Cosmos: Internet of Blockchains

By Rayna Ishihara | Crescent City Capital Market Analyst Intern

What is Cosmos

The Cosmos blockchain, established in 2016, serves as an innovative platform for decentralized ledger communication, distinguishing itself as the “Internet of Blockchains.” Designed to foster interoperability without relying on a centralized server, Cosmos operates as an entirely free platform, prioritizing customizability and open-source tools for seamless transactions between diverse systems. Unlike projects focused on individual networks, Cosmos aims to cultivate an ecosystem where networks autonomously share data and tokens programmatically, eliminating the need for a central governing party.

In the Cosmos framework, independently created blockchains, referred to as “zones,” are linked to the Cosmos Hub, a decentralized record keeper maintaining the state of each zone. Operating on a proof-of-stake model, the Cosmos Hub is powered by its native cryptocurrency, ATOM. Users can stay abreast of Cosmos’ development through the comprehensive roadmap on the official website. This blockchain ecosystem, often termed the “Internet of Blockchains,” encompasses interconnected blockchains capable of seamless token exchange. Built on open-source Cosmos technology, accessible through a software development kit, the approach prioritizes simplicity and flexibility for developers to integrate desired features. The kit includes common functionalities like staking and governance, and secure communication between blockchains is ensured through the Inter-Blockchain Communication protocol, enabling the exchange of messages and tokens.

 interoperability

Blockchain interoperability refers to the capacity of blockchains to exchange information with one another. At its core, interoperability relies on cross-chain messaging protocols that facilitate the reading and writing of data between different blockchains. This concept is pivotal in the digital realm, allowing blockchain systems to interact and share data despite slight variations. Interoperability serves as the linchpin enabling communication among diverse digital systems, much like how Gmail and Hotmail emails can seamlessly exchange information or how an Android phone can share data with an iOS device. While individual blockchain structures are initially established, their true utility emerges when they can effectively communicate, underscoring the importance of interoperability in fostering technology adoption.

How does Cosmos work

Cosmos leverages a suite of open-source tools, incorporating hubs, the Tendermint consensus algorithm, and the Inter-Blockchain Communication (IBC) protocol to establish secure communication channels among blockchains. These elements work cohesively to enable a robust framework, ensuring the secure exchange of information within the Cosmos ecosystem.

Cosmos Hub

Within the Cosmos ecosystem, a pivotal role is played by the Cosmos Hub, positioned as the central hub in the network. As the inaugural blockchain introduced on the Cosmos network, it functions as the nexus where each new decentralized blockchain application, referred to as a “zone,” is connected. The Cosmos Hub maintains a reciprocal record of each zone’s state, fostering seamless interaction and communication between them. These zones operate autonomously, possessing the capability to execute various functions, including account and transaction authentication, creation and distribution of new tokens, and implementation of blockchain modifications.

Numerous chains within the Cosmos ecosystem are tailored for specific use cases. For instance, Osmosis is primarily designed as a decentralized exchange, although it faces upcoming competition from dYdX, which is launching its own Cosmos-based chain. Moreover, the Cosmos Hub enhances interoperability by establishing connections with other proof-of-work blockchains, such as Bitcoin and Ethereum, using bridges. This connectivity extends to blockchains that may not fully align with the Cosmos protocol’s requirements.

Tendermint Byzantine Fault Tolerance (BFT)

The Cosmos SDK tools default to utilizing the Tendermint Byzantine Fault Tolerance (BFT) engine consensus protocol for network security, although alternative protocols are also available. This approach streamlines blockchain development for developers, offering the capability to construct blockchains without starting from scratch. The Tendermint BFT algorithm plays a crucial role in validating transactions and executing blocks on the blockchain. It relies on the Application Blockchain Interface (ABCI) protocol to establish connections with applications.

Operating on a proof-of-stake (PoS) governance mechanism, the Tendermint BFT protocol supports the integration of a distributed network of computers running the Cosmos Hub. Network participants have the option to stake ATOM tokens, enabling them to earn rewards. The top 100 stakers qualify to become validator nodes, contributing to blockchain functionality and participating in voting on proposed changes. The voting power of validators is proportional to the amount of ATOM tokens they have staked.

Users can choose to delegate their tokens to validators, fostering a system that encourages honest behavior. This delegation system allows users to easily switch between validators based on their voting preferences. Communication between hubs and zones is facilitated through the Inter-Blockchain Communication (IBC) protocol, enabling seamless interaction between them.

