What is Cosmos (ATOM)?

What is Cosmos?

Cosmos is a decentralised, scalable and interoperable ecosystem of interconnected, independent blockchains running on the Tendermint Core protocol. It rests on a Byzantine Fault Tolerant Byzantine Fault Tolerant /BFT consensus mechanism used to scale public PoS blockchains.

Cosmos aims to build an “internet of blockchains”: a network of blockchains in which participants can interact in a decentralised manner.

Who created Cosmos, and when?

Cosmos was created by the American programmer and entrepreneur Jae Kwon. He graduated from Cornell University in 2005 with a bachelor’s degree in computer science, then worked in Silicon Valley at Alexa and Yelp. 

Kwon co-founded the service iDoneThis and contributed to open-source projects such as CoffeeScript (a JavaScript compiler/transpiler) and Scramble.io (an end-to-end encrypted email system).

According to Kwon, his involvement in these “projects inspired by the spirit of cypherpunk and hacking” led him to work on Tendermint:

“Around 2013 I decided to work on blockchain and to build a Proof-of-Stake (PoS) system. At the time developers did not know how to accomplish such a task, so I postponed it for the future and started working at a cryptocurrency exchange,” Kwon said.

Kwon came across roughly a hundred academic papers dating back to 1988. Among them was a paper titled “Consensus in the Presence of Partial Synchrony”, written by MIT professors Cynthia Dwork and Nancy Lynch together with Larry Stockmeyer of IBM’s Almaden Research Center [Consensus in the Presence of Partial Synchrony].

The authors presented results on classical BFT and all the components needed to build a PoS system. Working from those insights, Kwon conceived a PoS-based BFT protocol capable of scaling to hundreds of nodes in a decentralised environment.

This yielded the concept of Tendermint—the first Proof-of-Stake consensus algorithm built using Practical Byzantine Fault Tolerance (PBFT), proposed in 1999 by MIT researchers Barbara Liskov and Miguel Castro proposed.

“At the time, Bitcoin as a global currency caused us serious concern — mainly because of its extraordinary energy consumption. So we launched Tendermint to create a more environmentally safe cryptocurrency,” Kwon said of the early period of Cosmos’s development.

In 2014 Kwon founded the software company Tendermint Inc (All in Bits Inc), headquartered in California. The team published the project’s white paper the same year.

In 2015 developer Ethan Buchman, a graduate of the University of Guelph who was then working at Eris Industries (later renamed Monax), joined the project. Kwon and Buchman founded the non-profit Interchain Foundation (ICF), becoming president and vice-president respectively. 

In the summer of 2016 Tendermint held its first funding round. The influx of capital increased the developer headcount to seven. 

The team launched Ethermind on Tendermint, as well as Basecoin, a framework for creating cryptocurrencies in the Go (Golang) programming language that allows plugins with all manner of additional features. Using it, developers began building the first iteration of Cosmos Hub.

Cosmos’s ICO took place on April 6th 2017, raising $17.3m in ETH, BTC and US dollars. Approximately 75% of the available token supply was sold; 5% was reserved for seed investors; All in Bits Inc and the Interchain Foundation each received 10%. 

Later, in an interview with ForkLog, Ethan Buchman clarified that the organisers did not position the public fundraise as an ICO, as they were targeting not those “who would buy the token for financial gain, but those who were genuinely interested in the project’s foundational technology, vision and values”.

In 2017 the Interchain Foundation, which promotes technologies and decentralised applications in the Cosmos ecosystem, signed a contract with All in Bits Inc to develop the Cosmos Network.

In February 2018 Cosmos joined the Ethereum Community Fund (ECF) — an initiative to create a dedicated fund to accelerate blockchain infrastructure and dapps. 
In March 2019 the Tendermint Inc team announced the launch of Cosmos Hub — the first in a series of Proof-of-Stake blockchains intended as parts of the Cosmos ecosystem.

What is the base protocol of Cosmos?

Cosmos runs on the Tendermint Core protocol, which uses Tendermint — a BFT consensus algorithm. 

A consensus algorithm is how nodes in a distributed system agree on the state of the system. In public blockchains only Byzantine-fault-tolerant algorithms are viable. Within that class there are two families of consensus protocols: classical consensus protocols, such as PBFT, and Nakamoto consensus, such as Proof-of-Work. 

