What is Cosmos?
Cosmos is a decentralized, scalable, interoperable ecosystem of interconnected, independent blockchains running on the Tendermint Core protocol. It is based on the Byzantine Fault Tolerant (BFT) consensus mechanism, which is used to scale public PoS blockchains.
Cosmos aims to create a “blockchain internet,” that is, a blockchain network in which participants are able to interact in a decentralized way.
Who created Cosmos and when?
The creator of Cosmos is an American programmer and entrepreneur named Jae Kwon. He graduated with a bachelor’s degree in computer science from Cornell University in 2005 and then worked in Silicon Valley at Alexa and Yelp.
According to Kwon, participation in these projects, “inspired by the spirit of cipherpunk and hacking,” led him to work on Tendermint:
“Around 2013, I decided to get into blockchain and create a Proof-of-Stake (PoS) based system. At the time, developers didn’t know how to accomplish such a task, so I put it off for the future and started working on a cryptocurrency exchange,” Kwon said.
Kwon got his hands on about a hundred scientific publications dating back to 1988. Among those materials was an article titled “Consensus in the Presence of Partial Synchrony,” written by MIT professors Cynthia Dwork and Nancy Lynch and co-authored by Larry Stockmeyer of California’s IBM Almaden Research Center.
The authors of the paper presented the results of research on classical BFT and all the components needed to create a PoS system. Starting to work with these calculations, Kwon came up with the idea of creating a BFT protocol based on Proof-of-Stake, able to scale up to hundreds of nodes in a decentralized environment.
Thus emerged the concept of Tendermint, the first Proof-of-Stake consensus algorithm created using the Practical Byzantine Fault Tolerance (PBFT) protocol, which was proposed in 1999 by MIT employees Barbara Liskov and Miguel Castro.
“At the time, bitcoin as a global currency was a major concern for us – mainly because of its incredible energy intensity. So we launched Tendermint to create a more environmentally friendly cryptocurrency,” Kwon said of Cosmos’ initial development period.
In 2014, Kwon founded software development company Tendermint Inc (All in Bits Inc) headquartered in California. That same year, the team unveiled a whitepaper of the project.
In 2015, developer Ethan Buchman, a graduate of the University of Guelph in Canada who was then working at Eris Industries (later renamed Monax), joined the project. Kwon and Buchman founded the nonprofit Interchain Foundation (ICF), where they served as president and vice president, respectively.
In the summer of 2016, Tendermint held its first round of funding. With the funds raised, the number of developers grew to seven.
The team launched Ethermind on Tendermint, as well as Basecoin, a framework for creating cryptocurrencies that uses the Go programming language (Golang) and allows supporting plugins with all kinds of additional features. With its help, developers began creating the first iteration of Cosmos Hub.
The Cosmos ICO took place on April 6, 2017, raising $17.3 million in ETH, BTC and US dollars. Approximately 75% of the stock of available tokens was sold out; 5% was reserved for seed investors; All in Bits Inc. and the Interchain Foundation received 10% each.
Subsequently, in an interview with ForkLog, Ethan Buchman clarified that the organizers did not position the public fundraising as an ICO because they did not target “those who would purchase a token for financial gain, but rather those who were genuinely interested in the underlying technology, vision and values of the project.”
In 2017, the Interchain Foundation, which promotes technology and decentralized applications of the Cosmos ecosystem, contracted with All in Bits Inc to develop the Cosmos Network.
In February 2018, Cosmos joined the Ethereum Community Fund (ECF), an initiative to create a special fund to accelerate the development of blockchain infrastructure and dapps.
In March 2019, the Tendermint Inc. team announced the launch of Cosmos Hub, the first in a series of Proof-of-Stake blockchains designed to become parts of the Cosmos ecosystem.
What is the Cosmos Core protocol?
Cosmos is based on the Tendermint Core protocol, which uses Tendermint, a BFT consensus algorithm.
The consensus algorithm is the way in which nodes in a distributed system come to an agreement about the state of the environment. Only algorithms that are resistant to Byzantine crashes are relevant in the public blockchain realm. There are two families of consensus protocols in this class of algorithms: classical consensus protocols such as PBFT, and Nakamoto Consensus protocols such as Proof-of-Work.
