What is Cosmos (ATOM)?

The Cosmos ecosystem is a decentralized network of independent blockchains. Cosmos blockchains, also called Zones, are parallel, interoperable and are highly scalable. For this reason, the Cosmos team refers to the ecosystem as the ‘Internet of Blockchains’. This powerful connectivity is one of the reasons the community is excited about Cosmos.

Cosmos is customizable and open source. These features make it incredibly easy for users and developers to streamline transactions and protocols between separate Cosmos Zones. All Zones in the ecosystem are fully interoperable and are tied to the Cosmos Hub.

The Cosmos Hub is the central foundation of the entire Cosmos ecosystem. It’s a proof-of-stake (POS) blockchain that manages a record of status and transactions across all Cosmos Zones. So, what is ATOM and why is it special? ATOM is the native token of the Cosmos hub and is needed to process transactions and secure the network.

Millions of blockchain users are using Cosmos blockchains every day without even realizing it. Popular chains built on the Cosmos Ecosystem include the Binance Smart Chain, Cronos Chain, and Terra Chain.

TL;DR

  • A decentralized network of interoperable blockchains, or "Zones", forming the 'internet of blockchains', with the Cosmos Hub as its core and ATOM as its native token.

  • Offers customizable, open-source technology enabling easy transactions and protocols between different Zones, with a focus on scalability and interconnectivity.

  • Built on three conceptual layers (Application, Consensus, Networking) and uses tools like the Cosmos SDK, IBC, and Tendermint BFT for easy development and deployment of new Zones.

  • Used for transaction fees, staking, and governance in the Cosmos Hub, with its inflation rate fluctuating based on staking activities.

  • Encompasses popular blockchains like Binance Smart Chain and Cronos, and backed by solid partnerships, with ongoing updates and expansions planned.

What is Cosmos? Quick facts

  • Cosmos is a network of parallel, interoperable blockchains called Zones.

  • The Cosmos network facilitates seamless token migration between different Cosmos Zones.

  • The Cosmos Hub is a PoS blockchain that operates as the focal point of the network.

  • ATOM is the native token of the Cosmos Hub, and is used for staking, governance, and gas fees.

  • Many common chains like Binance Smart Chain and Cronos are built on the Cosmos Ecosystem

How does Cosmos work?

Cosmos aims to streamline the development process and increase interconnectivity between networks in the ecosystem. The infrastructure of the Cosmos Zones allows for smooth transition and communication and is built upon three conceptual layers:

  • Application Layer: This layer is responsible for handling on-chain transactions and maintaining the state of the network.

  • Consensus Layer: The consensus layer handles issues of agreement and the production of new blocks.

  • Networking Layer: The networking layer deals with communications between Cosmos Hub Zones.

Cosmos 3 layers

Building upon the foundation of these three layers, the Cosmos Ecosystem takes advantage of a powerful set of Open Source functions. These tools allow developers to design secure, customizable, and scalable apps that are interoperable across Cosmos Zones. This flexibility is a unique feature that developers love about Cosmos. But what's Cosmos doing to make development so easy, and how does Cosmos work?

Cosmos Software Development Kit

The Cosmos Software Developer Kit (SDK) is a fundamental tool for developers in the Cosmos Ecosystem. It simplifies the development and deployment of new Cosmos Zones without requiring new Zones to be coded from scratch. An easier way to imagine the Cosmos SDK is to see it like a blockchain template.

Inter-Blockchain Communication Protocol (IBC)

If the Tendermint BFT engine allows Cosmos zones to vertically scale and be deployed easily, the Inter-Blockchain Communication Protocol is the crucial next tool. The IBC is a mechanism that permits chains to communicate and transfer tokens and data to any interconnected chain in the ecosystem. This is achievable regardless of the architecture of the connected chains, meaning chains with differing consensus mechanisms and applications can still transmute information.