Tendermint builds on classical BFT consensus and provides absolute transaction finality, deterministic block production and an assumption of partial synchrony.

Finality 

Unlike Proof-of-Work blockchains, blocks in Tendermint are finalised as soon as they receive 2/3 + 1 validator signatures — they cannot be reversed or altered. 

In Nakamoto-based networks such as Bitcoin, transactions are typically considered final after six confirmations, after which the probability of reversal via a chain reorganisation is extremely small. 

However, the number of confirmations depends on the attacker’s mining power. In recent years this has often been used to carry out 51% attacks (double-spends), whose organisers stole millions of dollars in various cryptocurrencies. Using a consensus algorithm with deterministic finality (such as Tendermint), one can guarantee transaction irreversibility once a block is finalised. 

Safety over liveness 

When a PoW network splits into two chains, it eventually reorganises, choosing the longest chain as canonical and rejecting transactions from the other chain. In Tendermint, however, when a partition occurs, the protocol opts to halt progress until more than 2/3 of validators can agree again. This choice is meant to ensure there is always “one source of truth” and the blockchain remains consistent. 

This makes Tendermint less brisk to finalise a chain than some other PoS consensuses, but it removes uncertainty about users’ transactions — if a block containing a transaction has been finalised, the transaction will never be rolled back (without changing the algorithm’s logic), and if the network is partitioned or validators are offline, no transaction will be finalised. 

Partial synchrony 

A synchronous network has a known upper bound on message delivery time. In Bitcoin the interval is ten minutes, which imposes an artificial delay across the network. 

Tendermint assumes partial synchrony — no fixed time parameter is required for the blockchain to make progress. The bottleneck for progress is the real network speed, not an artificial delay set by the protocol. As a result Tendermint is faster than most other Proof-of-Work protocols.

What are the key components of the Cosmos ecosystem?

Marketed as “blockchain 3.0”, Cosmos comprises three key components: 

Cosmos Hub

Cosmos Hub is the first blockchain launched within the Cosmos Network and the central element of the ecosystem. Its main task is to track the total number of tokens in each zone (blockchain) in the ecosystem, allowing zones to send tokens directly to one another. 

Cosmos Hub uses the Tendermint consensus algorithm, under which validators stake ATOM tokens. 

ATOM

ATOM is the native asset of the Cosmos Hub, divisible into 1m micro-ATOM (uATOM).

The ATOM token serves as a work token: users can stake on their own or delegate tokens to a validator, thereby raising its rank and receiving a share of the rewards.

Depending on the amount of aggregated tokens, a validator has proportional voting power, which allows it to create blocks and receive rewards in the form of newly minted ATOM (7% to 20% of total supply is issued each year). 

Validators pass on to delegators a portion of the block reward (net of the network tax). As in PoW networks, validators charge a commission for aggregating “voting power”. A validator must attest honestly, take part in governance and run a high-performance server, the operation of which costs from $10,000 (and will rise as the blockchain grows). A validator unable to meet these requirements is slashed and loses its status. Validator architecture can vary, which also affects security levels. As a rule, the higher the architecture’s security, the higher its build and maintenance cost. To enter the active set, a validator must clear a threshold. At the time of writing, the validator in 125th place had just under $250,000 delegated. Thus, without at least that amount — either self-bonded or delegated — a validator will not make the active set.

During the first year after mainnet launch only 125 validator slots were available; over the following ten years this number is planned to rise to 300. Network inflation ranges from a minimum of 7% to a maximum of 20%. The block reward adjusts towards a target staking participation of two-thirds (66.66%). Tokens must remain staked for 21 days so that holders cannot sell them immediately after staking. 

The network tax flows into a reserve pool, the funds from which are used to improve the security of the Cosmos Network. 

The project may also issue or airdrop a secondary token, Photon, intended solely for transaction fees. Under the plan, validators and stakers would mint Photons. Photon parameters will be set by a vote. 

IBC (Inter-Blockchain Communication) Protocol

IBC (Inter-Blockchain Communication) Protocol is a standardised interoperability protocol that cryptographically proves a message was sent from one zone to another.

