What is Cosmos? (ATOM)
The Beginner’s Guide
Heralded as an “Internet of blockchains” by its founding team, Cosmos aims to create a network of crypto networks united by open-source tools for streamlining transactions between them.
It’s this focus on customizability and interoperability that sets Cosmos apart from other projects.
Rather than prioritizing its own network, its goal is to foster an ecosystem of networks that can share data and tokens programmatically, with no central party facilitating the activity.
Each new independent blockchain created within Cosmos (called a “zone”) is then tethered to the Cosmos Hub, which maintains a record of the state of each zone and vice versa.
The Cosmos Hub, a proof-of-stake blockchain, is powered by its native ATOM cryptocurrency.
Users seeking to stay connected on the current development status of Cosmos can follow its roadmap through the website.
For more regular updates from the Cosmos team, you can bookmark the Cosmos blog, which includes tips and tutorials on the network and its evolving technology.
Who created Cosmos?
The Interchain Foundation (ICF), a Swiss non-profit that funds open-source blockchain projects, is the organization that helped develop and launch Cosmos.
Developers Jae Kwon and Ethan Buchman co-founded the Cosmos network in 2014, at the time creating Tendermint, the consensus algorithm that would go on to power Cosmos.
Kwon and Buchman later authored the Cosmos white paper, and released its software in 2019.
The Interchain Foundation held a two week initial coin offering (ICO) of the ATOM token in 2017, at the time raising over $17 million. Tendermint Inc. raised $9 million to continue development of the project through a Series A funding round in 2019.
How does Cosmos work?
The Cosmos network consists of three layers:
- Application – Processes transactions and updates the state of the network
- Networking – Allows communication between transactions and blockchains
- Consensus – Helps nodes agree on the current state of the system.
In order to tie all the layers together, and to allow developers to build blockchain applications, Cosmos relies on a set of open-source tools.
The most essential element to this layered design is the Tendermint BFT engine, the part of the network that allows developers to build blockchains without having to code them from scratch.
Tendermint BFT is an algorithm used by the network of computers running the Cosmos software to secure the network, validate transactions and commit blocks to the blockchain. It connects to applications through a protocol called the Application Blockchain Interface.
Tendermint Byzantine Fault Tolerance (BFT)
Central to Tendermint is Tendermint Core, a proof-of-stake (PoS) governance mechanism that keeps the distributed network of computers running Cosmos Hub in sync.
In order for the participants (“validator nodes”) to power the blockchain and vote on changes, they need to first stake ATOM. To become a validator, a node needs to be in the top 100 of nodes staking ATOM. Voting power is determined by the amount of ATOM staked.
Users can also delegate their tokens to other validators, allocating votes to them while still earning a portion of the block reward.
Validators are incentivized to perform honestly, because users have the flexibility to easily switch between the validators they delegate ATOM to, depending on their voting preferences.
Cosmos Hub and Zones
The Cosmos Hub was the first blockchain to be launched on the Cosmos network. It was built to act as an intermediary between all the independent blockchains created within the Cosmos network, called “zones.”
In Cosmos, each zone is able to carry out its essential functions on its own. This includes authenticating accounts and transactions, creating and distributing new tokens and executing changes to its own blockchain.
The Cosmos Hub is tasked with facilitating interoperability between all the zones within the network by keeping track of their states.
Inter-Blockchain Communication Protocol
Zones are connected to the Cosmos Hub via the Inter-Blockchain Communication protocol (IBC), a mechanism that enables information to travel freely and securely between each connected zone.
Once a zone is connected to the Cosmos Hub, it is interoperable with every other zone connected to the hub, meaning blockchains with vastly different applications, validators and consensus mechanisms can exchange data.
The Cosmos team has also built the Cosmos software development kit (SDK), allowing developers to build blockchains using the Tendermint consensus algorithm.
The SDK minimizes complexity by offering the most common functionality contained among blockchains (i.e., staking, governance, tokens). Developers can create plugins to add any additional features they want to have.
Why does ATOM have value?
The ATOM token plays a key role in maintaining interoperability between all zones in the wider Cosmos network, and can be used for holding, spending, sending or staking.
As such, ATOM may become more valuable the more other blockchains are built within the network, relying on the Cosmos Hub to maintain their transaction histories.
By owning and staking ATOM, users gain the ability to vote on network upgrades, with each vote being proportional to the amount of ATOM they stake.
Cosmos rewards validators with ATOM based on how many tokens they are staking, with the delegators receiving a small percentage of the reward.
Investors should note there is currently no limit on the supply of new ATOM that can be created. Rather, Cosmos adjusts the amount of tokens created based on the number of ATOM being staked. As of 2020, this results in an annual inflation rate of anywhere between 7% and 20%.
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Why use ATOM?
Users may find the Cosmos network appealing based on its focus on facilitating interoperability between blockchains.
There are a variety of projects built on the Cosmos network. Some examples include a price-stable cryptocurrency and a decentralized finance (DeFi) project allowing traders to leverage their assets.
Investors may also seek to buy ATOM and add it to their portfolio should they believe developers will flock to frameworks that enable them to launch custom blockchains.
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