Cosmos
Dubbed the “Internet of Blockchains,” Cosmos is an ever expanding collection of unique blockchains all built on similar technology that can communicate, share data, and transact with one another seamlessly.
Overview
Built upon the principles of interoperability and customization, the Cosmos ecosystem comprises hundreds of different blockchains that are all able to link with each other and easily swap tokens between each other. Instead of scaling linearly (like monolithic chains such as Solana) or with modularity (like Ethereum by separating the execution layer and settlement layers), Cosmos scales by allowing different blockchains to communicate in a trust-minimized way. Each blockchain (called hub) can connect with different hubs in an archipelago of blockchains. Furthermore, each blockchain can have its own application-specific blockchains, or app-chains (called zones) to scale its hub.
Main concepts
Smart Contracts
Smart contracts are digital agreements that automatically enforce the rules when certain conditions are met. In the real world, if two people make a deal, they might need lawyers, paperwork, and a lot of time and money to make sure the deal is followed. With smart contracts, all of this can be done automatically. The code ensures that everyone sticks to the agreement, and if the conditions aren’t met, the contract doesn’t go through.
Smart contracts are simply computer programs that once deployed, the code of a smart contract cannot change. Unlike with traditional software, the only way to modify a smart contract is to deploy a new instance. The outcome of the execution of a smart contract is the same for everyone who runs it, given the context of the transaction that initiated its execution and the state of the Cosmos blockchain at the moment of execution. Since the rules are written in code on the blockchain, everyone involved can see exactly what the contract says, and no one can change it without everyone knowing. This makes smart contracts much cheaper, faster, and more secure than traditional legal contracts.
Within the Cosmos network, two notable tools facilitate smart contract functionality: CosmWasm and Ethermint. CosmWasm allows developers to write smart contracts in various program languages. On the other hand, Ethermint enables smart contracts written for Ethereum to be executed within the Cosmos network.
Smart contracts play a crucial role within the Cosmos ecosystem. They not only facilitate a wide range of decentralized use cases, such as decentralized finance and NFT, but also serve as a platform for communication and transactions between hubs within the Cosmos ecosystem.
Cosmos Hub
The Cosmos Hub is the first blockchain and the heart of the Cosmos network, connecting different blockchains (Cosmos zones), and ensuring network security. When Cosmos zones need to exchange data or assets with another blockchain, they do it through a Cosmos Hub, which facilitates smooth communication between these different zones. The Cosmos Hub also plays a key role in securing the network and managing governance. People who hold the Hub’s native cryptocurrency, called ATOM, can stake their tokens to help keep the network secure and participate in the network’s governance. While the native currency is ATOM on Cosmos Hub, zones can establish their own native currency and do not need to use ATOM.
Cosmos Zones (AppChains)
A decentralized application, or DApp, is an application that operates primarily or entirely on a decentralized network, with its business logic governed by smart contracts. This setup ensures that the backend is fully distributed and managed on a blockchain platform.
Cosmos’ appchains, or “zones”, take this concept further by offering specialized blockchains designed to excel at specific tasks. In other words, appchains are application-specific, standalone chains customized to suit the very specific needs of a dApp. Unlike the general-purpose blockchains sharing their ecosystem with various dApps, each appchain in the Cosmos ecosystem focuses on a particular application or use case, such as processing specific financial transactions, running a game, or managing data.
These appchains are custom-built using the Cosmos SDK, a toolkit that simplifies the creation of blockchains tailored to individual needs. Although these appchains are independent and operate under their own rules to optimize performance for their specific use case, they can still communicate and share information across the Cosmos network. This interoperability is made possible by the Inter-Blockchain Communication (IBC) protocol.
Cosmos’s interchain security model allows new appchains to tap into the security services of a more established blockchain, such as the Cosmos Hub. These appchains can utilize the validator set of the Cosmos Hub to secure their operations, gaining the advantage of its proven security and decentralization, thus benefit from the robust security of established networks without needing to build a validator set from scratch.
Cosmos SDK (Software Development Kit)
Cosmos is built using a modular open-source software stack called the Cosmos SDK, a toolkit for building application-specific blockchains from scratch. The SDK also enables these blockchains to connect with one another in the Cosmos ecosystem.
IBC – The Inter-Blockchain Communication protocol
Inter-Blockchain Communication (IBC) is the technology available within the Cosmos SDK that enables different blockchains in the Cosmos ecosystem to communicate with one another. Think of IBC as a messenger that allows blockchains to exchange information, such as transactions or data, even if they were developed independently and operate under different rules. IBC ensures that this cross-chain communication is accurate and secure. It uses verifiable proofs, which both blockchains can confirm, to make sure the data remains intact and untampered throughout the process.
