (ABCI). It's a protocol that allows developers to use any programming language they want. That way, they could use the language that best fits their needs.

Tendermint BFT allows developers to build public AND private blockchains on top of it. That's because it handles the networking and the consensus layers. The developers have the complete freedom to define the application layer. Now that's open-mindedness.

Tendermint BFT can have a block time on the order of 1 second, and can handle thousands of transactions per second. And it only needs a third of the validator nodes to be honest, to function without any forks. This means that we, the users, can get instant finality on our transactions.

Now, on to the next tool in the Cosmos' tech stack.

Cosmos SDK

So Tendermint BFT reduces the time needed for the development of a blockchain. But it's still hard to build an ABCI-app from the ground up. This is where the Cosmos software development kit (SDK) comes in. Cosmos SDK is a modular framework for building secure blockchain applications. Developers could use ready-built modules, or create their own for their specific use case, and they can do that without having to code every functionality from scratch. As more developers start building in the Cosmos ecosystem, the number of SDK modules will expand, making it even easier in the future to build complex blockchain applications. That's good news for us degens.

Another great thing about Cosmos SDK is that it's not Tendermint BFT exclusive. As long as the consensus engine is ABCI-compatible, you could use the SDK to build your own blockchain. Over time, many kits will emerge, allowing developers to create blockchains on different consensus engines. And all of them would be able to run on top of the Cosmos network.

Now, let's go to the last piece of the puzzle - the IBC.

Inter-Blockchain Communication Protocol (IBC)

IBC connects the different custom blockchains in the Cosmos ecosystem. It allows heterogeneous chains to transfer value (assets) or data to each other. Heterogeneous chains are multi-layer blockchains that have fast finality. Most proof-of-stake chains are heterogeneous. These three tools are at the heart of the Cosmos ecosystem.

Let's see how they interact to achieve the project's vision.

How the Cosmos Tools Help Create the "Internet of Blockchains”

© Cosmos

Now that we have access to all these tools, how would we go about designing the Internet of Blockchains? We could connect the different blockchains in the network in a peer-to-peer manner using IBC connections, but this quickly becomes unsustainable. Imagine 100 blockchains connected with each other in a peer-to-peer manner via IBC, that would be 4950 connections. Cosmos resolves this problem with its modular architecture. It forms two classes of blockchains:

Zones - these are your casual heterogenous blockchains.
Hubs - these are blockchains specifically designed to connect the Zones.

This design allows a Zone to create an IBC connection with a specific Hub and access every other Zone, connected to that Hub. So each Zone only needs to connect with a limited number of Hubs, providing full blockchain interoperability. The Hubs also prevent double-spending. If a Zone receives tokens from a Hub, it has only to trust the origin Zone of the tokens and their Hub.

The first Hub within the Cosmos ecosystem is the Cosmos Hub (ATOM). Let's learn more about it as well as uncover other promising projects in the network.

What are The Most Promising Projects on The Cosmos Ecosystem?

Currently, there are more than 262 apps and services working on the Cosmos ecosystem. It will take us ages to get through them. That's why I've created a list of the five most notable ones, including:

1. The Cosmos Hub (ATOM)

We can't discuss Cosmos projects without talking about the granddaddy of them all - the Cosmos Hub. It's the economic center of the Cosmos ecosystem. Its native ATOM token secures the network. The Cosmos Hub uses a proof-of-stake consensus mechanism. It acts as a service provider to the chains that connect to it. The Cosmos Hub is a decentralized marketplace that provides services such as:

DEXs.
ETH and BTC bridges.
Shared security.

These services create incentives for other blockchains to connect and transact with the Cosmos Hub.

2. Osmosis (OSMO)

Osmosis is the largest DEX in the Cosmos ecosystem. It's so large that it even has its own Zone! The Zone is IBC-compatible, meaning it can talk to all the other zones in the ecosystem. IBC transactions are cross-chain, so you can send data from one Zone to another. Osmosis has even surpassed the Cosmos Hub in terms of IBC transaction volume! The Hub settles 219,000 IBC transactions per month, while Osmosis has crossed over 358,000 IBC.

The DEX is also an automated market maker (AMM) protocol. Osmosis gives liquidity providers excellent rewards for their contributions. At the time of writing this article, Osmosis has over $1 billion in liquidity locked in smart contracts. Users provide liquidity to the network using Osmosis’s native token, $OSMO.

3. Sentinel (DVPN)

Sentinel is a web of decentralized VPNs that are built on a P2P bandwidth sharing marketplace using the Cosmos SDK. A decentralized VPN takes privacy to another level. It can't be compromised by a central party, and also it can't be shut down because it doesn't have a central server.

These features make Sentinel’s VPNs potentially more resilient than your centralized YouTube sponsored VPNs. Sentinel offers privacy at the network layer of any blockchain or dApp. Once a blockchain is integrated, it can provide its users with complete privacy and censorship resistance. Sentinel’s native token, DVPN, is used to secure the network.

4. Terra (LUNA)

Once the biggest winner of the 2021 bull run, Terra was built with the Cosmos SDK. The kit allows Terra to integrate with pretty much every chain out there. That's because the IBC connects with non-Cosmos SDK chains too.

Luna is the native token behind the Terra ecosystem. It's a blockchain protocol that uses stablecoins to power a fascinating DeFi ecosystem. The Luna token acts as a governance token, allowing users to vote on different proposals. It's also the token used to back its stablecoin, UST.

5. Cronos (CRO)

Cronos (CRO) is the native token behind the Cronos Chain. It's a decentralized, open-source blockchain that's developed by Crypto.com. It's one of the key drivers behind the Crypto.com Pay mobile payments apps. The transaction fees of this blockchain are paid in CRO.

You can also earn CRO if you use one of Crypto.com's debit cards (that's how I do it.) Here's a full guide to the different debit cards that provide crypto rewards.

Cosmos - the Network of Blockchains

Cosmos takes a different approach to create interoperable blockchains. It's a decentralized network that aims to disrupt the blockchain industry by creating the "Internet of Blockchains."

Thanks to its design, Cosmos allows for better performance and more customization on the application layer. Whether or not it succeeds, it's fascinating to see how it tackles one of the biggest problems when it comes to crypto blockchains - the lack of interoperability.

One thing is for sure - blockchain developers benefit the most. With Cosmos's toolkit, they could easily create application-specific blockchains. And if developers win, we, the users, also win.

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