Talking of Interoperability... What is Cosmos?
Everything you should know, from definition, to solutions provided and more.
At Crypto Explained, we are on the mission of making crypto easy for everyone.
If you appreciate our effort, don’t forget to subscribe to receive our weekly Newsletter directly in your email! I’m grateful for the support!
I started this year writing about what Interoperability is in the crypto world, and why it matters.
In a nutshell, as more blockchains are being created in this space, they behave like isolated ecosystems in their own bubble, and present a rather inconvenient user experience, as well as a significant scaling challenge… (to read the full article, click here)
Now, to achieve interoperability basically means that information and assets can flow freely among different blockchains.
At this point, there are some technical solutions, but it’s more on a 1-1 basis, and as you can imagine, it is limiting.
In terms of holistic solutions, there are not many players in this field. I believe this is because of a combination of:
most projects are focused on a more specific use case/industry (such as finance, NFT, etc),
even when people get into the core business of blockchain platforms, they are looking at more pressing issues such as getting traction and/or scalability, and lastly,
crypto space only recently expanded to the point where interoperability presents a big enough challenge after we got some consistent mainstream adoption.
So only few visionaries had the patience and courage to step aside and build for the battles of tomorrow, choosing to set themselves apart from the rest, working to solve the very critical problem of interoperability, with the goal of becoming the Internet of Blockchain, which means the network where all other blockchains operate on, much like how all websites, digital applications, and technology companies are built on the Internet.
The best-known player here is Polkadot. We covered them extensively few months back(full article here).Today, we’ll speak about the underdog: Cosmos.
What is Cosmos?
Cosmos is an ecosystem of blockchains that can scale and interoperate with each other.
Let’s look at some of the key facts….
Cosmos is a Proof of Stake blockchain in itself.
Its whitepaper was first published in 2016, by cofounders Jae Kwon and Ethan Buchman.
The software company behind Cosmos is Tendermint Inc, which is also founded by Jae Kwon back in 2014.
Cosmos was officially launched in March 2019, when its Mainnet, the Cosmos Hub, went live.
ATOM is the native coin, currently ranking within the top 20 cryptocurrencies by market cap.
What makes it so special?
To give you an idea, some of the most well-known blockchains in the industry are built using Cosmos, including Binance Chain, crypto.com, Terra.
Impressive, no?
Now that we established this, let’s continue.
The end goal is to create an Internet of Blockchains: a network of blockchains able to communicate with each other in a decentralized way.
This is a mouthful, so let’s break down this master plan in different steps, and I’ll try to explain how these milestones are achieved without getting too technical, so bear with me.
There are 3 main steps, that come together as Lego building blocks.
How is Cosmos trying to build the Internet of Blockchains?
Step 1 - Making blockchains powerful and easy to develop.
Blockchains have different layers: Networking, Consensus, and Application. Up until now, building a blockchain required you to build all 3 of these layers, which you guessed it, it’s a tough job.
Enters Cosmos.
The solution they went for has 3 main components:
1. Tendermint BFT
This basically means that they packaged the Networking and Consensus layers together into a generic engine, so if you want to build your own blockchain, you only need to focus on the Application layer, instead of all 3 of them.
Think of it like buying the premade pizza dough. Instead of doing it from scratch which is a hell lot of work, you buy the premade dough, and you can add whatever toppings you want that best suit your preferences.
2. Cosmos SDK (Software Development Kit)
Well, now that you have your pizza dough, you wanna pick and choose what toppings you want to add.
Cosmos SDK helps you do that. It’s basically a framework that offers different “module templates” that developers can easily spin up into their specific use cases without having to code each bit from scratch.
3. Application Blockchain Interface (ABCI)
Following the pizza analogy… to ensure your toppings are nicely held on the dough, you need some good sauce holding them together.
Well, ABCI is that socket protocol that connects the pizza dough (Tenderming BFT) with the toppings (Cosmos SDK). What’s important is this protocol can be wrapped in a number of the main programming languages such as Java, C++, allowing developers to choose their language of preference.
