Blockchains, as they exist today, are like cities separated by mountain ranges. There can be basic communication between the blockchain cities but it’s the equivalent of sending a message via mule. Cosmos believes that this doesn’t have to be the case and they hope to build superhighways to connect different blockchain networks. This will be achieved using a protocol known as Inter-Blockchain Communication (IBC).
A simple explanation of Cosmos is that it’s not so much a cryptocurrency the way Ethereum or Bitcoin is, but rather the infrastructure necessary to connect different blockchains to each other. For example, an Ethereum smart contract could trigger a payment on the Bitcoin network if the two are connected via Cosmos. Or a trader could swap an Ethereum token for a Tezos token without using a centralized exchange.
Interoperability between blockchains is the primary value proposition of Cosmos. However, the project also has another use case.
Cosmos has developed a proprietary toolkit that makes it easy for developers to build blockchains on top of it, which can significantly reduce the number of hours it takes to build a new blockchain and reduce the demand for highly talented developers. Before Cosmos, anyone who wanted to build a blockchain had two options.
- Fork an existing chain. Ethereum, Bitcoin and many other cryptocurrencies are open source. It’s possible to create a new blockchain using their source code; however, the problem is a lack of customization. If someone wants to create a new blockchain based on Ethereum, they’ll need a talented (expensive) developer team in order to customize it.
- Create a new blockchain from scratch. While this allows for maximum customization, it’s costly and time-consuming.
Creating a blockchain on Cosmos is simple since developers have access to plug and play tools. Networking, consensus mechanisms, and application layers are available on-demand, significantly speeding up the development process and reducing the occurrence of bad code which can lead to bugs in the platform.
For the technically minded who want to dive into the details of how Cosmos works, there is an excellent technical explainer on their website.
Cosmos Coin ATOM
ATOM is Comos’ coin and it has several use cases, the main one being staking. Cosmos uses a Proof of Stake protocol that they refer to as Tendermint Core.
There are two “types” of staking, both of which require ATOM.
- Validating - A validator is a person or organization running a full node and validating transactions on the network. A validator receives the highest ROI, but in return there are certain requirements, like near-perfect uptime, a minimum ATOM balance which is enough to make you one of the top 125 ATOM holders, and high bandwidth availability.
- Delegating - Most stakers on the Cosmos network will be “delegators.” A delegator entrusts their ATOM to a validator which validates transactions for them. While delegators earn a lower ROI they can stake small amounts and they don’t have the same hardware or bandwidth requirements. Delegating is easier.
In addition to the block reward, validators and delegators also earn a percentage of transaction fees on the Cosmos network. More information about staking is available here.
There are a lot of different ways to stake ATOM on the Cosmos network. For example, you can keep your ATOM on a Ledger hardware wallet and stake it using the Ledger Live wallet. It’s also possible to use the Exodus wallet to stake ATOM. The advantage of using Exodus is that it’s simple, easy to use and you can even stake other coins at the same time, like Tezos.
One of the advantages of Tendermint Core is that it provides instant confirmation. On POW blockchains like Ethereum or Bitcoin, transactions are not considered finalized until a certain number of blocks have been confirmed. However, with Tendermint there is instant finalization.
Tendermint also uses a BFT (Byzantine Fault Tolerant) mechanism which allows up to 33% of all validators to fail without adversely affecting the network. Or, another way of looking at it is to say that up to 33% of validators may be malicious without affecting the security of the network. More information about Tendermint is available here.
ATOM Coin Price
Like many other projects launched in 2017, Cosmos had an ICO (Initial Coin Offering). The ICO price for ATOM was $0.10, and in total, the project raised $17,300,000. A full set of statistics about the ICO, including the ROI since launch, is available on the CryptoRank website.
Unlike Bitcoin, there is no hard cap on the overall supply of ATOM in the network. There is an ongoing inflation schedule such that ATOM are continually being created and rewarded to the validators and delegators. The Cosmos network aims for somewhere between a 7% and 20% inflation rate.
Cosmos Crypto Conclusion
A quote from the Cosmos website summarizes the project brilliantly. “More than anything, Cosmos is not a product but an ecosystem built on a set of modular, adaptable and interchangeable tools.”
Cosmos is the infrastructure that developers can use to connect blockchain projects, improving interoperability between protocols. There are already more than 100 projects working with Cosmos and this is just scratching the surface.
If Cosmos lives up to the hype, there could come a day when a majority of all of the blockchains are connected via Cosmos. That will open up a whole new range of exciting possibilities and technical innovation. Cryptocurrency users who believe in the project can buy ATOM and start staking on the network. Although there isn’t a 1:1 relationship between the usage of Cosmos and the ATOM price, it’s reasonable to expect that as Cosmos gains adoption, the value of its token will continue to rise.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.