Tendermint is based on the operation of the classical BFT consensus and provides a one hundred percent guarantee of transaction finality, deterministic algorithm for block production, and presumption of state of simultaneity.
Unlike Proof-of-Work-based blockchains, blocks in Tendermint are finalized as soon as they receive 2/3 + 1 signatures from validators – they cannot be reversed or changed.
In consensus Nakamoto networks, such as Bitcoin, transactions are typically finalized after six confirmations, after which time the probability of block reversibility through chain reorganization is extremely low.
However, the number of confirmations depends on the mining power of the attacker. In recent years, this factor has often been used to carry out 51% (double-spending) attacks, whose organizers have stolen millions of dollars in various cryptocurrencies. Using a consensus algorithm with deterministic finalization (such as Tendermint), it is possible to guarantee irreversibility of transactions after block finalization.
Prioritizing security over viability
When a PoW network splits into two chains, it eventually reorganizes itself by choosing the longest chain as canonical and rejecting the transactions of the other chain. In Tendermint, however, when a network splits, the protocol chooses not to make further progress until more than 2/3 of the validators come to an agreement again. This choice should ensure that there is always “one source of truth” and that the blockchain always maintains consistency.
This makes the Tendermint consensus not as fast in terms of blockchain finalization as other PoS consensuses, but completely removes uncertainty from users about their transactions – if a block with a transaction has been finalized, the transaction will never be rolled back (without changing the logic of the algorithm), and if the network is split or validators are disabled, no transaction will be finalized.
A synchronous network has a known upper limit on message delivery time. Bitcoin has a limit of 10 minutes, which imposes an artificial time delay on all network participants.
Tendermint uses a partial synchronicity assumption model – no time lock is required for blockchain progress. The “bottleneck” in blockchain progress is the actual speed of the network, not the artificial time delay set by the protocol. Thus, Tendermint proves to be faster than most other Proof-of-Work-based protocols.
What are the key components of the Cosmos ecosystem?
Cosmos, positioned as “blockchain 3.0,” contains three key components:
Cosmos Hub is the first blockchain launched as part of the Cosmos Network blockchain ecosystem, and the centerpiece of the ecosystem. Its main task is to account for the total number of tokens in each zone (blockchain) in the ecosystem, so that zones can directly transfer tokens to each other.
Cosmos Hub uses the Tendermint consensus algorithm, through which validators deposit (stack) ATOM tokens.
ATOM is a native Cosmos Hub asset that is divided into 1 million micro-ATOMs (uATOMs).
The ATOM token serves as a working token: users can perform the stacking themselves or delegate tokens to the validator, thus increasing its rating and receiving a portion of the profits.
Depending on the number of tokens aggregated, the validator has a proportional share of the vote, allowing it to create blocks and be rewarded with new ATOM tokens (between 7% and 20% of the total issue is issued each year).
Validators pass on a portion of the reward per block (net of network tax) to delegating users. Similar to PoW networks, validators charge a fee for aggregating “vote shares. The validator must honestly validate blocks, participate in system management and a high-performance hardware server that costs from $10,000 to operate (the price will increase as the blockchain grows). A validator unable to perform these tasks is stripped of its tokens and its corresponding status. The architecture of a validator can vary. The level of security depends on it, among other things. As a rule, as the security level of the architecture increases, so does its cost, including maintenance. To get into the active set, the validator needs to pass a threshold level. As of this writing, a validator at 125 has just under $250,000 delegated to it. Thus, if a validator does not have this amount, or no one delegates it, he or she will not get into active enrollment.
Only 125 validator slots are available in the first year after the launch of the core network; the plan is to grow that number to 300 in the next 10 years. The network inflation index is capped at 7% minimum and 20% maximum. The reward per block is adjusted according to a stated target participation rate of 2/3 (66.66%). All tokens must remain in the stack for 21 days so that owners cannot sell out immediately after stacking.
The network tax goes into a reserve pool, the funds from which are used to enhance the security of the Cosmos Network.
The project could also issue or implement an airdrop of a secondary Photon token intended solely for transaction fees. According to the plan, Photon tokens would be generated by validators and stackers. Photon parameters will be determined by a vote.
IBC (Inter-Blockchain Communication) Protocol
IBC (Inter-Blockchain Communication) Protocol is a standardized interoperability protocol, which cryptographically proves that a message was sent from one zone to another.