Step 2 - Enabling Interoperability within Blockchains
Now that everyone can build their own blockchains, how do we make sure they are interoperable among each other?
Again, 3 things you should know:
1. Inter-Blockchain Communication (IBC)
IBC is the glue that holds everything together. It is a protocol that allows different blockchains to transfer information and assets to each other, which means that different applications and validator sets are interoperable.
This giant milestone was achieved in April 2021.
2. Hubs and Zones
Connecting these blockchains on a 1-1 basis is a bit hard to scale. Let’s say if we have 100 blockchains, and each needs to maintain an IBC connection with every other, that is 4,950 connections. Not fun.
To solve this, we have the model of Hubs and Zones:
Zones are just individual blockchains,
Hubs are blockchains specifically designed to connect Zones.
This way, when a Zone connects to a Hub, it automatically has access to all the other Zones connected to that particular Hub, so the number of IBC connections needed reduces drastically.
Cosmos itself is actually a Hub, and of course, it is the first Hub.
3. Peg-Zones
Now, IBC can connect Tendermint based blockchains. So how does it solve for the connection of those other blockchains?
The solution is called Peg-Zone, which is essentially a blockchain in itself that tracks the state of another blockchain: it works because in itself it provides the compatibility required to connect with IBC, therefore bridging the “external” blockchain to the rest of the ecosystem on IBC.
Step 3 - Scaling applications to millions of users
Now that we have a bunch of easy to create blockchains that can connect with each other, there is the question of how to make this scalable.
Cosmos has a dual approach:
Vertical Scalability: this refers to the processing capacity of a blockchain in itself, and technically by adopting the Tendermint BFT, Cosmos uses a consensus algorithm that optimizes for scale, allowing thousands of transactions to be processed per second.
Horizontal Scalability: as optimized as the vertical scaling can be, at one point, a single chain will inevitably run into a limit. Therefore, the solution proposed is to scale sideways (or horizontally), adopting a multichain architecture. This sounds easy but it’s a highly complex subject, a bit out of the scope of the article.
What are the benefits offered by the Cosmos?
Let’s sum up the main benefits…
It massively reduces the development time of a blockchain.
Scalability: Tendermint BFT is designed to handle thousands of transactions per second.
Usability: Cosmos introduces a wide level of flexibility with this model. When you allow others to build their own blockchain, it can be adapted to different use cases and applications, for private or public blockchains, etc.
Sovereignty: by allowing the developers to build their own blockchains, they by definition are able to maintain the sovereignty and design the governance mechanism on their own terms.
Security: the acronym “BFT” in the name “Tendermint BFT” means Byzantine Fault Tolerant, which is a consensus algorithm known for being highly secure, capable of managing up to one-third of faulty or corrupt actors in the system.
My Final Considerations
Polkadot vs Cosmos
If you read my article about Polkadot, you might have found a lot of similarities between them. This is not a suprirse, as both are competitors trying to solve for the same problem.
Even though Polkadot has a much larger number of developers and community, as well as a larger market cap, I do think Cosmos is underrated at this point.
Its lower market cap can represent more growth potential as well
Cosmos Hub & ATOM’s utility
It is important to call out though, that it seems that the Cosmos team has been more focused on building the core infrastructure to enable the interoperable ecosystem.
This means that even though there are some huge names like Binance Chain, Terra and crypto.com built using Cosmos, ATOM as a cryptocurrency in itself has had a limited utility so far.
This is not really a negative thing per se, but it does have an impact on the ATOM price.
After the successful launch of IBC during 2021 though, the Cosmos team is focusing on expanding Cosmos Hub’s utility, such as launching the Gravity DEX (decentralized exchange) that should positively increase the ATOM coin’s utility.
So definitely more interesting updates to come. Keep an eye on Cosmos roadmap!
Thanks for making it this far. If you enjoyed it, make sure to like and share so more people can benefit from it! And of course, don’t forget to subscribe if you haven’t done so yet!