DeFi Guides


What is Cosmos?

Cosmos is a blockchain project that wants to facilitate interoperation among blockchains with different functionalities. In this guide, Coin Rivet explains everything you need to know about the decentralised network protocol...

After more than a decade, a new generation of blockchain systems has emerged with the primary goal of propagating the decentralised finance (DeFi) ecosystem, which breeds thousands of utility tokens, and a host of decentralised applications (dApps).

However, while some of these dApps support interoperability among each other, the vast majority lack what it takes to do the same. More specifically, there is a gap among the majority of this network which, more often than not, operate in isolation. 

In an attempt to fill this gap, Cosmos, a platform dubbed the ‘Internet of Blockchain’ aims to create a network of crypto networks. Notably, Cosmos aims to bring all crypto networks together by employing open-source tools that, among other things, streamline transactions across various networks. 

Brief history of Cosmos

Cosmos network was co-founded by two developers, Jae Kwon, and Ethan Bucham in 2014 with support from the Interchain Foundation (ICF) – a Swiss non-profit organisation known for funding open-source blockchain projects.

Although the development of the interchain network started as far back as 2014, the whitepaper was only released in 2019 along with the Cosmos mainnet. Jae and Ethan kicked off the project by creating Tendermint – the consensus algorithm by which the Cosmos network will be powered.

However, two years ahead of the eventual release of the Cosmos software, specifically in 2017, ICF led the first round of initial coin offering (ICO) for the network’s native asset, ATOM, and was able to raise over $17 million. Around the same period, Tenderment  Inc was also able to raise an additional $9 million Series A funding round which fostered the development of the Cosmos project. 

What is Cosmos?

The primary objective of Cosmos is to create an ecosystem of parallel blockchains that can scale, communicate, and interoperate with one another. In other words, Cosmos is home to interconnected dApps and services that are built for a decentralised future.

Because it is network-centred, Cosmos delivers on three major fronts – scalability, usability, and interoperability.

How does Cosmos work?

Tendermint, the consensus mechanism at the heart of Cosmos, is a BFT (Byzantine fault tolerance) protocol. The BFT protocol, in simple terms, refers to a system that is put in place to bridge the communication gap between decentralised entities within a network.

In this case, it doesn’t matter whether some of the decentralised entities are malicious, and so cannot be trusted; instead, the BFT protocol eliminates any inequality among stakeholders, while ensuring equal access to the network’s benefit.

Notably, the first blockchain to launch on the cosmos network is known as ‘Cosmos Hub’, and it was designed to interface with other independent blockchains (also known as ‘Zones’) created within the network.

Cosmos Hub employs a novel innovation known as the inter-blockchain communication (IBC) protocol. Specifically, the IBC protocol is used to connect all of the decentralised apps and services housed within the Cosmos network.

By leveraging the IBC protocol, all connected dApps and services are able to tap into a single decentralised data source, as well as freely exchange assets across the blockchains within the network.

Cosmos network, in an attempt to ensure a seamless onboarding process also created a software development kit (SDK) that allows developers to create blockchains leveraging the Tendermint consensus algorithm.

While the SDK provides developers with access to common blockchain features such as staking, governance, and token, it decomplexifies the integration process while allowing them to add their own customised features via plugins.

Cosmos consensus mechanism

Furthermore, due to its network-centric approach, it is necessary to ensure that all activities are completed quickly. As a result, the Tendermint consensus mechanism uses a proof-of-stake (PoS) governance algorithm at its heart, which is significantly faster than the traditional proof-of-work (PoW) algorithm used among layer-1 blockchains such as Bitcoin.

The PoS governance algorithm also keeps every entity within the Cosmos distributed network in sync as each of them automatically becomes a potential validating node. 

Being a validating node, however, does not guarantee the right to participate in the network’s decision-making processes. As a result, in order to power the blockchain or maybe participate in the decision-making process, a validating node must stake some ATOM tokens – the network’s native asset.

Likewise, a node must also fall among the top 100 nodes with the highest amount of staked ATOM, implying that voting power is determined by the amount of ATOM staked. 

Users who cannot make the top 100 list, but are interested in the validation process can delegate their tokens to eligible validating nodes of their choices and benefit from the perks that come with that role.

Cosmos governance

Cosmos uses an on-chain governance system where holders of ATOM can participate in the decision making processes based on the ‘one token-one vote’ model. 

Just like with most decentralised protocols, the voting process on Cosmos undergoes four major phases including ‘proposal submission’, ‘vote’, ‘inheritance and penalties’, and claiming the deposit.’

The ‘inheritance and penalties’ phase allows delegators to inherit their validator’s vote if they don’t vote themselves while the ‘claiming and deposit’ phase allows users that deposited on proposals to recover their deposits whether the proposal gets accepted or not after the voting period.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.