Inter-Blockchain Communication Protocol

The Inter-Blockchain Communication (IBC) protocol stands as a pivotal element within the Cosmos Network, facilitating secure exchange of assets and data among autonomous blockchains and the Cosmos Hub. This innovative protocol serves as a solution to the longstanding challenge of fragmentation within the blockchain industry by allowing seamless connection and communication between blockchains.

IBC goes beyond supporting traditional crypto and NFT transfers; it opens the door to cross-chain smart contracts, introducing a higher degree of interoperability and collaboration within the blockchain ecosystem. Cosmos, through the implementation of the IBC protocol, is dismantling barriers and ushering in a transformative era of connectivity in the realm of blockchain technology.

Summary

Cosmos is a blockchain ecosystem that emphasizes interoperability among diverse blockchains. Founded on the idea of the “Internet of Blockchains,” Cosmos enables secure communication and seamless exchange of assets and data between independent blockchains through its innovative Inter-Blockchain Communication (IBC) protocol. The Cosmos Network, featuring the Cosmos Hub as a central component, breaks down barriers that historically hindered blockchain connectivity. Notably, Cosmos employs the Tendermint Byzantine Fault Tolerance (BFT) engine consensus protocol to secure its network, providing developers with a streamlined approach to building blockchains without starting from scratch. The network also incorporates a proof-of-stake (PoS) governance mechanism, allowing participants to stake ATOM tokens, earn rewards, and contribute as validator nodes. This inclusive ecosystem encourages collaboration and innovation, marking Cosmos as a leader in promoting a new era of connectivity within the blockchain space.

Recent Updates

The live ATOM price on December  3rd  is $9.46 USD with a 24-hour trading volume of $144,207,944 USD. It has a circulating supply of 377,581,922 ATOM tokens.

The price of Cosmos has decreased by 3.81% in the past 7 days, and increased by 22.12% in the past months. ATOM is 78.99% below the all time high of $4.

Market analysis

The Cosmos blockchain has recently experienced notable price fluctuations. While it demonstrated robust positive momentum, gaining over 20% in the past month, the token’s performance has tempered with a 3.81% increase in the last week and a subsequent 1.03% loss within the past day. This indicates a cooling-off period for the Cosmos token in the market.

In my analysis, the notable surge in Cosmos’ price last month appears closely linked to the approval of Proposal 848 on November 26. This proposal, defining the maximum inflation rate for Cosmos Hub’s native token, Atom, narrowly passed with 41.1% approval against 38.5% opposition. The significance of this decision resonates profoundly within the Cosmos ecosystem.

The immediate consequence of the approved proposal was a modest uptick in price observed in late November, as depicted in the chart. This, in turn, contributed to the overall increase in price for the month. 

However, a substantial development unfolded post the proposal’s approval—Jae Kwon, co-founder of Cosmos, announced the initiation of a new network, AtomOne (ATOM1). Despite Kwon’s influential contributions to the Cosmos network, particularly in developing the Tendermint consensus algorithm, he vehemently opposed the inflation rate change, expressing concerns about potential negative impacts on network security. Consequently, Kwon has taken the lead in establishing AtomOne.

Following the announcement of AtomOne, it becomes evident that the majority of the community opposes Atom1, with only 3.9% of voters supporting the proposal, leading to its rejection. This community resistance likely contributed to the subsequent decline in ATOM’s price.

Notably, Proposal 848 is the initial one of three, and the second proposal aims to eliminate the inflation floor of Cosmos. Additionally, despite the rejection, Jae Kwon remains steadfast in demonstrating the potential benefits of Atom1 to Cosmos.From my perspective, Cosmos is currently navigating challenging times, with uncertainty prevailing regarding the potential implementation of a hard fork. 

Technically, an upward trend is observed in the token’s RSI value, suggesting a perception within the community that the price of Cosmos is overvalued, potentially indicating an impending price drop. 

Consequently, I would recommend refraining from investing in the token at present and closely monitoring public reactions to the upcoming proposal, as well as observing the subsequent actions taken by Jae Kwon.

References

https://cosmos.network/

https://www.kraken.com/learn/what-is-cosmos-atom

https://cointelegraph.com/learn/what-is-cosmos-a-beginners-guide-to-the-internet-of-blockchains

https://coinmarketcap.com/currencies/cosmos/

https://www.tradingview.com/chart/zrsQqqcn/?symbol=COINBASE%3AATOMUSD