Is Cosmos (ATOM) worth investing in?

Mon 20 Sep 2021 ▪ 19h35 ▪ 8 min de lecture - par James Taylor

Cosmos is a decentralised, scalable, ever-expanding network of interoperable blockchains powered by Tendermint Core. Since the beginning of 2021, Atom’s native token has grown from $6 to $27 – an increase of 300%. The project aims to create the “internet of blockchains”, i.e. a network of different blockchains able to interact with each other. Let’s discover what’s behind the project many consider the future of the blockchain!

Cosmos history

American programmer Jae Kwon is one of the project’s cofounders. Previously, he founded the iDoneThis service and collaborated with open source projects CoffeeScript and Scrample.io, which ultimately led to his current work on Tendermint. According to Jae, the idea of working on the blockchain came to him in 2013, but the technology still wasn’t developed enough, so Kwon put it off until later. After reading an article by MIT professors, Jae Kwon became the first person to apply Byzantine Fault Tolerance (BFT) research in a Proof of Stake (PoS) public blockchain context.

In 2014, Kwon founded Tendermint Inc and presented the project’s whitepaper. The following year, Ethan Buchman joined the company, and in the summer of 2016, Tendermint held its first round of financing, which allowed them to hire seven more people. In April 2017, the company held the Cosmos ICF, raising $16.8M in just 30 minutes.

Cosmos core protocol

Cosmos is powered by the Tendermint protocol and the BFT consensus algorithm. BFT stands for Byzantine Fault Tolerance protocol, one of the two main types of protocols used in blockchains. Tendermint is a PoS protocol.

Reference: Byzantine Fault Tolerance is a blockchain mechanism that allows a decentralised network to continue operating even if some of the nodes fail or act maliciously. No external source of trust is required for the network to function properly, so participants agree to follow the rules of a pre-established consensus.

In the Cosmos protocol, a transaction is confirmed after 2/3+1 signatures from validators are validated (the total number of signatures is equal to the total number of tokens locked in nodes).

Main elements of the Cosmos ecosystem

There are several main elements in the Cosmos ecosystem:

  • The Cosmos HUB;
  • The ATOM Token;
  • IBC (Inter-Blockchain Communication Protocol);
  • Cosmos SDK.

Cosmos HUB

The Cosmos Hub is the first of thousands of interconnected blockchains that will eventually comprise the Cosmos Network. Its main task is to record the total number of tokens in each zone (that’s what blockchains are called in the Cosmos ecosystem), allowing zones to exchange tokens directly.

ATOM

ATOM is Cosmos network’s native cryptocurrency. The smallest unit of ATOM is the uATOM or the micro ATOM, where 1 atom = 1,000,000 uATOM.

ATOM tokens are used in nodes for transaction validation (just like in other PoS protocols). Moreover, users can validate transactions independently (although this requires approximately $250,000 worth of ATOM tokens) or by transferring tokens to validator nodes, which raise their rating by increasing the number of tokens in their possession. There is a limited number of slots for validators in the Cosmos network. If the user does not manage to occupy one of them, they will not be able to stake tokens on their own; it’s better to transfer your tokens to validators and thus participate in staking. Having received tokens from users, nodes share part of their profit with them. The more tokens there are in the node, the greater the weight they have; therefore, they can validate more blocks and receive a greater reward. There is no fixed total supply of ATOMs, it increases each year by between 7% and 20% due to inflation.

Cosmos also introduces the concept of validator slots, meaning that only a limited number of nodes can become validators, and this number is now equal to 125. To get to 125th place, you need to have $250,000 worth of ATOM tokens (not necessarily your own money; most often these ATOM tokens are delegated by other users). In the future, this number of slots is to increase to 300. Validators charge a commission for aggregating tokens – just like mining pools in PoW protocols. It’s also worth mentioning that validators need a high-performance server that costs $10,000 or more to work. Thus, Cosmos isn’t a completely democratic system (neither is Ethereum 2.0, where you need to have 32 Eth to run your own node). Validators receive a reward proportionate to their participation in the 2/3 staking (due to the fact that, according to Cosmos’s rules, only 2/3 of the tokens participate in the staking). At the moment, Cosmos’s staking rewards are around 10% per year.

IBC

IBC (Inter-Blockchain Communication Protocol) is an interoperability protocol allowing to transfer tokens and other data from one zone to another without running into the scaling issues inherent to some of the largest blockchains today.

The IBC protocol is directly incompatible with Bitcoin’s and Ether’s PoW protocols (while the latter still works on the PoW protocol), but there is a Peg Zones solution. The Peg Zone is a bridge between Cosmos network zones to other blockchains. Created by the Cosmos team, this bridge is built on the basis of Peggy, a compatibility protocol between Tendermint and PoW blockchains.

Peggy is the solution Cosmos is planning to implement to achieve interoperability with other blockchains.

Cosmos SDK

Cosmos SDK is a framework for building blockchain applications based on the Tendermint consensus.

The Cosmos blockchain is quite interesting because you can actually build fully EVM (Ethereum Virtual Machine) compatible blockchains on the Cosmos SDK framework. Before Cosmos, developers always had to make sure their blockchain was compatible with Ethereum. However, in order to create your own blockchain on Cosmos, you need to have a set of validators, and this might be time-consuming and expensive. But the Cosmos project also has a more amateur-friendly solution called the Ethermint network – an Ethereum clone with a readily available set of validators.

Cosmos’s distinguishing feature

Interoperability is Cosmos’s main advantage. It allows you to interconnect different blockchains and transfer information from one chain to another. How does it work? It’s quite simple: let’s say we need to transfer tokens from blockchain A to blockchain B using the Cosmos IBS network. To do this, tokens are locked in blockchain A and created in blockchain B, so they can be used in the latter. Then, after being used in blockchain B, they are destroyed there and unlocked in A. That’s the principle of interoperability.

Atom token’s future

Since the beginning of the year, the token’s price has increased by 4.5 times, and it looks like it’s not going to stop there.

The project markets itself as the “internet of blockchains”, with more and more new projects joining it.

The project’s ecosystem comprises dozens of projects, including Binance Smart Chain. The full list of projects built on Cosmos can be found here (there are 253 of them now).

It’s yet unknown what the Atom token will be able to achieve, but I’m sure it’ll grow over time. On the other hand, Solana’s and Cardano’s recent success has drawn a lot of attention to the projects, so SOL and ADA also seem very attractive to investors.

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James Taylor

Trends are temporary. The blockchain isn’t a trend; it’s the future. I want to help as many people as possible understand it in a simple, clear and interesting way.

DISCLAIMER

Les propos et opinions exprimés dans cet article n'engagent que leur auteur, et ne doivent pas être considérés comme des conseils en investissement. Effectuez vos propres recherches avant toute décision d'investissement.

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