Cosmos: Great blockchain, mediocre investment

Overview

ATOM (ATOM-USD) is the initial coin of the Cosmos Network. Cosmos is a decentralized network of independent parallel blockchains developed by The Interchain Foundation, a Swiss non-profit. Cosmos allows interoperability between blockchains; normally, blockchain networks are siled ecosystems that have no transparency to them communicate with each other. Just like on the Internet where different apps and protocols communicate with each other, Cosmos is building an Internet of blockchains. ATOM runs transactions in the Cosmos ecosystem.

Cosmos technology

Cosmos achieves interoperability between blockchains using a set of tools and consensus. Cosmos is a blockchain with two layers. At the first layer, the network and consensus are wrapped in a generic engine; this allows developers to focus on application development rather than the complexity of the underlying protocol. Cosmos uses Tendermint BFT for this first layer; BFT stands for Byzantine fault tolerance. Tendermint BFT is responsible for transmitting transaction and consensus related messages on Cosmos.

The second layer, known as the application layer, allows developers to create their own blockchains using the Cosmos SDK. The Cosmos SDK is an open source framework for building application-specific blockchains; the blockchains are built on top of Tendermint and can naturally interact with other blockchains. Blockchains built in the Cosmos ecosystem have their own governance structures and are independent of each other; these blockchains are called zones.

Just like applications on the Internet, they use the TCP/IP protocol that enables application programs and computing devices to exchange data. Zones in the Cosmos ecosystem use the Inter-Blockchain Communication Protocol (IBC).

At the center of the Cosmos Network is the Cosmos Hub; it is also referred to as the main chain of the Cosmos Network. The Cosmos Hub acts as a central ledger for other blockchains on the network. It also performs functions such as keeping track of the state of all connected blockchains to ensure security. When a Zone is created using the Cosmos SDK, it connects to a Hub; this gives a newly created zone the opportunity to cooperate with other zones via the hub.

Cosmos takes blockchain interoperability a step further by allowing interoperability with other blockchains outside of the Cosmos ecosystem. This is achieved by using a special blockchain called a Peg Zone. A Peg Zone is a blockchain that tracks the state of another blockchain, acting as a bridge between two blockchains.

Tokenomics

ATOM, the original cosmos coin, has three main use cases in the Cosmos ecosystem.

• Fees: Similar to Ethereum’s concept of “gas”, ATOM is used to pay for network fees on the Cosmos blockchain.

• Stake: ATOM can be wagered for rewards. Staked ATOM is used by validators to participate in the consensus of the network.

• Governance: Holders of ATOM can participate in governance polls on the Cosmos Hub. A user’s voting power is directly proportional to the amount of ATOM the user has.

There are currently over 280,000,000 ATOMs in circulation. ATOM is an inflationary coin as it has no supply limit.

Proposal 72

As for the latest developments, Proposition 72 has recently been approved by the Cosmos community.

Through this proposal, 150,0000 ATOM, worth over 1 million dollars, will be used to develop new projects in security and liquidity between chains.

50,000 ATOM will go to the P2P team, which is launching an “Interchain-secure, CosmWasm-enabled chain.” The chain will be called Neutron, and act as a DeFi Hub for Atom.

The other two projects are not awarded but will be used to fund an independent consumer chain and also smart contract applications on top of the DeFi Hub.

With this move, ATOM moves closer to replicating and even improving what can be done in the Ethereum (ETH-USD) blockchain.

Risks

From the $0.1 price during the initial coin offering, ATOM reached an all-time high of $44 per token in September 2021, making it a whopping 44,000% gain in 4 years, at which time it hit an all-time high. Cosmos is a solid project with very few competitors in blockchain interoperability. As a blockchain for interoperability, Cosmos brings blockchains together; this makes Cosmos a good “friend of all” in the blockchain space.

Although Polkadot (DOT-USD) is often considered a Cosmos competitor, its interoperability implementation model, architecture, and governance are different from Cosmos. Polkadot uses a sharding model that includes Parachains and Relay Chains, while the Cosmos Network uses a bridge-hub model.

As a token of inflation, new ATOM tokens are minted as a reward for effort, therefore there is no limited access. ATOM’s annual inflation rate is between 7% and 20%. A disadvantage of inflation-promoting cryptocurrencies is that the supply of the token can easily exceed the demand, thereby reducing the value of the token. In the Cosmos ecosystem, the total amount of ATOMs staked has an impact on the inflation rate; if more ATOM is invested, inflation falls.

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Cosmos is a unique project. Interoperability is essential for blockchain technology, if blockchain technology is to see mass adoption. Cosmos Hub has seen a lot of growth over the past few years and it continues to grow. Popular blockchains such as Crypto.com, Fetch.ai and Kava run as zones on the Cosmos Network. Cosmos truly lives up to its nickname, “The Internet of Blockchains.” However, the inflationary nature of the token makes this less attractive to investors.