While IBC was created within the Cosmos ecosystem, it’s not limited to Cosmos blockchains. Any blockchain that adopts the IBC protocol can connect and interact with others. This includes blockchains like Avalanche and Polkadot, which aren’t built on the Cosmos SDK but can still be integrated into the Cosmos network. By connecting these different blockchains, IBC expands the Cosmos ecosystem, pushing forward its vision of an “Internet of Blockchains,” where diverse blockchain architectures can share assets and data. The ease of integration and the level of interoperability with IBC can vary depending on a blockchain’s architecture and how well it aligns with IBC standards. This means that while IBC broadens the Cosmos ecosystem’s reach, the complexity of connecting different blockchains might differ based on their unique designs.
Gas
Fees on Cosmos compensate validators for the resources they use to process transactions and help reduce spam by making it costly to flood the network with transactions. On Cosmos, each chain defines its own gas fee structures for each specific chain they interact with. Some chains prioritize efficiency with low fees, while others focus on security with higher prices. Connecting the dots in the Cosmos ecosystem involves crossing bridges between chains. These inter-chain transactions typically incur an additional layer of fees depending on the bridge protocol used
Users can set the gas price they are willing to pay per unit of gas. Higher gas prices incentivize validators to prioritize and process transactions more quickly. Thus, gas prices on individual chains can fluctuate based on network demand.
Ignite/Tendermint consensus mechanism
The Cosmos Network uses a consensus mechanism called Ignite, or Tendermint Core consensus to ensure that all participating blockchains agree on the state of the network. Tendermint Core operates on a Proof-of-Stake (PoS) system in which validators (who are participants with a stake in the network) are chosen to validate transactions and create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral.
When a new block of transactions is proposed, validators vote on its validity. Tendermint Core requires more than two-thirds of validators to agree before a block is added to the blockchain. Even if some validators are not trustworthy or fail, the system can still function correctly and securely. One of the key features of Tendermint Core is its ability to achieve fast finality. Once a block is confirmed by the majority of validators, it is considered final and irreversible. This reduces the risk of forks or disagreements about the blockchain’s history, leading to a more stable and predictable network.
Tendermint Core is not just for Cosmos; it can be used by other blockchains as well. Its modular design allows developers to build customized blockchains that benefit from Tendermint’s efficient and secure consensus mechanism while focusing on their specific use cases.
How are transactions processed?
On Cosmos, a transaction is a set of instructions telling the network to perform a specific action, such as transferring funds or updating data. A user start by creating a transaction to interact with a blockchain application. This transaction includes messages that describe what the user want to do. Each message in the transaction must be signed using the user’s private key, akin to putting a signature on a document to confirm it is really from the user. Once signed, the transaction is sent to the Cosmos network. The transaction then gets added to a block, which is a bundle of transactions. The block, along with your transaction, is checked by validators through a process of consensus described above.
Tokenomics
ATOM is the native token of the Cosmos Hub, which is but one zone in the Cosmos ecosystem. Roughly speaking, ATOM functions like ETH in that it secures the Cosmos Hub and is used to pay for gas. Cosmos ATOM token has an unlimited supply.
Like on other PoS networks, ATOM coins can be staked in Cosmos Hub to secure the network and yield rewards. When validators verify transactions, they receive the paid ATOM fee as a reward. Users can also engage in staking, providing their tokens to validators to secure additional rewards.
In the Cosmos network, each chain operates with its own native gas token, which is essential for transaction fees and governance within that specific chain. While this independence is beneficial for scalability and customization, it inadvertently fragments the economic value across the ecosystem. The result is that while IBC facilitates communication and asset transfer between chains, the ATOM token does not necessarily capture the economic value generated across these chains. This fragmentation can lead to an uneven growth pattern within the ecosystem, where certain chains thrive independently of ATOM’s performance, potentially limiting the token’s ability to appreciate in value as the ecosystem expands.
Another shortcomings of the existing tokenomics was the inflationary issuance of ATOM, while incurring little value accrual to the token. Cosmos (ATOM) opеratеs as an inflationary tokеn, with a currеnt staking rеward ratе of around 17%. To address this, a new issuance model will gradually see the number of tokens minted over time decrease and eventually settle at an equilibrium of 300,000 ATOM per month. Two-thirds of the newly issued ATOM tokens will go towards the Cosmos treasury to support initiatives that increase adoption, growth and capitalization of the interchain. A portion of the transaction fees will also go towards the Cosmos treasury, thereby enabling a positive flywheel of treasury growth and token value growth fueling each other.
