We explain the structure of the ecosystem for creating blockchains

What is Cosmos (ATOM)

16.12.2023

2345

4 min

Cosmos is an ecosystem for developing highly scalable and interoperable Layer 1 (L1) blockchains. It consists of multiple hubs, i.e., blockchains corresponding to individual projects, which, in turn, may have multiple networks for specific applications, called zones. The central blockchain in the ecosystem is Cosmos Hub, which runs on the ATOM cryptocurrency.

The protocol was created by Jae Kwon and Ethan Buchman and is being developed by Interchain Foundation, a non-profit organization, and Ignite (formerly Tendermint). Cosmos is publicly launched in 2019.

Famous blockchains such as Cronos, Kava, Osmosis, THORChain, and dYdX are built on Cosmos.

How the Cosmos ecosystem works

Cosmos is an L1 network that provides full interoperability between blockchains based on it, as well as high scalability and flexibility. It utilizes a number of open-source tools such as the Cosmos SDK for blockchain development, the IBC cross-chain communication protocol, and the CometBFT consensus mechanism.

Cosmos SDK

An SDK or Software Development Kit is a set of tools for programming applications on specific platforms. Cosmos is an open-source SDK for easy and fast development of blockchains of different types.

The framework allows the creation of both classic public blockchains with a Proof-of-Stake (PoS) consensus algorithm and an alternative Proof-of-Authority (PoA) mechanism. The Cosmos SDK consists of ready-made modules that can be combined together to create blockchains for specific applications. Due to its open-source nature, new modules can be added by any programmer.

The tool allows teams to focus on building applications without bothering to design consensus, interoperability, or networking.

IBC

IBC or Inter-Blockchain Communication is a standard for interoperability bridges. It is used by hubs to communicate with each other. Every blockchain built on Cosmos initially includes IBC, and although they are all independent networks with different consensus mechanisms or assets, thanks to this standard they can exchange information and assets.

CometBFT

The consensus mechanism in Cosmos is programmable, but the platform provides an underlying protocol based on Tendermint, CometBFT.

Tendermint is a highly scalable algorithm developed by Cosmos co-founder Jae Kwon. The system is so-called Byzantine fault-tolerant, that is, it continues to work even in the presence of malicious participants or inactive nodes. Consensus requires a vote of at least 2/3 of the network.

Consensus with Tendermint is also based on Bonded-Proof-of-Stake (BPoS), where validators are chosen to issue and sign blocks based on staked or delegated tokens.

CometBFT provides instantaneous transaction execution at a low cost and eliminates the need for new blockchain creators to develop an entire consensus system.

ATOM tokenomics

ATOM is the Cosmos Hub native token that is compliant with the Interchain ICS-20 standard. The asset can be transferred between all blockchains in the ecosystem using the IBC protocol.

The token’s functions and usage scenarios are:

  • Payment of transaction fees;
  • Staking to join the network as a validator;
  • Payment of staking rewards;
  • Delegation to a validator to receive a portion of the rewards;
  • Voting in blockchain governance processes.

68% of ATOM was distributed during the initial coin offering (ICO) in 2017, with the rest going to the project’s investors. All tokens created are currently in circulation, with issuance not limited programmatically.

The payment of staking rewards with new tokens puts inflationary pressure on ATOM, but deflationary measures are also provided: burning and removing rewards.

Burning occurs in the context of governance processes. A minimum of 250 ATOM is required to submit a proposal. If the proposal is vetoed, the tokens are burned, i.e. removed from the available supply.

It is also possible to cancel the reward of a validator who has acted to the detriment of the network. This happens, for example, in the case of double spending or if the validator has been out of the network for a long time.

Cosmos 2.0

In September 2022, a new version of the Cosmos Hub was proposed, and prepared by members of the community. The proposal was rejected, but some initiatives included in the document have been put up for discussion, and some are in development.

Among them is an increase in the size of the treasury and liquid staking, which would benefit the token. In fact, ATOM holders will be able to use staked tokens throughout the Cosmos ecosystem. This stimulates ATOM staking and, in the long run, will change ATOM issuance from an inflationary to a deflationary model.

As of December 15, ATOM ranks 25th in the overall cryptocurrency ranking with a capitalization of over $3,25 billion and is trading at $11,11, having added 21,98% over the month.

Subscribe to Getblock Magazine and stay up to date with the latest news from the world of cryptocurrencies and the digital economy