A Beginner’s Guide to the Cosmos Ecosystem

Introduction

With numerous cryptocurrencies and decentralized finances emerging across different platforms, interoperability has become a major narrative in the blockchain industry. In simple words, it has become important so that these blockchains communicate with each other. The Cosmos Network and the ATOM token have made this possible. Just as its team defines it, the Cosmos ecosystem is “an Internet of blockchains”.

In other words, this ecosystem provides developers the ability to build and deploy custom interoperable blockchains. It was launched in 2014 as a product of the Tendermint Company. The idea behind building Cosmos was similar to many other new projects at that time, which was addressing some of the problems of Bitcoin’s proof-of-work algorithm, limited scripting language, and lack of flexibility.

With an ICO in 2017, the project raised $17 million, and in 2019 the Cosmos mainnet went live.

This article explores the various elements consisting of the Cosmos Network and how Cosmos has made it simple to create Dapps. We’ll also dive deeper into some of the successful projects to come from the Cosmos blockchains.

What is the Cosmos Network?

The Cosmos Network comprises a decentralized ecosystem consisting of independent yet interoperable blockchains. However, it is not restricted to just the blockchains with Cosmos. The main objective of the Cosmos blockchain is to connect other blockchains by expanding their functionalities and improving their efficiency.

To date, more than 240 applications have been built on the Cosmos mainnet. The main categories of applications include finance, infrastructure, privacy, and social interactions.

Structurally, the network consists of interconnected blockchains running on the Tendermint Core – known as “zones”. To secure these zones, a high-performance, consistent, PBFT-like consensus engine is employed wherein strict fork-accountability guarantees hold over the behavior of malicious actors.  Created with stability in mind, the Cosmos Network allows developers to create their own interoperable blockchain in a simple and easy-to-follow format.

Layers of a Cosmos Blockchain

From an architecture standpoint, each cosmos blockchain is divided into three conceptual layers:

• Application layer: Responsible for updating the state of transactions.
• Networking layer: Responsible for the movement of transactions and consensus-related messages.
• Consensus layer: A medium for nodes to agree on the current state of the system.

Bottom Layer: Cosmos Blockchain & Tendermint BFT Consensus

The first or the bottom-most layer of the Cosmos Network is the consensus engine. It powers the Proof of Stake algorithm and is known as Tendermint BFT (Byzantine Fault Tolerance). This layer holds responsibility for all the transactions and consensus-related messages within the network.

In Tendermint, nodes go through a multi-round voting process first before coming to a consensus on the contents of a block. If two-thirds of those nodes decide on a block, then the state transition logic is run which gives instant finality. 

Tendermint BFT is capable of handling thousands of transactions per second (depending on the number of validators). However, just using Tendermint consensus doesn’t mean the developers can connect to other chains to the cosmos ecosystem. They would need to fork their code to implement Inter-Blockchain Communication (IBC) protocol to allow interoperability. 

Tendermint BFT is a ‘generic consensus mechanism’ which signifies that any developer building within the Cosmos blockchain ecosystem can use it.  This removes the need for developers to add protocol layers to run their application and gives them more time to focus on building the application itself.

Inter-Blockchain Communication (IBC)

IBC is the main breakthrough innovation of the Cosmos Ecosystem, brought in by the Stargate upgrade. It is the one tool that fulfills the vision behind the entire Cosmos Ecosystem – connecting blockchains with each other. 

IBC is a reliable and secure protocol that handles reliable transport, authentication and ordering of data across different sovereign blockchains. It can be utilized by any app that builds upon reliable and secure inter-module communication. For example, cross-chain transfer, atomic swaps, multi-chain smart contracts, data and code sharing.

Just like the simplicity and flexibility of TCP/IP allowed standard internet communication, the unique aspect of IBC is separating the application layer from the transport layer. The IBC protocol defines how data is sent and acknowledged across blockchains, however, it doesn’t define what that data is or how it is structured.

IBC is one step apart from any other interoperability solution as it does not require any other standardization in the application layer. Adding new layers will ultimately add a layer of politics which would decrease the diversity of blockchain architecture in the interoperable network.

Any distributed ledger that supports IBC can independently initiate a connection to another IBC supporting ledger. Once the connection is complete, a channel of communication gets created between the two ledgers, through which IBC packets containing arbitrary data can travel back and forth.

Second Layer: Cosmos SDK (Software Development Kit) 

The second, and the most active layer, is the application layer. Cosmos has its own SDK for developers, for the effortless development of new blockchains within the Cosmos ecosystem.

Cosmos SDK enables developers to deploy interoperable blockchains in 3 simple steps: 

• Writing custom blockchain using prebuilt templates and/or custom modules.
• Launching blockchain on the testnet to collect feedback, adding the opportunity to enhance the application before launch.
  