Tendermint Byzantine Fault Tolerance

The Tendermint BFT operates a high-performance PoS consensus mechanism. It features a one-second blocktime and a transaction throughput of around 10,000 transactions per second with instant finality.

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What is ATOM and where is it used?

ATOM is the native token of the Cosmos Ecosystem, but what is ATOM used for? ATOM is required primarily to pay gas fees and process transactions in the Cosmos Hub. ATOM can also be staked and used to operate a validator node in the Cosmos Hub to secure the network and receive staking rewards.

ATOM is needed to participate in issues of governance regarding the future development of the Cosmos ecosystem. As a rule, those who hold larger quantities of ATOM have greater influence when voting on proposals about Cosmos.

Cosmos history

The initial idea for building the Cosmos Ecosystem was conceived as early as 2014. Founders Jae Kwon and Ethan Buchman were inspired by the possibilities of applying their Tendermint consensus model to blockchain technology to build interoperable networks.

With support from the Swiss firm, Interchain Foundation, Tendermint Inc was able to continue development on the project, which was eventually named Cosmos in 2016.The ATOM ICO was completed in 2017, with all tokens selling out in an impressive 29 minutes. This initial funding round went on to enhance the development of the Cosmos SDK and IBC. The Cosmos Mainnet was finally launched on March 13, 2019. The Cosmos ecosystem has enjoyed widespread adoption within the cryptocurrency industry, with many popular blockchains like Binance Smartchain and THORChain launching on the network.

ATOM tokenomics

ATOM is the native token of the Cosmos Hub. It has a current circulating supply of approximately 285,000,000 and has no maximum total supply.

The Cosmos team performed three separate early funding rounds in 2017, and were able to raise a total of $17 million USD. According to Messari, the initial supply of 236,198,958 ATOM tokens was distributed as follows:

  • Tendermint Inc received 10%

  • Interchain Foundation received 10%

  • Strategic and early adopters received 7.1%

  • Seed round contributors received 5%

  • Public ICO contributors received 67.9%

What’s interesting about Cosmos and its initial token distribution is that no ATOM tokens were reserved for market liquidity or the community. At this moment in time, the initial vesting schedule has been completed. All tokens from the initial distribution are unlocked and circulating.

How is ATOM created?

Because the Cosmos Hub operates a PoS mechanism, new ATOM tokens are created and distributed through the Cosmos Ecosystem via staking rewards. These are paid out to validator nodes that secure the network and process on-chain transactions. Because ATOM has no maximum supply and new tokens are constantly emitted, ATOM is an inflationary token. But what is Cosmos’ inflation rate?

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The rate of inflation attributed to the ATOM token fluctuates based on the amount of ATOM tokens that are staked in the network. The higher the ratio of staked tokens, the lower the rate of inflation. These fluctuations make it difficult to standardize ATOM’s inflation rate because the rate is recalculated at every block. Generally, ATOM’s inflation rate hovers between 7%-20%, dependent on the frequency of staked tokens.

What is Cosmos’ competition and how do they stack up?

Cosmos is a unique protocol in that the central network, the Cosmos Hub, isn't the largest blockchain in the ecosystem. While other blockchains like Polygon have also termed themselves as the ‘internet of blockchains’, can they really compare with the breadth of Cosmos’ network?

To gain a better understanding about Cosmos' competition, we can look at relevant statistics like total value locked (TVL) and market cap between Cosmos and other self-proclaimed ‘internet of blockchains.’ For example, in December 2023, Polygon had a much larger market cap (approx $5.6 billion) and TVL (approx $1.6 billion) than the Cosmos Hub, which stood at $2.5 billion and $310,000. However, when you take into account the interoperable blockchains built into the Cosmos Ecosystem, Cosmos clearly outstrips all competitors.

According to cosmos.network, the combined market cap of all blockchains deployed in the Cosmos ecosystem is over $50 billion. That’s nearly nine times the market cap of Polygon, and in the global cryptocurrency is second only to Ethereum as a blockchain platform. It's worth noting that this figure was also greatly diminished following the collapse of Terra Luna, which before its infamous crash in May 2022 was a top 10 cryptocurrency and among the largest blockchains in the Cosmos network.

