Cosmos

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What is Cosmos?

What is Cosmos? ATOM Explained with Animations

Jay Kwon (Co-founder)

“Each individual blockchain maintains control of its own governance, but is interoperable with other blockchains in the network. Blockchains that do not utilize BFT algorithms can be connected to the Cosmos network via “adaptor” blockchains. Cosmos was not designed for one particular use case, but to be adaptable to suit many different use cases.”

The Internet of Blockchains (IOB)
A decentralized ecosystem of independent blockchains that can scale and connect to one another

This includes blockchains built on Cosmos and external blockchains as well like Bitcoin and Ethereum

External blockchains are connect through what is called a Peg Zone

Proof-of-Stake protocol: You can delegate your tokens into a validator pool and earn rewards on your holdings

The more ATOM you stake, the more you earn
Staking locks up your ATOM

If you want to unstake, the cooling off period is 21 days

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Layers of Cosmos

Dual-Layer Blockchain ecosystem with native token $ATOM to power its transactions

First Layer: Tendermint BFT - Packages the networking and consensus layers of the blockchain into a generic engine

BFT stands for Byzantine Fault-Tolerance

Byzantine faults within distributed systems are some of the most difficult to deal with
A BFT consensus algorithm guarantees safety of the network against malicious operators of the network
Allows developers to focus on application development instead of the protocol which makes the network run

Second Layer (Application Layer): Cosmos SDK (Software Development Kit) - Used for individuals to create their own blockchains

This will translate many different popular programming languages such as Java, C++, and others into a language Cosmos is able to understand

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How does Cosmos fit into the overall ecosystem? Why is there a need?

“If there is a bug in the application, nothing can be done about it without the approval of the governance of the Ethereum platform itself. If the application requires a new feature in the Ethereum Virtual Machine, it again has to rely entirely on the governance of the Ethereum platform to accept it.”

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Scalability

Increase throughput: the # of transactions a network can process within a certain period of time

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Allows developers to build individual blockchains with their own custom governance structures

Enables them to transact with each other via a common and generic consensus networking layer through what they call Hubs and Zones

Allows entirely separate blockchains to transfer tokens to each other with an IBC connection (Inter Blockchain Communication protocol)

Can be thought of the glue that holds everything together
Allows separate blockchains to transfer tokens
Hubs are specialized blockchains to connect zones together

Helps increase speed because once a zone creates an IBC connection with the hub, it can connect to any other zone that’s attached to the hub

Zones use a Hub & Spoke architecture where Hubs act like routers for different Zones. Cosmos Hub is one of the most popular, but other Hubs also exist. Anyone can create a Hub blockchain or Zone as the network is entirely permissionless. But, each Zone or Hub has the power to refuse other blockchains to connect to them.

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Ability to interact with other blockchains outside the ecosystems

Includes interacting with BTC, ETH, TRX, etc.
This is done through a Cosmos created proxy like chain called a Peg-Zone

“A Peg-Zone” is a blockchain that tracks the state of another blockchain. The Peg-Zone itself has fast-finality and is therefore compatible with IBC. Its role is to establish finality for the blockchain it bridges.”

Ex: If you wanted to trade $LLAMA from the llama chain for $TACO from the taco chain, it is now possible with Cosmos facilitating it

Assets can be on the Cosmos network, a proof-of-work chain like Bitcoin or Ethereum, or a proof-of-stake network like NEO, ADA, etc.

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Individual needs are diverse

Developers have diverse set of needs depending on what they want to build. Cosmos makes this possible by interchain interoperability.

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Inter-Blockchain Communication Protocol (IBC) / Hubs and Zones

The Inter-Blockchain Communication Protocol (IBC) is the basis for interoperability in Cosmos. It leverages the instant finality of Tendermint to allow for the transfer of value (token transfers) and communication between heterogeneous chains. Blockchains with different applications and architecture specifications become interoperable whether or not they share a validator set.
Without IBC, the interoperability of heterogeneous chains is difficult to achieve because they may implement the consensus, networking, and application layers in different ways. As soon as a blockchain is compatible with IBC, it becomes interoperable with other blockchains.
Cosmos implements a modular architecture with two blockchain classes: hubs and zones.

