Last year, Cosmos released the 2.0 whitepaper at the Cosmoverse conference, providing detailed explanations on inter-chain security, liquidity staking, new token models, fee mechanisms, and more. This has sparked a renewed interest and perspective on this well-established blockchain.
In the current era of multi-chain, cross-chain has become a rigid requirement in the blockchain industry. Cosmos’ cross-chain model focuses on public chains in vertical fields, allowing developers to choose the most suitable public chain by providing modular blockchain solutions. In today’s world with a large number of new public chains and Layer 2 solutions, this highlights the high value and capabilities of Cosmos. Now, let’s take a look at the in-depth technology, ecosystem development, and recent news behind Cosmos.
Cosmos’ Core Products and Underlying Technology
Ethereum introduced the Ethereum Virtual Machine (EVM), liberating the functionality of smart contracts and enabling the development of DeFi, NFTs, games, and various DApps in other fields. However, as Ethereum is a general-purpose public chain that supports various competing network resources, congestion can occur when there are too many transactions, leading to rising transaction fees and a negative user experience.
To address this issue, Layer 2 (L2) solutions have emerged, but this means that DApps must not only follow their own rules but also adhere to the rules of the L2 protocol. Additionally, every time a DApp needs new functionality, the protocol needs to be changed, which is inconvenient for developers. This is where Cosmos becomes important because it proposes a different approach, allowing each DApp to run on its own independent, parallel, and application-optimized blockchain.
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As these blockchains are independent, they can be upgraded or modified independently without interfering with each other. At the same time, these blockchains can communicate with each other and even interact with blockchains that use different consensus mechanisms.
Therefore, the Cosmos ecosystem utilizes the Inter-Blockchain Communication (IBC) protocol for communication, whether it is within protocols, networks, or the ecosystem as a whole. For example, the Cosmos Hub and its native token ATOM are part of it. In the Cosmos ecosystem, each DApp can run independently on its own blockchain and communicate with each other, making the entire ecosystem more flexible and autonomous while improving efficiency and security.
Next, let’s dissect Cosmos’ core products and the underlying technology and applications.
Firstly, Cosmos’ core includes the Tendermint consensus mechanism, Cosmos SDK, and the cross-chain IBC protocol. Any project in the market that utilizes one of these three categories can be classified as part of the Cosmos Network ecosystem.
One key point here is that Cosmos initially positioned itself to emulate the development process of the Internet. Just as the Local Area Network (LAN) gradually evolved into the global Internet, protocols, technologies, and devices were needed to achieve data transmission and distribution.
In the process of Internet development, the TCP/IP data transmission protocol was introduced as the basic standard for Internet communication, ensuring smooth data transmission between different networks. At the same time, in order to achieve the global dissemination and exchange of data, data distribution and routing devices such as routers and switches were introduced, which ensure that data can accurately find their destination and achieve efficient transmission.
The goal of Cosmos is to create a “blockchain ecosystem similar to the Internet”. Just as the Internet requires the TCP/IP protocol to achieve interconnection and interoperability of data, Cosmos uses the Inter-Blockchain Communications (IBC) protocol, which allows different blockchains to communicate and exchange information. Once there are data distribution and routing devices like routers and switches, they correspond to the independent blockchains within Cosmos. They can not only run independently and communicate with each other, but also form a more flexible and autonomous blockchain ecosystem.
Here is a simple conclusion: Cosmos Network aims to become the Internet of blockchains (multi-chain interconnection). By using the IBC protocol, combined with the self-developed Tendermint consensus mechanism and the integrated Cosmos SDK, it achieves the interconnection of blockchains.
After discussing the overall architecture of Cosmos Network, let’s now break down the innovations of each technology.
(1) IBC Protocol: When we talk about the IBC protocol, we can think of it as a bridge connecting different blockchains. The purpose of this protocol is to allow these different blockchains to send value (such as tokens) or data to each other.
It has two main focuses:
The first focus is “different hierarchies”, which means that different blockchains may have different structures and operating methods. However, in order to use the IBC protocol, these blockchains must meet certain conditions, and the most important one is that their consensus (the method of verifying transactions) must be fast and deterministic. This is similar to ensuring that a bridge has a specific support structure for passage.
