Interoperability, alongside scalability, has long been a significant challenge in the realm of blockchain technology. Over the past decade since the inception of the Bitcoin blockchain, considerable progress has been made in addressing this issue, resulting in the emergence of various interoperable blockchain networks.
Among these options, Cosmos has gained significant popularity, primarily due to its utilization of the Tendermint consensus mechanism and its provision of open-source developer tools. In this blog, we will explore the reasons behind Cosmos' enduring appeal and examine how it facilitates seamless collaboration between blockchains.
What Is Cosmos (ATOM)?
Within the realm of blockchain technology, Cosmos presents an expansive ecosystem encompassing a range of networks and tools that facilitate the creation of interoperable blockchains.
At the core of this ecosystem lies the Cosmos Hub, serving as a centralized ledger for a collection of compatible blockchains known as Zones. These Zones offer a high degree of customization, empowering developers to tailor their own cryptocurrencies by defining specific block validation settings and incorporating other desired features.
To establish these Zones, developers rely on the Cosmos SDK, a foundational toolkit that furnishes the fundamental components necessary for building Cosmos blockchains. The default consensus layer within the Cosmos SDK, known as Tendermint Core, employs a validator-based consensus mechanism that can be utilized across multiple Cosmos blockchains.
However, each individual Zone possesses the autonomy to determine the method by which its validators are selected. In the context of the Cosmos Hub mainnet, the blockchain employs a process wherein 100 validators are chosen from the top tier of nodes that have staked ATOM, the designated utility coin of the blockchain. Voting power is allocated to each validator based on their respective amount of staked ATOM.
Subsequently, a leading validator is tasked with proposing new blocks, which are subsequently subjected to voting by other validators. Successful blocks yield block rewards that are distributed to the responsible validator and users who have staked ATOM behind their selected validator.
In addition to its role within the consensus mechanism of the Cosmos Hub, ATOM serves additional functions within the network. It functions as a means to pay transaction fees and participates in governance voting processes. Validators are also required to actively engage in proposals or risk facing sanctions.
Cosmos: The Main Principle
In 2014, Ethan Buchman and Jae Kwon began creating Cosmos, a visionary project centered around establishing an interconnected network comprising interoperable blockchains. At its core, the Cosmos network comprises a primary blockchain mainnet, Cosmos Hub, and a series of specialized blockchains called Zones.
Cosmos Hub is the nexus for asset and data transfers among the interconnected Zones, providing a shared layer of robust security. This seamless integration is facilitated by Cosmos's unique consensus mechanism, Tendermint, in conjunction with a versatile general application interface. The Cosmos ecosystem's transaction fees are settled using the native cryptocurrency, ATOM.
The Cosmos network is structured into three distinct layers, each serving a crucial role:
- Networking Layer: This layer facilitates the transmission of transaction confirmations and other consensus-related messages between the participating hub blockchains.
- Application Layer: Responsible for keeping the network up to date with the latest transaction states and balances.
- Consensus Layer: Orchestrates the coordination of nodes to achieve consensus on the inclusion of new transactions.
The Cosmos network leverages various open-source tools and applications to consolidate these layers. Tendermint encapsulates the networking and consensus layers, presenting developers with a readily deployable engine. Consequently, blockchain developers utilizing Tendermint can dedicate their efforts to the application layer, saving significant time and resources.
What Is Cosmos Hub?
Operating as the foundational blockchain of the Cosmos network, Cosmos Hub serves as the nexus connecting various customized blockchains called Zones. This connectivity is achieved through the Inter-Blockchain Communication Protocol (IBCP), which facilitates the seamless exchange of information between different Zones within the Cosmos ecosystem.
Playing a pivotal role as a central ledger, Cosmos Hub enables the transmission of IBC messages among the interconnected Zones. These messages are conveyed through two types of transactions: IBCBlockCommitTx, which conveys the latest block hash within a specific Zone, and IBCPacketTx, which enables a Zone to verify the legitimacy and publication of an information packet by the sender's application.
To illustrate the communication process between two decentralized applications (DApps) operating on separate Zones, IBC messages are dispatched to Cosmos Hub, where the interaction is recorded.
Subsequently, these messages are relayed by Cosmos Hub, while each Zone independently records the outcomes of their respective interactions on their own blockchains. As a result, evidence of the activity is established across three distinct blockchains. This capacity for blockchain interoperability has earned Cosmos the moniker "The Internet of Blockchains."
How Do Cosmos Zones Work?
Zones within the Cosmos ecosystem serve as custom blockchains with diverse applications, comparable to sidechains like Polygon in other blockchain projects. Each Zone possesses the capability to validate transactions, create tokens, and introduce bespoke features. Despite these distinct characteristics, all Zones within Cosmos maintain interoperability, allowing seamless interaction with other authorized Zones.