The purpose of IBC is to transfer not only tokens, but also any data. This allows to create not only decentralized exchanges and automated market makers, but also any decentralized applications from marketing, logistics, etc.
Cosmos architecture includes two classes of blockchains: Hubs and Zones.
Zones consist of blockchains with fast transaction finality, while Hubs are blockchains that link zones together. The difference between the two lies solely in the plane of social consensus. A zone (blockchain) is a blockchain that operates using the Tendermint consensus algorithm. In fact, a hub (a center connecting several blockchains) is the same as a zone. Their conditional distinction is due to the strategic scheduling of one blockchain’s connections to others by means of an IBC.
The IBC locks a certain number of ATOM tokens in the first blockchain (zone), then sends confirmation and validation to the second zone, after which the previously locked tokens are released on the second blockchain. This scheme facilitates the release and creation of tokens representing assets on other blockchains.
The protocol is compatible with blockchains in which transactions are validated instantly or nearly instantly. Thanks to finality guarantees, achieving blockchain interoperability is quite easy: once a transaction of a certain type is finalized in both blockchains, it can be assumed that the transaction was sent from one blockchain to the other.
Bitcoin and Ethereum, which use the PoW consensus algorithm, are not directly compatible with IBC protocols, but these and other blockchains that lack fast finalization can also be used in IBC thanks to Peg Zones proxy chains. They set a finality threshold of 100 blocks, the passing of which serves to guarantee the irreversibility of the transaction.
Peg Zones are based on Peggy, an interoperability protocol created by Cosmos between Tendermint blockchains and PoW systems. Once the finality threshold is reached, the transaction is assumed to be finalized. This state is then passed back to the Cosmos “pseudo-finality” ecosystem via Peg Zones.
The first Peg Zone for Ethereum was launched in 2018. Since then, several other blockchains, such as Loom, have announced compatibility with Cosmos Hub. With IBC and various Peggy-like schemes, Cosmos expects to achieve interoperability across all existing blockchains.
The Cosmos SDK is a framework that allows developers to create their own customized blockchains based on the Tendermint consensus algorithm.
Previously, developers had two options – write a blockchain from scratch or build it on Ethereum or variations thereof. The process of building a blockchain on Ethereum is relatively simple – one can connect to Ethereum’s network and consensus layers and build their own application on EVM, but the developer has to sacrifice customization capabilities.
Solving this problem, the Cosmos SDK allows building blockchain systems without being distracted by the consensus and network layers and focusing directly on creating application logic.
Creating your own blockchain requires a set of validators, which is unattainable for those who develop decentralized applications at an amateur level. It would be easier and faster for them to deploy a contract on Ethereum. Understanding this, the Cosmos team, with the Cosmos SDK, has created an Ethereum clone, Ethermint, where a set of validators is available and developers can use their code on Ethereum without worrying about customization.
How is Cosmos evolving?
- In May 2019, the Tendermint team working on Cosmos reported a successful update to the CosmosSDK after a critical vulnerability was identified.
- In January 2020, Informal Systems spun off from the Interchain Foundation, which promotes technology and decentralized applications for the Cosmos ecosystem.
Amid conflict within the team, Tendermint Labs director Zaki Manian, a key director of the Cosmos developer, stepped down in February 2020, but continued to work on the development of the Cosmos blockchain ecosystem. The developers formed several independent teams, refusing to cooperate with Tendermint.
- In February 2021, the blockchain infrastructure platform PRC (BSN) added support for Cosmos to the localized version of the network. With the OPB initiative, developers can develop decentralized applications in the localized version of BSN in accordance with Chinese law.
- In March 2021, the IBC interoperability protocol was launched. At the same time, the project announced the creation of the decentralized exchange Gravity.
- In March 2021, the Tendermint project announced the launch of the Cosmos blockchain-based prospect support fund with $20 million in assets. Nominated in ATOM and IRIS tokens, Tendermint Ventures will be the largest fund in the Cosmos ecosystem.
- In April 2021, Plasm Network and Secret Network, based on Polkadot and Cosmos, respectively, launched the first iteration of the bridge.
Binance DEX, FOAM and Sentinel run blockchains based on Tendermint. Other projects, such as the IRIS Network, are building services and support services related to the Cosmos ecosystem. A full list of projects developing in the ecosystem can be found here.