The second focus is “sovereignty”. Each blockchain is maintained by a group of people who ensure that transactions are processed correctly. These people are called validators. In some blockchains, validators form a specific set, which we call sovereign blockchains. Validators in sovereign blockchains are responsible for changing the state of the blockchain. The role of the IBC protocol is to allow different blockchains to communicate with each other and exchange tokens and data. This means that applications and validators on different blockchains can communicate and cooperate, just like people can move on different bridges.
When we understand that the role of the IBC protocol is to connect different blockchains and enable them to communicate and exchange data, let’s take a deeper look. In Cosmos Network, the application chain that uses the IBC protocol is actually called a Zone, and a Zone connected to many Zones is called a Hub. The Hub is responsible for tracking the status of each Zone and assisting in cross-chain interaction between different Zones. The Hub can be seen as the central hub of the entire network, coordinating and facilitating communication and cooperation between different blockchains. It is worth noting that the Hub and the Zone are essentially the same, they just have different names to distinguish different roles. This means that any Zone has the potential to become a Hub.
In the Cosmos Network, the first Hub is the Cosmos Hub. It plays a central role in helping other blockchains (Zones) achieve cross-chain interoperability and connecting the entire Cosmos Network together. In general, the Hub and Zone are two important roles in the Cosmos Network, and they use the IBC protocol to enable communication and collaboration between different blockchains, further expanding the functionality and possibilities of the entire blockchain ecosystem.
(2) Tendermint Consensus Mechanism:
Tendermint is an important part of Cosmos, like an efficient blockchain consensus engine. It has three main components: the communication layer, the consensus layer, and the application layer. The consensus layer is particularly important. Tendermint does not concern itself with the details of specific transactions when reaching consensus. It packages transactions into blocks and reaches consensus through mechanisms between nodes. To ensure the security and consistency of the blockchain, state updates of upper-layer applications must be deterministic, meaning that from the same initial state, all nodes must process transactions in the same order.
At the same time, the state of upper-layer applications throughout the network must also remain consistent. To verify the state of upper-layer applications, the blockchain uses digital fingerprints. Tendermint consensus can support sub-second block generation in a blockchain network with hundreds of nodes, indicating that block generation speed is very fast. It also provides the function of block-by-block finality confirmation, meaning that once a block is confirmed, all blocks before it cannot be changed, ensuring the security of the blockchain network.
After the block is committed, the Tendermint consensus protocol interacts with the Cosmos SDK through a specific interface (ABCI), completes transaction processing, and returns results. It divides the execution process of blocks into multiple steps, allowing upper-layer applications to define transaction processing logic according to their needs. This design allows developers to freely choose how to use this consensus engine to meet their blockchain application requirements.
(3) Cosmos SDK:
As mentioned earlier, while Tendermint greatly reduces the development time of blockchains, building a secure ABCI application (implementing the ABCI protocol) from scratch is still a very difficult task. This is why we need the Cosmos SDK.
The Cosmos SDK is a general framework that helps developers build secure blockchain applications more easily on the Tendermint consensus engine. This framework is based on two main principles. First, it is modular. This means that developers can use existing modules to easily build blockchains for specific applications without needing to write each function from scratch. For example, the Tendermint team is building some basic modules that can be used when building their own applications. At the same time, developers can also create new modules to customize their own applications.
As the Cosmos network evolves, the ecosystem of SDK modules will also grow larger, making it easier to develop complex blockchain applications. Second, it is based on functional security. This means that there are secure boundaries between modules, which can restrict malicious or accidental interactions. This allows developers to better understand the composability between modules and prevent unexpected issues.
In addition, the Cosmos SDK comes with a set of useful developer tools, such as the command-line interface (CLI), REST services, and other common utility libraries, which can help developers build blockchain applications more conveniently. In summary, the Cosmos SDK is like building blocks that allow developers to build applications on the Tendermint consensus engine. In the future, it may also support other consensus engines that implement the ABCI protocol. Over time, it is expected that more SDKs with different architectural models will emerge, which can be compatible with multiple consensus engines, all of which will be part of the Cosmos network ecosystem.
