What is Cosmos (ATOM)?

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The Cosmos project highlights an innovative architecture that allows the emergence of a network of blockchains. On March 13, the genesis block of the Cosmos network was generated. Very quickly, the project became a hot topic and the native asset, ATOM, was listed on the main marketplaces. This article is an advanced introduction to the Cosmos network and its alternative proposal that may well find its place in the crypto ecosystem.

What is Cosmos?

The idea of Cosmos was born in Jae Kwon‘s mind in 2014. By observing the blockchain networks already in operation at the time. He believes that a different implementation, which combines classical functional mechanisms facing the problem of Byzantine generals (BFT for Byzantine Fault Tolerant) as well as a Proof-of-Stake system (proof at stake), would be effective in the context of public blockchains.

In 2015, he met Ethan Buchman. The two men team up to work on a first implementation of Jae’s idea: Tendermint. The following year, Tendermint’s White Paper described the foundations of a BFT protocol described as efficient, transparent, highly auditable, interoperable, and flexible enough to support a variety of applications for private companies, public decentralised applications, or even to support decentralised currency.

In 2016, the idea of testing the Tendermint protocol in practice was put forward and the Cosmos network’s White Paper was published. In April 2017, the Interchain Foundation, based in Switzerland to conduct research on Cosmos and Tendermint, took over the ICO of the project and raised $16.8 million in 30 minutes. The ATOMs, native assets of the system’s central blockchain, also called “Cosmos Hub”, was first priced at 10 cents.

Tendermint and Cosmos, whatfor ?

logo cosmos

Cosmos, using Tendermint protocols, presents itself as the Internet of blockchains. It provides features that allow independent blockchains to use pre-engineered consensus and governance methods, as well as to communicate easily by sending tokens or messages to each other. So we’re talking about a network of blockchains. In Cosmos, the different blockchains are called “zones”.

The objective here is to provide the necessary infrastructure and tools to allow developers to easily create their own blockchain, whether public or private, as well as their own applications, via the “Cosmos SDK” which we will discuss later. These different blockchains can then communicate with each other using protocols on which the Cosmos network is based.

In order to assist in the development of these blockchains, zone developers are invited to use the “Tendermint Core” modules and change the parameters if necessary. Tendermint Core is composed of four modules that will be detailed later:

  • The Bounded Proof-of-Stake module: it allows to implement the same Proof-of-Stake system as the Cosmos Hub, with its own token.
  • The Governance module: Cosmos highlights governance by the chain, known as “on-chain”.
  • The Rewards and Fees module: the distribution of rewards related to the creation of blocks as well as the payment of transaction fees.
  • The Inter-Blockchain Communication module: it allows to transfer tokens and data between zones.

Cosmos, the Blockchain developer toolbox

The Cosmos SDK is a suite of tools that can then be used by blockchain developers to build the one of their choice, using Tendermint Core modules if they wish. For example, a Proof-of-Authority blockchain can be deployed without the Bounded Proof-of-Stake module. Also, developers are invited to develop new modules and make them accessible to the community.

This distinction between the application layer and the consensus and governance layers is interesting, because applications do not specifically have to be written in the same language as the consensus machine. Thus, the network relies on the Application Blockchain Interface, or ABCI, to connect the application layer to Tendermint Core. Applications can therefore be coded in any language.

Tendermint Core is used in the first area, the “Cosmos Hub”, which was launched on March 13. This is the most important blockchain of the Cosmos system because it acts as a central registry that must guarantee at all times the amount of tokens in circulation in Cosmos. The Hub must be the most decentralised and secure of the zones, hence the use of proof of stake.

The Proof-of-Stake and reward system in Cosmos

Tendermint is a protocol in Proof-of-Stake delegation. This means that for each blockchain in the system, there are a number of validators that guarantee their security and validate transactions. On the Cosmos Hub, ATOM holders can delegate them to the validator of their choice. The 100 validators who hold the most ATOMs in escrow, counting their ATOMs as well as those of their delegates, will validate the blocks of the Hub.

In a classic Byzantine Fault Tolerant (BFT) mechanism, the blockchain is resistant to attacks as long as ⅔ of the validators in the chain honestly validate the blocks and less than ⅓ of the validators collud to attack the network. Anyone can become a validator by setting up the necessary infrastructure and gathering enough ATOMs to be stored.

The implementation of the Proof-of-Stake and the notion of slashing makes it possible to heavily penalise validators wishing to attack the blockchain. In Cosmos, if validators attempt an attack, then they lose 5% of their stake, and this affects not only the assets of the validator but also the assets of the delegates who have trusted him.