The Hub & Spoke architecture governs the relationship between Zones, with Hubs functioning as intermediaries for various Zones. While Cosmos Hub stands as a prominent example, multiple other Hubs are also in existence. The network operates on a permissionless basis, enabling anyone to create a Hub blockchain or Zone. However, both Hubs and Zones possess the authority to accept or reject connections from other blockchains.
By connecting to a Hub, a blockchain gains access to all Zones connected to that particular Hub. Furthermore, Hubs can establish connections with one another. Notably, the Cosmos Hub has been forked by entities like Binance Chain, resulting in the launch of their customized versions in 2019.
Why Is Cosmos SDK Important?
Cosmos SDK is an open-source software development kit that lets users create custom blockchains. Cosmos SDK's default consensus protocol is Tendermint Core, but there's a variety of different pre-built modules you can use. Using Cosmos SDK simplifies the process considerably and offers all the standards you would expect when building a blockchain.
It's highly customizable with plug-ins, so users can design new features and traits. Both public Proof of Stake blockchains and permissioned Proof of Authority blockchains can be made with Cosmos SDK. Binance Chain is just one example of a blockchain made using Cosmos SDK.
ATOM: The Native Coin of Cosmos
Cosmos native coin, ATOM, serves three key purposes within the ecosystem:
- ATOM is required to cover transaction fees, with the amount correlating to the computational resources utilized.
- ATOM plays a crucial role in the governance system of Cosmos Hub. Holding a greater quantity of ATOM grants users increased voting power, enabling active participation in shaping platform decisions.
- ATOM can be staked behind validators, offering the opportunity to earn rewards by contributing to the consensus algorithm.
ATOM was initially distributed through an Initial Coin Offering (ICO) and operated with an inflationary model. This characteristic arises from Tendermint Core's mechanism, which rewards stakers with newly minted ATOM. The inflation rate adjusts dynamically based on the total staked amount and the number of active stakers.
The Many Purposes of Tendermint
Tendermint Core is a versatile protocol that encompasses both a blockchain consensus mechanism and a tool called Tendermint ABCI, enabling seamless integration between applications and Tendermint Core's consensus engines. Notably, Tendermint Core operates on a Byzantine Fault Tolerant (BFT) model, ensuring the confirmation of new transactions even in the presence of non-cooperative or malicious participants.
Validators play a crucial role in the Tendermint Core ecosystem by running nodes that maintain a copy of the blockchain's data. However, it's important to note that not every full node serves as a validator. Cosmos Hub, for instance, limits the number of validators to 100. These validators participate in the confirmation of transactions and vote on the inclusion of new blocks in the blockchain.
To become a validator, individuals stake ATOM as a node. The top 100 nodes, ranked by staking value, earn the status of validators with voting power proportionate to their staked ATOM. Additionally, users have the option to delegate their ATOM holdings to validators in exchange for a portion of the block rewards. This mechanism encourages validators to act responsibly, as users can easily delegate their ATOM to more reliable options. When adding new blocks, a set of 100 validators reach a consensus through voting, with the process taking place in rounds based on block proposals from a leader.
Tendermint's (BFT) popularity can be attributed to several key factors:
- Versatility: Tendermint is adaptable for both public and private blockchains. It primarily focuses on the networking and consensus layers of Cosmos blockchains, allowing developers to customize the application layer. Each Zone within the network has the flexibility to determine how its validators are selected and whether the blockchain operates as public or permissioned.
- High performance: Tendermint boasts a fast block time of approximately 1 second and can handle a high throughput of thousands of transactions per second.
- Immediate transaction finality: Transactions are promptly confirmed upon block creation, provided that the majority of network validators act honestly. In comparison to blockchains like Ethereum (ETH) or Bitcoin (BTC), Cosmos users can confidently accept transactions with fewer block confirmations.
- Enhanced security: In the event of a blockchain fork resulting in two divergent transaction histories, Tendermint facilitates accountability and provides a clear understanding of the underlying reasons for the fork, reinforcing overall security measures.
With its early introduction as a pioneering solution for interoperable blockchains, Cosmos has maintained its popularity as a viable choice. Tendermint and Cosmos SDK, both influential tools, continue to play significant roles in present-day blockchain development. However, since 2017, there has been a notable shift towards emphasizing sidechains that interact with high-traffic blockchains like Ethereum. The trajectory of this trend remains uncertain. Nonetheless, Cosmos is actively pursuing expanding current trends, encompassing NFTs, DeFi collateralization, and interchain staking. This strategic approach positions Cosmos to capitalize on the growing popularity of these trends and secure its relevance in the future.