As of today, the Cosmos ecosystem has accumulated 272 applications and services, with a total on-chain asset value exceeding 750 billion US dollars.
In conjunction with the three major technologies, Cosmos solves the three most difficult problems in today’s blockchain:
The first problem is “sovereignty”. The Cosmos SDK is equivalent to a free toolkit that allows developers to build their own blockchain applications without spending too much cost. These blockchains can be easily connected to each other without the need for complex smart contracts to bridge different blockchains. This allows developers to avoid high costs due to too many blockchain transactions and enables the development of better functionality. These features can be applied to DeFi, NFTs, games, DAOs, social networks, markets, etc., allowing everyone to have their own rights.
The second problem is “scalability”. Cosmos adopts two scalability methods. The first is “vertical scalability”, which allows the Tendermint consensus engine to process thousands of transactions per second by abandoning the proof-of-work mechanism that requires a large amount of computational power. However, other bottlenecks may also occur, such as limitations of the application itself. However, applications that use special toolkits can achieve higher transaction speeds, which is one of the benefits of specific application blockchains.
The other is “horizontal scalability”. Even if the consensus engine and the application are optimized to the extreme, there will still be a limit to the transaction throughput of a single blockchain. Therefore, multi-chain architecture will be used in the future, allowing multiple identical application blockchains to operate in parallel, theoretically achieving unlimited scalability.
The third problem is “sustainability”. Cosmos uses the PoS consensus algorithm to ensure the security of the entire network. Compared with the PoW consensus algorithm, PoS can reduce carbon emissions and make the environment more environmentally friendly. Overall, Cosmos helps solve these three major problems, making the blockchain more robust, faster, and better applicable in various fields.
ATOM Token Model
The ATOM token is a very important part of the Cosmos ecosystem. It is mainly used to ensure the security and operation of the blockchain. To explain simply:
The Cosmos Hub is the first blockchain in the Cosmos Network, and ATOM is the governance token of the Cosmos Hub.
The ATOM token can be used to pay transaction fees, just like when we use a wallet to pay on our smartphone and need to pay some fees. This is done to prevent malicious use of the blockchain system, similar to preventing spam. Additionally, ATOM tokens can also be staked, similar to depositing money in a bank, to earn certain assets.
The more ATOM tokens are staked, the more rewards can be obtained. The amount of staked ATOM also determines the security of the entire Cosmos Hub system, as the cost of attacking the network increases with the amount of staked tokens.
Lastly, ATOM holders can also use the tokens they have staked for governance voting, similar to electing representatives. They can vote to support or oppose proposals to manage the entire Cosmos Hub system.
Overall, ATOM tokens play an important role in the Cosmos ecosystem, ensuring the security and smooth operation of the system. At the same time, ATOM holders can earn rewards and participate in system management through staking and governance voting.
Team Development Story
Jae Kwon, the founder of the Cosmos project, is an expert in applying Byzantine Fault Tolerance (BFT) technology in Proof-of-Stake (PoS) public blockchain environments. In 2014, he published a paper titled “Tendermint: Consensus without Mining,” proposing an innovative blockchain consensus solution called Tendermint. This solution uses an improved Byzantine Fault Tolerance algorithm, eliminating the need for mining like Proof-of-Work (PoW) and better protecting the blockchain from attacks.
Shortly after, Jae Kwon founded Tendermint Inc (All in Bits Inc). He began focusing on solving some issues in PoW, such as speed, scalability, and environmental concerns. In this process, he met Ethan Buchman, who is also an experienced expert in the blockchain field.
In 2015, Jae Kwon and Ethan Buchman met at a conference, and they got along very well and started to closely collaborate on developing the Tendermint software. Shortly after, Ethan Buchman became the formal co-founder of Tendermint Inc and served as the CTO. As Tendermint continued to develop, Jae Kwon and Ethan Buchman started to think about a larger vision. They turned their attention to the issue of interoperability between blockchains.
Therefore, in 2016, they released the Cosmos whitepaper, which was a historic milestone for the project. The whitepaper proposed a network composed of many independent blockchains, called Zones, which can communicate with each other through a special protocol called IBC. The Cosmos Hub became the first Zone in this network.
