Looking back at the entirety of 2014, you'll observe it as a year teeming with advancements in the blockchain space and the emergence of new concepts. It was during those early days that Vitalik invented Ethereum and presented its first working implementations. Numerous design trials, the beginning of discussions about proof of stake, and other new realities were entering our lives. Inspired by the research on Proof of Stake (PoS) around that time, Jae Kwon invented Tendermint in 2014. It was unique in that it was the first blockchain system to:
Utilize a classical Byzantine Fault Tolerant (BFT) consensus algorithm
Implement Security-Deposit-Based Proof-of-Stake ("slasher")
setting the foundation for all PoS chains known today. According to CoinGecko, PoS chains currently represent a market worth $700 billion :)
By the end of 2014, a growing community of cryptocurrency researchers had converged online, forming the CryptoCurrency Research Group (CCRG, now defunct). They were largely convinced that Proof of Stake cryptocurrencies represented the future of blockchain technology and embarked on building that future. This group included notables such as Vitalik Buterin, Vlad Zamfir, Ethan Buchman, Jae Kwon, Zaki Manian, Dominic Williams, Arthur Brietman, among others. Vitalik had invented Ethereum, with Vlad serving as a leading researcher there. Ethan was closely working with Vlad and contributing to go-ethereum, while Jae Kwon was the brain behind Tendermint. Dominic was developing ideas that would later materialize into Dfinity, and Arthur had invented Tezos.
Okay, that's enough history lessons; let's back to Cosmos.
What is Cosmos?
You may have heard Cosmos referred to as the "Internet of Blockchains" because its aim is to solve a fundamental problem: creating an ecosystem for disparate and non-communicating chains. But how?
First, understand that networks like Bitcoin and Ethereum are standalone Layer 1 (L1) networks with no inherent ability to communicate with other chains. This perpetuates the well-discussed scaling problem. Therefore, on the Ethereum side, there are currently over 30 different Layer 2 (L2) solutions operational, as visible on the @L2Beat dashboard. Similarly, while Bitcoin has not yet introduced many products in this area, we are beginning to hear about Bitcoin L2s recently.
Shifting our focus to Cosmos, it's primarily designed to:
Create a cross-chain network and connect different blockchains.
Launch an open-source plug-and-play toolkit, enabling anyone to develop their blockchain.
The non-profit organization Interchain Foundation (ICF) takes on this latter task.
How Does Cosmos Work?
The Cosmos network's main function is facilitating transfers from one smart contract to another. Let's say Emily wants to transfer 50 BTC from blockchain X to blockchain Y. Initially, the 50 BTC are secured in a smart contract on blockchain X, with a confirmation message dispatched to blockchain Y.
Blockchain Y then proceeds to verify if a significant majority, say more than two-thirds, of blockchain X's validators have endorsed the transaction. Upon successful verification, the 50 BTC become accessible on blockchain Y, allowing Emily to engage with her chosen decentralized application (dApp).
Cosmos relies on three key technologies for this interoperability process:
Tendermint Core (TC)
Cosmos SDK
Inter-blockchain communication (IBC) protocol
This trio enables interoperability with other Proof-of-Stake (PoS) networks. Cosmos has its PoS network, known as Cosmos Hub, which monitors the states of other networks.
Tendermint Core
Tendermint Core functions as a blockchain application platform, effectively providing the infrastructure equivalent to a web-server, database, and supporting libraries for blockchain applications that can be written in any programming language. Similar to how a web-server facilitates web applications, Tendermint facilitates the operation of blockchain applications.
It consists primarily of two key technical elements: a blockchain consensus engine and a generic application interface. The consensus engine, known as Tendermint Core, guarantees that transactions are recorded in the same sequence across all machines. Meanwhile, the application interface, referred to as the Application Blockchain Interface (ABCI), allows transactions to be executed in any programming language. This contrasts with other blockchain and consensus mechanisms that are bundled with built-in state machines, enabling developers to use Tendermint for Byzantine Fault Tolerant (BFT) state machine replication in any programming language or development environment they prefer.
Cosmos SDK
The Cosmos Software Development Kit (SDK) offers a comprehensive toolkit enabling the construction of Cosmos-compatible decentralized applications without the need to start from scratch. Specifically, the Cosmos SDK provides open-source modules, which are essentially pre-written code snippets that assist developers in building applications akin to assembling lego blocks, thereby significantly reducing development time. Similar to how developers on Ethereum-equivalent chains save time by utilizing pre-built components, the Cosmos SDK offers significant time savings for developers working on their own blockchains.
Inter-Blockchain Communication (IBC) Protocol
The Inter-Blockchain Communication (IBC) Protocol addresses the authentication and transportation of data between two distinct blockchains, effectively solving the widespread issue of cross-chain communication. This challenge is particularly evident in public blockchains where exchanges need to perform asset swaps or in application-specific blockchains where assets originate from purpose-built chains.
IBC facilitates this process through a series of steps:
Tracking: Each chain monitors the validators of the other.
Bonding: ATOM tokens are locked or "bonded" on chain A.
Proof Relay: A proof of the bonding is sent from chain A to chain B.
Validation: Chain B verifies the proof, and upon successful validation, ATOM vouchers are generated on chain B, completing the asset transfer from chain A to chain B.
Trust the chains, not the bridge.
Sovereign chains within the interchain ecosystem
benefit from the Cosmos SDK, which facilitates effortless creation of new blockchains, and the IBC's goal to connect chains without requiring trust in a centralized party. Let's explore some of these chains:
Injective: A blockchain tailored for finance, offering an open, interoperable layer-one solution that powers the next generation of DeFi applications. This includes decentralized spot and derivatives exchanges, prediction markets, lending protocols, and more.
Celestia: A modular data availability (DA) network designed to scale securely with user numbers, simplifying the process for anyone to launch their own blockchain.
Sei: A general-purpose, open-source Layer 1 blockchain specialized in the exchange of digital assets.
dYdX: A fully open-sourced and audited appchain capable of handling up to 2,000 transactions per second (TPS). It is completely decentralized, meaning dYdX Trading does not manage any of the chain's infrastructure or earn trading fee revenue.
The complete list of chains in the Interchain Stack can be checked here.
What is ATOM?
ATOM is the native token of the Cosmos Hub, serving multiple utilities:
It is used to pay transaction fees within the Cosmos Network.
Staking ATOM enhances the network's security, with stakers earning rewards proportional to their staked amount.
ATOM stakers and validators receive a portion of the transaction fees generated by chains utilizing the Interchain Security feature offered by the Cosmos Hub.
ATOM holders have the right to vote on proposals made by the Cosmos Hub.
Cosmos seems destined to occupy an increasingly important position in an ecosystem where "Interoperability" is gaining more significance by the day. The integration of projects such as Celestia, dYdX, among others, into this ecosystem promises a continuously expanding variety. However, with current monthly active users on the network around 550,000, according to mintscan data, it suggests we are still in the early stages of development. For those interested in closely following the Cosmos ecosystem and understanding what's happening, you can access the Cosmos Dashboard here.