Governance
Governance plays a crucial role in shaping the long-term economic incentives within the Cosmos ecosystem, enabling decentralized decision-making across its networks. Cosmos blockchains, including the Cosmos Hub, typically feature on-chain governance mechanisms. These mechanisms empower token holders and validators to actively participate in the governance process, influencing the direction of their respective blockchains.
Governance proposals can cover a wide range of topics, including protocol upgrades, parameter adjustments, new dApp deployments, and community fund allocations. Token holders can vote on these proposals using their staked tokens, with decisions typically requiring a majority vote, often with a 66% threshold for approval. Each Cosmos-based blockchain operates its own governance system, which is distinct and tailored to its specific needs. Most chains have a native token that can be staked not only for rewards but also to participate in governance, ensuring that stakeholders have a say in the network’s evolution.
Ecosystem overview
Wallets
A crypto wallet is a digital tool that allows you to securely store, manage, and transact with your cryptocurrency holdings.
– Hot wallets are connected to the internet, making them convenient for frequent transactions and quick access to your funds. However, their online status makes them more susceptible to cyber threats. The leading hot wallet for Cosmos/IBC currently in use is Keplr.
– Cold wallets, or hardware wallets, are not connected to the internet, which makes them a much safer option for long-term storage of assets. They are typically used to store large amounts of cryptocurrency securely. Cold wallet integrations for the Cosmos wallets are available from Ledger.
Block explorers and analytics
Understanding what’s happening on the Cosmos blockchains can be made easier with the help of block explorers and analytics tools. Block explorers are web-based tools that allow users to view and search the transaction history, blocks, and other data on the Cosmos blockchains. They are essential for tracking transactions, verifying addresses, and exploring blockchain activity.
Cosmos has multiple block explorers that each support various Cosmos chains, with the largest being Mintscan. These explorers, like in other ecosystems, provide visibility into the activities and transactions occurring within the Cosmos Ecosystem. It allows users to view and track the progress of transactions across various IBC-connected blockchains built on the Cosmos SDK. In addition to Mintscan, there’s Ping.pub, ATOMScan, BigDipper, and many more.
Infrastructure projects
Cosmos is home to several prominent cross-chain infrastructure projects that play a pivotal role in enabling seamless interoperability across different blockchains. Because of IBC, there’s isn’t really any need for traditional bridges between Cosmos chains. However, there are still a number of bridging projects building in Cosmos that aim to bridge to non-IBC connected chains. These projects contribute to the vision of a connected, multi-chain ecosystem where assets, data, and applications can move freely between chains.
– Axelar is one of the most notable cross-chain infrastructure projects within the Cosmos ecosystem. It provides a universal protocol for cross-chain communication, allowing different blockchains to interoperate securely and efficiently. Axelar enables developers to build decentralized applications (dApps) that can interact with multiple chains, facilitating the movement of assets and information across different networks without compromising security or user experience. Axelar’s infrastructure supports the bridging of tokens, cross-chain swaps, and decentralized finance (DeFi) protocols, making it a key player in the growing interoperability landscape.
– Gravity Bridge facilitates the transfer of assets between Ethereum and Cosmos-based chains. It aims to create a frictionless experience for users by allowing them to move assets like ERC-20 tokens between Ethereum and the Cosmos network. Gravity Bridge leverages the security of the Cosmos Hub to ensure that asset transfers are secure and reliable, helping to bridge the gap between these two major blockchain ecosystems.
– Kava is a decentralized finance platform that also serves as a cross-chain bridge within the Cosmos ecosystem. It enables the transfer of assets and data between different blockchains, including Bitcoin, Ethereum, and Binance Chain, using the Cosmos SDK and IBC protocol. Kava’s infrastructure allows users to access a variety of financial services, such as lending and borrowing, across multiple chains, making it a key player in the cross-chain DeFi landscape.
– Sommelier is a cross-chain DeFi platform that focuses on providing automated portfolio management services. Built on Cosmos, it connects with Ethereum and other blockchains to enable users to optimize their DeFi investments across different networks. Sommelier utilizes IBC for cross-chain communication and supports smart contract interactions across various blockchains, enhancing liquidity management and yield optimization for DeFi users.