During the fundraising process, Tendermint Inc encountered some setbacks, but they did not give up. Instead, they reexamined their motivations and after iterating multiple designs and discussing various financing plans, they finally raised some initial funds at the end of 2017 and began building Cosmos.
On March 14, 2019, the first Proof-of-Stake supported public BFT blockchain, Cosmos Hub, was officially launched and became the cornerstone of the Cosmos network and ecosystem. Following the launch of Cosmos Hub, subsequent stages were introduced, such as launching subnetworks, enabling transfers, and enabling IBC. Over time, the Cosmos ecosystem continued to grow, attracting more and more developers and investors. In 2022, Tendermint Inc was renamed Ignite Inc and launched an accelerator program focused on Web3, providing more support for future development.
Ecosystem Development
According to mapofzones.com, as of July 21st this year, the Cosmos Network Market Cap (total market value of Cosmos ecosystem projects) is 10.3 billion USD, with ATOM becoming the token with the highest market value in the ecosystem, and ATOM Market Cap Dominance at 42.7%.
Compared to the total locked assets value of Ethereum, the interconnected ecosystem created by the IBC network still seems to have a long way to go. However, with the emergence of many IBC networks, it can be expected that the gap between the two will become smaller and smaller. Initially, Cosmos did suffer a certain degree of impact due to the collapse of the Luna and UST ecosystems. The reason is that UST is the largest component among the stablecoins supported by Terra and the Cosmos ecosystem. With the impact of the Luna incident, many investors, development teams, and investment institutions were deeply affected. However, the Cosmos ecosystem did not falter, but instead demonstrated a strong will to survive in adversity.
In addition, Cosmos will begin to implement interchain security this year, leveraging Interchain Security, developers will be able to launch consumer chains that run their EVM, CosmWasm, or Cosmos-SDK applications. These consumer chains will be protected by the complete validators of Cosmos Hub and the market value of over 6 billion USD of $ATOM tokens. In other words, this allows Cosmos Hub to share security with other blockchains. The most direct benefit will be that “ATOM stakers will benefit from the success of early projects, as a certain percentage of rewards will flow back to ATOM stakers”.
In addition, the Keplr wallet has also released an update, enabling signing and executing EVM chain transactions within the wallet. This means that Keplr wallet users in the future will be able to interact directly with ecosystems on EVM-compatible chains within the Cosmos ecosystem. We can look forward to the development of application chains, the shared security of ICS, and the composability of ICA in 2023, which will showcase various advantages and make Cosmos shine.
Finally, I want to emphasize my views on the potential and actual data of IBC. In 2022, 69% of the financial losses were due to cross-chain bridge attacks, mainly targeting large projects like Ronin Bridge, BNB Bridge, Wormhole, and Nomad. Also, because the earliest designs of these cross-chain bridges used liquidity pools, they ended up becoming targets for attackers, causing the funds in these pools to be like bounties.
In order to solve the cross-chain communication problem between blockchains, the introduction of IBC technology is crucial. The operation of IBC is based on a trust foundation that reduces the security risks of participating chains. Specifically, it requires users to maintain trust in the chains they are connected to, and it has fault isolation mechanisms that can limit the damage caused by malicious chains to the entire system. Since 2021, the launch of the IBC protocol has led the cross-chain interoperability field to develop in a more trustworthy direction. Thousands of IBC transfers worth tens of millions of dollars in total value are made every day, and everything is going smoothly.
Through Interchain Accounts (ICA), cross-chain composition can be achieved, which provides more possibilities for new types of DeFi applications.
Although the IBC protocol and Cosmos are closely related in terms of technology, other blockchain ecosystems have also used similar technologies to fill this gap. For example, Axelar, Composable Finance, Nitro, Landslide, and Octopus Network have all expanded the application scope of the IBC protocol beyond Cosmos and have gained wide support in other communities.
In addition, Evmos is an EVM blockchain built on Tendermint, which implements IBC for ERC-20 tokens, providing cross-chain communication opportunities for Ethereum DeFi platforms. I have great confidence in the development of future trusted cross-chain interoperability protocols and believe that they will become the mainstream standards for cross-chain transfers and message transmission in the next few years.
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