Zones are heterogeneous blockchains carrying out the authentication of accounts and transactions, the creation and distribution of tokens, and the execution of changes to the chain.
Hubs are blockchains designed to connect the so-called zones. Once a zone connects to a hub through an IBC connection, it gets automatic access to the other zones connected to that hub. At this point, data and value can be sent and received between the zones without risk of, for example, double-spending tokens. This helps reduce the number of chain-to-chain connections that need to be established for interoperability.
There is no enforcement of an actual topology. A hub can be understood as a zone with many connections to other zones. Application zones can be expected to join the hubs in the ecosystem, but they are free to coalesce into any topology the developers find appropriate.
If you want more detailed information on hubs and zones on the mainnet and in the testnet, see this map of zones (opens new window).
The Cosmos Hub (opens new window)was the first hub created. It is a public Proof-of-Stake (PoS) blockchain with a native token, ATOM. The Cosmos Hub can be understood as a router facilitating transactions between the chains connected to it. For example, the Cosmos Hub allows for transaction fees to be paid in different tokens as long as the zone trusts the Cosmos Hub and the other zones connected to it.
How do we connect our chain to a non-Tendermint chain? The IBC connection is not limited to Tendermint-based chains. If another, non-Tendermint blockchain uses a fast-finality consensus algorithm, a connection can be established by adapting IBC to work with the non-Tendermint consensus mechanism.
If the other chain is a probabilistic-finality chain, a simple adaptation of IBC is not sufficient. A proxy chain called a peg-zone helps establish interoperability.
Peg-zones are fast-finality blockchains which track chain states to establish finality. The peg-zone chain itself is IBC-compatible and acts as a bridge between the rest of the IBC network's chains and the probabilistic-finality chain.

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What is Cosmos Native Token?

The ATOM is the Cosmos Hub’s primary token and secures the Hub’s valuable interchain services. If you hold ATOM, you can temporarily lock them up to contribute to the security of the Cosmos Hub using a mechanism called Staking. In exchange for locking your ATOM, you receive rewards in newly minted ATOM and a share of the transaction fees that are collected by the blockchain. However, staking is not risk free.

Cosmos Hub

At the heart of the Cosmos ecosystem is the Cosmos Hub and its native ATOM token. The Cosmos Hub pioneered a new era in the blockchain industry by becoming the first public Proof-of-Stake (PoS) blockchain built on top of a Byzantine Fault Tolerant consensus engine. The Cosmos Hub is set to play a major role in the interchain by offering a wide variety of services and features:

Staking – The Hub’s staking module is one of the most efficient PoS implementations in the world, built on top of the Tendermint BFT consensus engine. ATOM holders can secure the chain by locking their ATOM in exchange for transaction fees
Voting – Staking ATOM gives rights to participate in the open governance process, which governs the evolution of the network
Interchain Accounts – Interchain Accounts are the accounts of the IBC-enabled world, allowing blockchains to securely control accounts on other chains over IBC. Users can access the entire Interchain through their single Cosmos Hub account. One account, for all the chains.
Gravity DEX – The Cosmos Hub’s Gravity DEX will enable users to swap tokens coming from all over the interchain. This service improves on existing designs by combining AMM features (like that of Uniswap) with an orderbook-based model, providing a richer and more efficient trading experience.
Gravity Bridge – Backed by billions of dollars of ATOM staked on the Cosmos Hub, the Gravity Bridge will be the most secure, efficient, and decentralized cross chain bridge to Ethereum. It will enable Cosmos assets to flow into the Ethereum ecosystem as ERC-20 tokens and, conversely, native ERC-20 tokens to flow in the Cosmos ecosystem.
Interchain Staking – ATOM stakers will be able to validate chains that request it (called child-chains) on an opt-in basis, with their ATOM delegation as collateral. In exchange for securing child-chains, ATOM stakers will be rewarded with additional rewards.
Chain Name Service – Just like domain names, blockchain names are needed and can be managed on the Cosmos Hub
Staking Derivatives – Staking Derivatives will be an important primitive in the cross-chain Defi space. At their core, staking derivatives are claims against staked ATOM. Just like staked ATOM, staking derivatives accrue staking rewards – but unlike staked ATOM, staking derivatives are liquid, meaning they can be transferred.

Each new service on the Hub generates fees, and fees generate rewards. The more activity on the Hub, the more fees paid out by services and the more rewards ATOM stakers receive.

What is the ATOM Token?

The ATOM token is the Cosmos Hub’s primary token and secures the Hub’s valuable interchain services. Holders of ATOM can stake their tokens to contribute to the security of the network, receiving rewards in return. Additionally, ATOM stakers are granted the right to vote on Cosmos Hub’s governance decisions. Typical APY 9.7% of staked ATOM annually. Staking rewards are generated and distributed to staked ATOM holders in two ways:

Transaction fees – Transaction fees collected on the Cosmos Hub are distributed to staked ATOM holders
Newly created ATOM – The total supply of ATOM is inflated to reward stakers. ATOM holders that do not stake do not receive rewards, meaning their ATOM gets diluted over time.