Cosmos is an ecosystem of networks and tools for creating interoperable blockchains.
Its main chain Cosmos Hub acts as a central ledger for compatible blockchains called Zones.
Each Zone is highly customizable, allowing developers to design their own cryptocurrency, with custom block validation settings, and other features.
These Zones are created using the Cosmos SDK, which provides the basics needed for developing a Cosmos blockchain.
Cosmos SDK's default consensus layer, Tendermint Core, provides a validator-based consensus mechanism usable across multiple Cosmos blockchains. Each Zone can, however, choose precisely how its validators are selected.
For the Cosmos Hub mainnet, the blockchain picks 100 validators from the top set of nodes staking ATOM, the blockchain's utility coin.
Voting power is assigned to each validator based on the amount of ATOM staked. A leader validator then proposes new blocks for others to vote on.
Successful blocks provide a block reward given to the validator and shared with users who stake ATOM behind their chosen validator.
Apart from the Cosmos Hub's consensus mechanism, ATOM is also used to pay transaction fees and take part in governance votes. Validators must also take part in proposals or face sanctions.
Along with scalability, interoperability has always been a key problem to solve in the blockchain world. After more than a decade since the first Bitcoin blockchain, we now have a variety of options when it comes to interoperable blockchain networks.
Cosmos is perhaps one of the most popular choices out there, along with its Tendermint consensus mechanism and open-source developer tools.
Let's explore precisely why Cosmos has stayed a popular choice and how it allows blockchains to work together easily.
How does Cosmos (ATOM) work?
Cosmos is a project that concentrates on creating a network of different blockchains that are interoperable. Founded in 2014 by Ethan Buchman and Jae Kwon, the Cosmos network consists of a Proof of Stake blockchain mainnet and customized blockchains known as Zones.
The main chain, Cosmos Hub, transfers assets and data between the connected Zones and provides a shared layer of security. These all work together using Tendermint, Cosmos's custom consensus mechanism, and a general application interface. Fees in Cosmos are payable in the network's crypto ATOM.
The Cosmos network is split into three different layers:
1. Networking - Allows transaction confirmations and other consensus messages to communicate with hub blockchains.
2. Application - Updates the network on the new state of transactions and balances.
3. Consensus - Organizes nodes in how they agree on adding new transactions.
These three layers are combined through a collection of open-source tools and applications.
For example, Tendermint packages the networking and consensus layers into a ready-to-use engine. Blockchain developers using Tendermint only need to focus on the application layer, saving them time and resources.
What is Cosmos Hub?
Cosmos Hub is Cosmos's primary blockchain that connects other customized blockchains known as Zones. It does this by keeping track of the state of each Zone through the Inter-Blockchain Communication Protocol (IBCP).
Through this protocol, information can easily travel between any Zone connected to Cosmos Hub.
Cosmos Hub acts as a central ledger for the ecosystem where Zones exchange IBC messages.
IBC uses two kinds of transactions: IBCBlockCommitTx and an IBCPacketTx. The first communicates the most recent block's hash in any given Zone.
The second allows a Zone to prove that a packet of information is legitimate and was published by the sender's application.
Let's imagine two DApps on two different Zones want to communicate with each other.
To do this, IBC messages are sent to Cosmos Hub, which records the interaction. Messages are relayed through Cosmos Hub, and each Zone also records the outcomes of their interactions on their own blockchains.
There is then evidence over three separate blockchains of the activity. This ability for blockchains to interact with each other has given Cosmos the nickname "The Internet of Blockchains."
What are Cosmos Zones?
Cosmos's custom blockchains, known as Zones, are used for a wide variety of different applications. The term is an alternative name for sidechains you might already be familiar with from blockchain projects like Polygon.
Each Zone can authenticate its own transactions, mint tokens, and implement custom developments.
Even with these differences, all Zones are still interactable with any other Zone in the Cosmos system, as long as they have permission to do so.
Zones use a Hub & Spoke architecture where Hubs act like routers for different Zones.
