Cosmos, which bills itself as the 'internet of blockchains', is a decentralized network of independent yet interoperable blockchains that are able to exchange information and tokens between each other permissionlessly.
Cosmos aims to address some of the issues faced by other blockchains — such as scalability, usability and governance — by providing the tools to help developers quickly build independent blockchains for a variety of use cases and enabling blockchains in the network to communicate with each other.
The independent blockchains, called 'zones' in the Cosmos ecosystem, are powered by the Tendermint proof-of-stake byzantine fault tolerant (BFT) consensus algorithm. A byzantine fault tolerant consensus algorithm allows the network to reach consensus even if some of the nodes fail or act maliciously. The first blockchain on the Cosmos network is the Cosmos Hub and ATOM is the native token of Cosmos Hub.
It uses hubs, the Tendermint consensus algorithm, and the Inter-Blockchain Communication (IBC) protocol to ensure that blockchains can communicate securely.
By contrast, Cosmos offers open-source tools to allow developers to build decentralized and sovereign blockchain applications called zones instead of relying on one single chain. The zones are Cosmos smart contracts.
The Cosmos team has built the software development kit (SDK) that allows developers to build zones faster, simpler and cheaper than other platforms like Ethereum.
It minimizes complexity by offering the most common functionality among blockchains such as staking, governance and tokens through well-known and simple-to-use software development programs like GO. Developers have the maximum freedom and flexibility to create plugins and add any features they want.
Each zone connects to another zone through hubs. Cosmos Hub is the main one, but other hubs are also available.
Any zone or hub does not necessarily have to work with another, but each new zone is linked to the Cosmos Hub, the first blockchain launched on the Cosmos network that keeps a record of each zone’s state and vice versa.
Cosmos Hub: The core network for the Cosmos blockchain
Each zone can function autonomously, from authenticating accounts and transactions to creating and distributing new tokens and executing blockchain changes.
Beyond facilitating interoperability between all the zones within the network by keeping track of their states, Cosmos hub also allows interoperability with proof-of-work (PoW) blockchains like Bitcoin and Ethereum through bridges, even if they don’t meet the requirements of the Cosmos protocol. An upcoming bridge to Polkadot is also awaited with eagerness by crypto experts and enthusiasts.
Cosmos SDK tools use by default the Tendermint Byzantine fault tolerance (BFT) engine consensus protocol to secure the network, yet others can also be used. Tendermint BFT allows developers to build blockchains without coding them from scratch.
The Tendermint BFT algorithm validates transactions and executes blocks to the blockchain. It uses a protocol called the application blockchain interface to connect to applications.
Participants in the network can stake ATOM and earn rewards. The top 100 stakers can become validator nodes to power the blockchain and vote on changes. The higher the amount of ATOM staked, the higher the voting power for the validators.
Users can also choose to delegate their tokens to validators and interchange them. This incentivizes validators to perform honestly. Users can easily switch between the validators they delegate ATOM to, depending on their voting preferences.
Hubs and zones communicate through the Inter-Blockchain Communication, or IBC, protocol, which allows them to interact.
IBC is a protocol that allows the transmission of secure messages between heterogeneous blockchains/zones and connects them to the Cosmos hub. This innovative process enables users to freely and securely exchange assets and data across sovereign (autonomous) and decentralized blockchains.
The Cosmos Hub is regarded as a service provider to the chains that must connect to it to become interoperable. Any sovereign blockchain with different applications, validators and consensus mechanisms can still communicate with each other and exchange data, regardless of their functions and business objectives.
Cosmos blockchains can practically do anything they want using IBC from crypto to non-fungible token (NFT) transfers, as well as cross-chain smart contracts. Any cross-chain application can be built thanks to the IBC.
Cosmos’ objective is to enable communication between all blockchains while solving the three main blockchain problems: sovereignty, scalability and sustainability.
The Cosmos free SDK allows developers to build sovereign blockchain apps without ongoing costs. These blockchains can easily interconnect without relying on smart contracts to exist on a different blockchain, thereby avoiding high transaction fees due to network congestion while developing better scaling features.
Cosmos SDK in the Cosmos ecosystem
Cosmos interoperability is what guarantees the functioning of a scalable system. By integrating to Cosmos interoperability model of shared communication standards, any type of sovereign blockchain will be able to communicate with each other and contribute to the evolution of its protocol design.
Cosmos scalability can be obtained by duplicating a blockchain to relieve congestion or splitting the apps into multiple application-specific blockchains. Interchain token transfers allow these multiple chains to continue one network.
Sustainability is assured by the PoS consensus algorithm, which secures the network. PoS reduces carbon footprint by 99% compared with the PoW consensus algorithm.