• Connect the blockchain via IBC (inter-blockchain communication) protocol within the Cosmos Network to increase liquidity and adoption of the application 

The Cosmos SDK makes it easy for developers to translate popular programming languages like C++ and Java into a Cosmos-friendly language. This lowers the barriers for developers and allows them to use a modular framework to quickly deploy new custom blockchains.

Modular Cosmos Hub 

The Modular Cosmos Hub is the key behind the interoperability of blockchains. It helps connect PoS and PoW blockchains. The peg-zone is where all transactional information and swaps are performed. These act as a middle blockchain between the two connecting chains and help in monitoring the state of other blockchains.

To transfer assets between two different chains IBC is used. It is a reliable, inter-module communication protocol that helps establish finality between two chains. 

Cosmos ATOM Token

The native crypto token of the Cosmos ecosystem is ATOM. It is worth noting that ATOM is not used across the entire blockchain ecosystem. The ATOM token’s use case is specific only to the Cosmos Hub. The several other hubs and zones (chains) within the network use their individual tokens and tokenomic formats.

ATOM is used to pay fees in the Cosmos Hub for cross-chain swaps. This fee depends on the amount of computational power required to complete the transaction. The fees need not be paid in ATOM necessarily as users may choose to pay with other tokens.

The price of ATOM token increases rapidly, meaning it is hyperinflationary with incentives for staking to secure the Cosmos Hub. Stakers receive a fraction of fees in the various currencies proportionate to the number of ATOM tokens staked.

Cosmos Ecosystem Projects

Kava 

Kava has been created using the Cosmos SDK. It is the first cross-chain Defi platform, allowing interoperable borrowing, lending, and other financial services for a range of cryptocurrencies.

Kava is a non-proprietary protocol, which allows developers to seamlessly create and deploy decentralized financial applications within minutes, using its cross-chain framework and infrastructures within the platform.

Injective protocol 

Injective Protocol was a top performer of 2020. It was created by integrating Ethereum’s VDF (Verifiable Delay Function) and using the Cosmos SDK. It is the first-ever project to emerge from Binance Labs and start through the Binance Launchpad. 

Injective Protocol is the first layer 2 exchange. It has strong tokenomics and solid fundamentals for doing well in the future. 

Band Protocol 

For many smart contracts and applications to operate, an oracle is needed to bring data on and off the blockchain. Chainlink is currently the top-performing oracle, which was created on the Ethereum blockchain.

Following this, the Cosmos IBC protocol built Band Protocol – an interoperable, cross-chain decentralized oracle. It was launched through the Binance Launchpad and became the Pepsi to Chainlink’s Coca-Cola. 

The protocol can process thousands of transactions in seconds and boasts near-instant finality. 

Secret Network

Secret Network is a decentralized network of secret nodes that make use of trusted execution environments (TEEs). These enable secure, private computation over encrypted data. TEEs can be utilized in all types of everyday platforms such as smartphones and video game consoles.

Secret Network can be used to deploy Secret Apps, governed by privacy-preserving smart contracts and written in Rust programming language.

The Secret Network blockchain is based on the Cosmos SDK. This means that the network has its own independent consensus, and slashing and delegation features. The network is secured by the coin Secret (SCRT). It must be staked by network validators and can be used for transaction fees as well as governance.

Oasis Network

The Oasis Network is a privacy-focused smart contract platform. It is used for open finance and built using the Cosmos SDK. This project focuses on applications and use-cases that promote data privacy and user confidentiality. To achieve this, it separates the consensus layer from its contract execution layer and provides a built-in interface for connecting the two for privacy-preserving computation. The consensus layer forms a hub that utilizes a Proof-of-Stake (PoS) mechanism to secure the network and reach a consensus on transaction validity. The execution layer consists of multiple, parallel runtimes (called ParaTimes) and provides specialized computation needs that each plug into the consensus layer.

Why Choose The Cosmos Blockchain Ecosystem?

The Cosmos Network has quite a few unique selling points when it comes to development – 

Scalability

With the Tendermint consensus mechanism, the Cosmos blockchain ecosystem can process thousands of transactions per second. This makes PayPal’s 193 transactions per second look modest. 

Interoperability

The main USP of Cosmos blockchain ecosystem is that it’s vast and diverse, with the option for developers to operate with any blockchain they wish to.

Developer-friendly

A developer with a new idea for a feature may take a while to deploy it if it was built on Ethereum. This is due to the restriction around building on another blockchain. But Cosmos doesn’t have any such restrictions, so it bypasses this issue, allowing developers to create their blockchains with an individual governance structure.

In turn, developers have the opportunity to introduce innovative features to applications in a much shorter space of time than with Ethereum.