Cosmos Hub is one of the most popular, but other Hubs also exist. Anyone can create a Hub blockchain or Zone as the network is entirely permissionless.
But, each Zone or Hub has the power to refuse other blockchains to connect to them.
By connecting to a Hub, a blockchain can connect to any Zone connected to the same Hub. Hubs can also connect to each other.
Also, anyone can fork the Cosmos Hub and launch their own version, just as Binance Chain did in 2019.
What is Cosmos SDK?
Cosmos SDK is an open-source software development kit that lets users create custom blockchains.
Cosmos SDK's default consensus protocol is Tendermint Core, but there's a variety of different pre-built modules you can use. Using Cosmos SDK simplifies the process considerably and offers all the standards you would expect when building a blockchain.
It's highly customizable with plug-ins, so users can design new features and traits. Both public Proof of Stake blockchains and permissioned Proof of Authority blockchains can be made with Cosmos SDK.
Binance Chain is just one example of a blockchain made using Cosmos SDK.
What is ATOM?
ATOM is Cosmos's native coin that has three primary use cases:
1. Users must pay their transaction fees using ATOM, proportional to the computational power required.
2. ATOM is also used to take part in Cosmos Hub's governance system. The more ATOM you hold, the more voting power you have in platform decisions.
3. The coin is staked behind validators for rewards in taking part in the consensus algorithm.
ATOM was distributed via an Initial Coin Offering (ICO), and it has no supply limit, making it an inflationary coin.
This is due to Tendermint Core rewarding stakers with freshly minted ATOM. The inflation rate adjusts in real-time based on the amount staked and the number of stakers.
What is Tendermint?
Tendermint is a protocol that provides both a blockchain consensus mechanism (Tendermint Core) and a tool (Tendermint ABCI) that allows applications to connect to Tendermint Core consensus engines.
Tendermint Core is Cosmos's default consensus protocol that is also Byzantine Fault Tolerant (BFT).
BFT simply means that confirming new transactions can still be done with non-cooperating or even malicious participants.
With Tendermint Core, validators run nodes that maintain a copy of the blockchain's data.
Not every full node is a validator, as there is a limit of 100 validators on Cosmos Hub. Validators who confirm transactions vote on new blocks to be added to the chain.
Validators gain their position by staking ATOM as a node.
The top 100 nodes by staking value then become validators with voting power proportional to the ATOM staked.
Users can also delegate their ATOM behind validators in return for part of the block reward.
This mechanism incentivizes validators to behave as users can easily stake their ATOM behind more reliable options.
To add new blocks, a set of 100 validators reach a consensus on each block via voting. Voting takes place in rounds based on block proposals from a leader.
Why is Tendermint important?
Tendermint (BFT) has proved popular due to its:
1. Suitability for public and private blockchains. Tendermint (BFT) deals only with the networking and consensus layers of Cosmos blockchains. It outlines how validators agree on transactions and share information, but developers can still customize the application layer. Each Zone can choose how its validators are selected and if the blockchain is public or permissioned.
2. High performance. Tendermint (BFT) has a block time of around 1 second and can also process thousands of transactions per second.
3. Immediate transaction finality. Transactions are confirmed as soon as a block is created (as long as the majority of the network validators are honest). Compared to blockchains like Ethereum (ETH) or Bitcoin (BTC), Cosmos users can confidently accept transactions with fewer block confirmations.
4. Security. If the blockchain does fork creating two different histories of transactions, it's easy to hold accountability and secure a reason as to why it happened.
Cosmos was one of the first solutions available for creating interoperable blockchains and has remained a popular option.
Tendermint (BFT) and Cosmos SDK are still both powerful tools that are used in the creation of blockchains today.
However, since 2017 we've seen more focus on sidechains that work with high-traffic blockchains like Ethereum.
Whether this trend will continue is yet to be seen.
Nevertheless, Cosmos has plans to expand on current trends including NFTs, DeFi collateralization, and interchain staking, giving it the chance to ride their popularity into the future.