Even though Ethereum developers have supported an upcoming switch to PoS for years, the platform is still sitting on a PoW consensus algorithm, making it less sustainable than Cosmos.
Scalability is another major issue for Ethereum. Sometimes, it may take minutes to even hours to execute an Ethereum transaction.
Instead, Cosmos Tendermint BFT proof-of-stake algorithms can handle up to thousands of transactions per second, making the whole process much faster and cheaper than Ethereum’s gas fees that might be extremely high at times, depending on the blockchain traffic.
In Ethereum, complex financial instruments are dealt with permissionless smart contracts with specific functions to build the whole ecosystem. In Cosmos, each smart contract or application is essentially a blockchain itself, meaning that they won’t interfere with each other while reassuring the smooth transaction process.
Cosmos offers a developer-friendly design to build sovereign blockchains quickly and cheaply. Its interoperable system allows simple communication between blockchains which Ethereum does not allow unless the rather complicated and unsecure exchange of wrapped tokens is used.
On the other hand, the primary benefit of using Ethereum is its popularity as a blockchain. Its network effect still makes it the favorite platform for DeFi, NFTs and the metaverse, representing blockchain’s most trendy features at present and will likely be in the future.
Although Cosmos and Polkadot seem to share the same type of governance, two main differences vastly distinguish them: governance in transactions validation and the transfer of tokens or assets between the systems.
Cosmos hub protocol defines that transactions are validated by the top 100 validators who stake the highest amount of ATOM.
Delegators can choose and change validators’ pools to stake tokens and earn rewards at any time. Zones can have their preferred type of governance, ranging from issuing their cryptocurrency rather than ATOM to having their own hub with a different validation system.
Private, permissioned blockchain zones can be created alongside public ones, and can easily transfer assets between them.
In Polkadot, parachains are similar to Cosmos’ blockchain zones. However, they share the same set of validators, ensuring a unified and strengthened security across the network through the Relay chain, the central coordinating blockchain. Cosmos blockchains connected to the hub do not rely on the same unified security.
While token transfers from one parachain to another are executed via smart contracts on Polkadot, Cosmos’ IBC provides easy asset transfers and interaction between chains via IBC and the Cosmos Hub. Cosmos smart contracts are essentially blockchains.
This allows Cosmos to record each transaction in three different places: the two interacting zones and the hub.
The development of Cosmos is the result of cooperation between different teams. Primary resources and funds for its development were allocated by the Swiss Interchain Foundation (ICF), a non-profit organization that funds and supports open-source blockchain projects, and the Tendermint team.
Software developers Jae Kwon and Ethan Buchman co-founded the Cosmos network in 2014 while also creating Tendermint, the consensus algorithm that would power Cosmos. Kwon and Buchman authored the Cosmos white paper in 2016 and later released its software in 2019.
Tendermint Inc. raised $9 million to continue the development of the project through a Series A funding round in 2019. Jae Kwon left the project in early 2020, pledging he would stay involved anyway, while the other co-founder, Ethan Buchman, is still president of the Interchain Foundation Council.
Cosmos has attracted investment from several prominent names in crypto including Paradigm, Bain Capital and 1confirmation.
According to the Cosmos Hub roadmap 2.0, the Cosmos and Ethereum Gravity Bridge to transfer ATOM, Ether (ETH), ERC-20 and tokens on the Cosmos Hub between Ethereum- and Cosmos-compatible chains is part of the Cosmos Hub’s Theta upgrade expected to take place in the first quarter of 2022. The bridge to Ethereum and other Ethereum Virtual Machine (EVM)-compatible blockchains will bring more liquidity to Cosmos Hub. Also part of the upgrade will be a non-fungible token (NFT) module to enable the management of NFTs, liquid staking and interchain accounts to manage accounts across multiple blockchains.
Interchain security, which is a protocol to allow the Cosmos Hub validators to simultaneously validate another blockchain or multiple chains at the same time, has recently just launched. Interchain security will enable shared security and integration with IBC and allow Cosmos Hub stakers to earn rewards on multiple chains.
Future upgrades for Cosmos Hub in the works include non-IBC cross-chain bridges, decentralized identifiers (DID), virtual machines as well as zero-knowledge and optimistic rollups, according to its roadmap.
'It’s a dizzying amount of complexity that’s beyond what Ethereum even has with a smart contract framework,' Zhong said. 'Ethereum has smart contracts, there’s like tens of thousands of smart contracts, but in Cosmos, there can be tens of thousands of Ethereums and each one of those have tens of thousands of contracts.'
'[People] want to be able to use multiple protocols,' Zhong added, 'and connect them all together in a way that would solve people’s problems.'