Cosmos partnerships and investors

The Cosmos ecosystem is backed by solid institutional investment from several leading firms across the globe. Notable investment companies supporting Cosmos include 1Confirmation, Blocktree Capital, Outlier Ventures, and Dragonfly Capital. These experienced funds have helped guide the talents of the Cosmos Team and supported their growth in the cryptocurrency industry.

Perhaps the biggest partnership the Cosmos Ecosystem has secured is its selection as the foundation for the Binnace Smart Chain. The Binance Smart Chain is the second largest blockchain in the industry in terms of TVL. When developing their blockchain, the BSC team was impressed by the architecture provided by Cosmos and decided it was the natural choice for launching their network.

Cosmos strengths, weaknesses, opportunities, threats

Cosmos strengths

The Cosmos Hub benefits from low gas fees, instant transaction finality, and an impressive transaction throughput of around 10,000 transactions per second. Not only is the Cosmos Hub an impressive network in its own right, the infrastructure provided by the Tendermint BFT and Cosmos SDK allow new projects to easily launch their own chain on the Cosmos Ecosystem.

Cosmos weaknesses

While Cosmos' staking rewards are prone to a fluctuating rate, there's a risk that ATOM tokens can be emitted at a high rate of inflation (20%) for long periods of time. Further, there are no deflationary burn mechanisms in place, like Ethereum and Polygon’s EIP 1559 function, to combat this inflation.

Cosmos opportunities

The Cosmos Ecosystem and architecture allows for expansive growth and partnership opportunities. As more and more companies seek to enter the Web3 industry, Cosmos is perfectly placed to help onboard existing businesses. By using the Cosmos Ecosystem, new companies can easily launch their own blockchain and rapidly scale with blockchain technology. This is one of the utilities many businesses love about Cosmos.

Cosmos threats

Many of the blockchains and native tokens built on Cosmos are not yet available on popular cryptocurrency exchanges. This means that buying ATOM and bridging through the Cosmos Hub is the only way to acquire some of these tokens. As these projects and tokens become larger, they'll be traded on popular exchanges. Thus, removing the requirement for ATOM. In this context, some believe that Cosmos may become a victim of its own success. So, what is Cosmos doing to counteract this threat?

Fortunately, this issue may be resolved by the continued influx of new projects wanting to build on Cosmos after seeing the success of previous projects. These new chains will take the place of older projects that launched on Cosmos and bring renewed utility to the ATOM token.

Cosmos roadmap

The explosive growth of the Cosmos Ecosystem has many asking what Cosmos is going to do next. The next update to be implemented in the Cosmos roadmap is the deployment of the v8-Rho upgrade.

This update while bring plenty of new features to the Cosmos Hub, Cosmos SDK, and the IBC, including:

  • Higher-level multi-signature permissionless accounts

  • Meta transactions

  • Improvements to the governance module

  • IBC relayer incentivization

Cosmos updates, news, highlights

Cosmos has received a lot of attention in the cryptocurrency industry because its technology enables applications to rapidly build and develop their own blockchain. Due to high gas fees and scalability on Ethereum, many projects are looking to migrate their platforms and services to more accessible networks.

Cosmos founder Jae Kwon has proposed a fork of the Cosmos network following a contentious governance proposal (Proposal 848) that aimed to cap ATOM's inflation at 10%. This proposal, which sought to reduce inflation from around 14% to 10% and also lower staking rewards, was narrowly passed but met with disagreement from Kwon.

Kwon is contemplating the development of a fork called AtomOne, which intends to furnish a substitute to the present governance system and tackle the gap within the Cosmos group.