– Band Protocol is a cross-chain data oracle platform that operates within the Cosmos ecosystem. It aggregates and connects real-world data with smart contracts, allowing decentralized applications to access reliable and tamper-proof information from external sources. Band Protocol is designed to be highly scalable and interoperable, with the ability to connect to multiple blockchains through Cosmos IBC. This makes it a vital infrastructure component for DeFi and other dApps that require accurate external data.
– Originally developed on Ethereum, Chainlink has extended its services to the Cosmos ecosystem through IBC and other integration efforts. Chainlink provides decentralized oracle services that enable smart contracts on Cosmos-based blockchains to access off-chain data securely.
Notable innovations
Solana is a versatile blockchain with a growing ecosystem that supports a wide range of use cases. Here are some of the most notable areas where Solana is making an impact:
DeFi
The Cosmos ecosystem has grown to include a variety of innovative DeFi projects, each leveraging the unique features of the Cosmos network to deliver decentralized financial services. Here are some of the most notable DeFi projects within the Cosmos ecosystem:
– Osmosis is a leading decentralized exchange (DEX) in the Cosmos ecosystem, known for its innovative automated market maker (AMM) model. It allows users to swap tokens, provide liquidity, and earn rewards within the Cosmos ecosystem. Osmosis is designed with a focus on user experience, providing a seamless interface and offering customizable liquidity pools, which set it apart from other DEXs.
– Originally built on Ethereum, dYdX is a leading decentralized exchange (DEX) known for offering advanced trading features such as perpetual contracts, margin trading, and spot trading. Recently, dYdX announced its migration to the Cosmos ecosystem. This move underscores Cosmos’ appeal to projects seeking high scalability, customization, and independence from Ethereum’s congestion and gas fees. The dYdX Chain will leverage Cosmos’ app-chain model to create a tailored blockchain environment, focusing on performance and decentralization.
– Injective is a decentralized finance protocol that provides a platform for creating fully decentralized derivatives, futures, and spot markets. Injective’s integration with the Cosmos ecosystem allows it to benefit from the Inter-Blockchain Communication (IBC) protocol, enabling seamless asset transfers between different blockchains. With its focus on offering an order book model and low transaction fees, Injective is carving out a niche for traders looking for a robust and decentralized trading experience.
– Kava is a cross-chain DeFi platform that offers a suite of decentralized financial services, including stablecoins, lending, and borrowing. Kava’s interoperability allows it to connect with assets from various blockchains, making it a versatile platform within the Cosmos ecosystem. Its native stablecoin, USDX, is collateralized by crypto assets, offering users a stable medium of exchange within the ecosystem.
– Secret Network is a privacy-focused blockchain within the Cosmos ecosystem, enabling private and secure DeFi applications. It allows for the creation of “secret” contracts, which keep transaction data confidential. This privacy layer is crucial for users who require enhanced security and confidentiality in their DeFi transactions, setting Secret Network apart from other DeFi platforms.
– Gravity DEX is a decentralized exchange protocol on the Cosmos Hub that enables cross-chain trading of digital assets. It leverages the Inter-Blockchain Communication (IBC) protocol to facilitate seamless trading between different blockchains within the Cosmos ecosystem. Gravity DEX offers efficient price discovery and low slippage, making it a key player in the cross-chain DeFi space.
DePIN
Decentralized Physical Infrastructure Networks (DePIN) represent a fascinating intersection of blockchain technology and real-world infrastructure, enabling the creation and management of decentralized, incentivized networks for physical assets and services. The Cosmos ecosystem, with its modular architecture and focus on interoperability, is increasingly becoming a home for various DePIN projects that aim to decentralize the ownership and operation of physical infrastructure. The modularity of the Cosmos SDK allows these projects to build tailored blockchain solutions that precisely meet their needs. Each chain can be optimized for its specific use case and provide reliable performance without the interference of unrelated network activities. Meanwhile, the IBC protocol facilitates interoperability, allowing DePIN projects to interact seamlessly with other blockchains and access a broader range of assets and services, expanding the functionality and reach of DePIN networks.
– Akash Network is a decentralized cloud computing marketplace. It allows developers to lease computing resources from data centers and cloud providers in a decentralized manner, cutting costs and increasing the availability of computational power. Akash leverages the Cosmos SDK to offer a scalable, interoperable solution, making it easy for developers to deploy and manage applications across multiple blockchains.
– Althea is another notable DePIN project on Cosmos, focused on decentralized internet infrastructure. It enables communities to build their own decentralized ISPs, providing affordable and high-speed internet access. Althea’s use of the Cosmos SDK allows for customizable and efficient blockchain solutions, enabling community-owned and operated internet services that are both resilient and scalable.