The fact that delegates are also penalised in the event that their validator cheats had never been seen in the Proof-of-Stake system. This encourages greater caution in choosing the validator. As a reward, ATOM holders who have delegated their assets to honest nodes are also rewarded by the assets issued when creating their validator’s block, unlike EOS systems where validators are the only beneficiaries of block rewards.

The more funds that validators have in escrow, the more likely they are to be elected to validate blocks. Depending on the number of ATOMs stored in the system for this purpose, participants in block validation will receive between 7 and 20% per year, in ATOMs. Monetary creation is stronger if a small portion of ATOMs are in escrow, which pushes asset holders to join the consensus. This significant reward is at the origin of a nascent industry, the delegation services industry, initiated by Tezos.

Validators and their delegates also receive transaction fees. The particularity of Cosmos is that the Rewards and Fees module allows users to pay fees not only in ATOMs but also in the asset of their choice.

Governance in Cosmos

Cosmos implements the protocol evolution process within the chain itself. Thus, the process is coded and described in the Tendermint Core governance module.

Proponents of chain governance emphasise the fact that forks are not required to evolve the protocol, which gives users more clarity about the canonical chain in the event of controversial decisions: each evolution of the protocol must be voted on by the token holders and the decision taken is that of the majority.

In Tendermint Core, we talk about liquid democracy. By default, token holders give their voting rights to the validator to whom they delegate. However, if they disagree with the validator’s opinion, they can then give their own opinion and use the voting power of their tokens to support another decision.

The different types of proposals that can be advanced through the governance module are as follows:

  • Text proposals: they have no impact on the protocol but make it possible to reach a social consensus, for example by agreeing on an evolution of the protocol to be adopted in the future.
  • Proposals for changing parameters: they do not affect the functionalities of the protocol but its settings. For example, by adjusting the percentage of slashed tokens in the Proof-of-Stake, or by adjusting the token emission per block.
  • Protocol evolution proposals: the software is updated with new features to a predefined block in the future.

Interoperability in Cosmos

Tendermint Core has a module entirely dedicated to communication between blockchains, here called”Cosmos zones”. This protocol is called Inter-Blockchain Communication, or IBC.

The IBC is agnostic to the packages it carries. This means that developers can define the specifications of their applications and use the IBC protocol for transferring tokens and data between areas, while being guaranteed, without going through a trusted third party, that the predefined rules of their applications will be respected. For example, in the case of the emission of a non-fungible token, it can be transferred to another area without the risk of being replicated in two versions. The authorisation to transfer packets via the IBC is given by the consensus algorithm of the source blockchain.

For more details on how IBC works, you can consult its specifications.

Interoperability via IBC is made possible by an instant transaction purpose enabled by the traditional BFT consensus, which ensures that a transaction validated in one of the zones cannot, under any circumstances, be challenged in the next block, which would be problematic if an interzone transfer took place after a transfer.

A transaction is said to be completed when it is considered strictly impossible to reverse it. Thus, Proof-of-Work systems such as Bitcoin or Ethereum have a probabilistic purpose: the more confirmations a transaction has, the more likely it is that it will be part of the chain with the most work accumulated. In BFT, once the block has been validated by a validator, all transactions included in it are considered irreversible, even if they were to be dishonest. It is the implementation of proof of issue that has the role of preventing dishonest transactions.

This need for purpose may make it impossible to integrate a blockchain like Bitcoin or Ethereum as an area in Cosmos, but the developers have come with clever ways to do so. We now speak of “hard spooning” when we “clone” a blockchain into a Cosmos zone, by getting rid of the consensus mechanism of the parent blockchain within Cosmos and by creating bridges between it and its zone. One of the first projects of this type, Ethermint, aims to replicate the Ethereum virtual machine on Cosmos. Rather than competing with the mother blockchain, these zones, also known as “adapt zones”, are seen as complementary.

Is Cosmos a good investment?

atom vs btc

Patience is always a virtue in the cryptocurrency world. If you are interested in this project for a financial investment, remember that ICO participants received their ten-cent ATOMs. Considering the current price of the ATOM token, the return on investment is really good, especially against fiat currencies. But Cosmos needs to continue to deleiver to see the value of its token to increase in the future.

Cosmos addresses the problem of blockchain interoperability in an innovative way thanks to the architecture of the Tendermint protocols on which it is based. By focusing on interoperability and reducing the friction for blockchain developers, the project makes an interesting proposition.

The possibility of acting as an extension of existing blockchain networks is a feature to follow at a time where the sidechain concept is evolving. However, Cosmos is a young and still experimental project. We will continue to monitor its progress.