There have been a variety of advances in the growth of the ecosystem. Umee and Osmosis, both based on the Cosmos platform, have combined to build 'DeFi Hub', which could bolster DeFi within the Cosmos system. The dYdX exchange, a major name in decentralized finance, has made public its source code for the forthcoming Cosmos-based network, alluding to a widening approval of Cosmos technology for DeFi projects.

The Interchain Foundation (ICF), a major contributor to the development of Cosmos, is expecting to set aside $26.4 million in 2024 for ecosystem support. This is a decrease from the $40 million allotted in 2023, and will be directed towards making sure the Interchain Stack works optimally. Out of the total budget, $3 million will be dedicated to CometBFT, Cosmos' Byzantine fault-tolerant engine; $4.5 million to the Cosmos SDK, and $7.5 million to the inter-blockchain communications protocol (IBC)

Cosmos vs Polkadot: the interoperability race

Cosmos and Polkadot are two top cryptocurrency projects focused on interoperability and communication between networks. While Polkadot is the larger and more well-known of the two, recent events like the dYdX migration have got a lot of people talking about Cosmos. How do these projects compare

Cosmos was founded by Jae Kwon as early as 2014. Kwon is qualified with a Bachelor’s degree in computer science awarded by Cornell University, which runs one of the world’s leading computer science programs. Polkadot, on the other hand, was founded by Gavin Wood. Wood is one of the Ethereum Co-founders, helped to invent the Solidity programming language, and holds a PhD in human-computer interfacing from the University of York.

Polkadot uses a PoS consensus model combined with Polkadot’s own proof-of-authority mechanism. This allows Polkadot's main chain, the relay chain, to process up to 1,000 transactions per second and can currently support up to 100 parachains.

In comparison, the Cosmos Hub is powered by the Tendermint BFT PoS model and can successfully process up to 10,000 transactions per second. There are currently 49 Cosmos Zones in the network, with no maximum cap. Many believe this gives the Cosmos Ecosystem greater room and opportunity to scale beyond what Polkadot is capable of.

Cosmos Aaaaaa

Further, for Polkadot parachains to function correctly, they need to be plugged into Polkadot’s main relay chain and are reliant on its underlying architecture. This means that should there be a bug in the central Polkadot system, performance could be affected on parachains.

On the other hand, Cosmos Zones operate independently of one another. This means that should one Zone in the ecosystem experience bugs and congestion, this won't affect the network performance of alternative zones.

The final word

Cosmos, often called the 'internet of blockchains', is a transformative network of independent, interoperable blockchains called 'Zones'. Central to this ecosystem is the Cosmos Hub, using its native token, ATOM, for governance and transactions.

Cosmos provides a decentralized framework for users and developers to customize and integrate protocols easily, allowing for smooth exchanges between Zones. What makes Cosmos unique is its open-source platform and layered structure (Application, Consensus, Networking) coupled with tools such as Cosmos SDK and IBC, allowing effortless scalability and creation of new Zones. A PoS blockchain backs all of this.

Popular chains like Binance Smart Chain and Cronos, part of the Cosmos network, highlight its widespread adoption and potential for future growth.

FAQ

Who are the founders of Cosmos?

The Cosmos project was initially co-founded in 2014 by Jae Kwon and Ethan Buchman. Kwon and Buchman were partners at Tendermint and were inspired to apply their ideas to blockchain technology. Their revolutionary Byzantine Fault Tolerance engine and Inter-Blockchain Communication Protocol lay the foundation for the entire Cosmos ecosystem.

Why is Cosmos unique?

Cosmos is building an ever-expanding ecosystem of independent, parallel, and completely interoperable blockchains. These chains are called Zones and allow new projects launching in the industry to operate their own blockchain, instead of competing with other protocols for network share on larger, established chains.

What can I do with ATOM?

ATOM is the native token of the Cosmos Hub. The Cosmos Hub is the central blockchain in the Cosmos Ecosystem. ATOM is used to pay gas fees on the network and can be staked to a validator to earn rewards. It also grants holders the right to vote in Cosmos governance proposals.