IBC is designed to transmit not only tokens but arbitrary data. This enables not just decentralised exchanges and automated market-makers, but also any decentralised applications in fields such as marketing and logistics.

The Cosmos architecture includes two classes of blockchains: hubs and zones.

Zones are blockchains with fast transaction finality; hubs are blockchains that connect zones together. The difference is purely one of social consensus. A zone (blockchain) is a blockchain that runs the Tendermint consensus algorithm. In effect, a hub (a centre connecting several blockchains) is the same as a zone. The distinction is conventional and reflects strategic planning for connecting one blockchain to others via IBC.

IBC locks a certain amount of ATOM in the first blockchain (zone), then sends proof and its validation to the second zone, after which the previously locked tokens are released on the second blockchain. This simplifies issuing and creating tokens that represent assets on other blockchains. 

The protocol is compatible with blockchains where transactions are confirmed instantly or near-instantly. With finality guarantees, achieving blockchain interoperability is straightforward: once a transaction of a given type is finalised on both blockchains, it can be assumed the transaction was sent from one chain to the other.

Bitcoin and Ethereum, which use PoW, are not directly compatible with IBC; however, these and other blockchains lacking fast finality can still be used within IBC via proxy chains called Peg Zones. They establish a finality threshold of 100 blocks, passage of which serves as a guarantee that a transaction is irreversible. 

Peg Zones rely on Peggy, a Cosmos-built interoperability protocol between Tendermint blockchains and PoW systems. Upon reaching the finality threshold, the transaction is assumed to be finalised. This state is then relayed back into Cosmos’s ecosystem of “pseudo-finality” via Peg Zones. 

The first Peg Zone for Ethereum was launched in 2018. Since then other blockchains, such as Loom, have announced compatibility with Cosmos Hub. With IBC and various Peggy-like schemes, Cosmos aims to achieve interoperability across all existing blockchains.

Cosmos SDK

Cosmos SDK is a framework that lets developers build their own customised blockchains using the Tendermint consensus algorithm. 

Previously developers had two options — write a blockchain from scratch or build it on Ethereum or one of its variants. Building on Ethereum is relatively simple — one can plug into Ethereum’s networking and consensus layers and build on the EVM — but developers must sacrifice customisation. 

Addressing this, Cosmos SDK allows teams to build blockchain systems without worrying about the consensus and networking layers, focusing instead on application logic. 

Building a standalone blockchain requires a set of validators, which is not feasible for hobbyist dapp developers. For them, deploying a contract on Ethereum is simpler and faster. Acknowledging this, the Cosmos team built an Ethereum clone — Ethermint — where a validator set is available and developers can use their Ethereum code without worrying about customisation.

How is Cosmos developing?

• In May 2019 the Tendermint team working on Cosmos reported a successful CosmosSDK update following the discovery of a critical vulnerability.

• In January 2020 a company called Informal Systems spun out of the Interchain Foundation, which promotes technologies and decentralised applications in the Cosmos ecosystem.

• Amid internal conflict in February 2020, one of the key directors of the company developing Cosmos — Tendermint Labs director Zaki Manian — left his post, but continued to work on the Cosmos blockchain ecosystem. Developers formed several independent teams, ceasing to collaborate with Tendermint.

• In February 2021 China’s Blockchain-based Service Network (BSN) added support for Cosmos to the localised version of the network. Through the OPB initiative, developers can build decentralised applications on the local BSN in accordance with Chinese regulations.

• In March 2021 the interoperability protocol IBC launched. The project also announced a decentralised exchange called Gravity. 

• In March 2021 the Tendermint project announced a $20m fund to back promising projects on the Cosmos blockchain. Denominated in ATOM and IRIS, Tendermint Ventures would be the largest fund in the Cosmos ecosystem.

• In April 2021 Plasm Network and Secret Network, built on Polkadot and Cosmos respectively, launched the first iteration of a bridge. 
• Binance DEX, FOAM and Sentinel run blockchains based on Tendermint. Other projects, such as IRIS Network, build services and support infrastructure related to the Cosmos ecosystem. A full list of projects developing in the ecosystem can be found here.