What is Cosmos Crypto? 11 steps that will get you up to speed 

Published: 14th May, 2022 | Last Updated: 19th September, 2023

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

Cosmos calls itself the Internet of Blockchains. So what is Cosmos Crypto exactly?

The team behind Cosmos views the future as being multi-chain rather than one-chain-to-rule-them-all.

In the early days of crypto, most proponents took a maximalist stance supporting one blockchain only.

You were either pro-bitcoin, pro-Ethereum, etc.

With the growth of various altcoins to significant market caps it is becoming apparent that the future is multi-coin.

It will therefore be imperative that all these blockchains are able to talk to each other.

BTW before we move on I am going to assume you understand what Ethereum is. If you don’t I recommend you read my article: What is Ethereum.

what is cosmos crypto
Cosmos calls itself “The internet of blockchains”. Source: cosmos.network

1/11. How Cosmos is like the internet

Cosmos’s co-founder Ethan Buchman compares the Bitcoin / Ethereum maximalist stance to that of IBM in the internet’s early days.

IBM thought there would be one mainframe supercomputer in some basement somewhere to which terminals would connect.

Yet the internet evolved quite differently.

It became this distributed ecosystem of powerful computers in people’s homes.

Each person can customize their hardware and software how they see fit.

To make this all happen people came to an agreement to use certain protocols such as SMTP for email and TCP/IP for sending data packages over the internet.

Ethan claims that we are still very early in the whole Web3 and crypto evolution.

He draws similarities with how TV originally tried to adapt theatre to TV.

At the time, the camera was static and filmed actors as if they were in a theatre play.

It is only over time that they moved away from that paradigm and started using the new production means to their full capacity.

Cosmos network analogy
Crypto today is like early TV. Source: britannica.com

Similarly, when the internet first came about, websites tried to adapt magazines to the online medium.

Only later did the internet come into itself with things like social media feeds, e-commerce sites and login buttons.

early internet example
Amazon.com’s first rendition of their site. Source: howchoo.com

2/11. What is Cosmos crypto and how does it work?

Like many others, Ethan believes that the crypto industry has yet to fully manifest.

It will therefore be critical there be some protocols that establish a common language between blockchains.

Cosmos’s Inter-Block Communication (IBC) protocol is one such effort that is already making this become a reality.

IBC effectively allows blockchains to connect to each other. You can think of the IBC interoperability protocol as being equivalent to TCP/IP.

At the core of the Cosmos Network sits the Cosmos Hub.

This is the first blockchain on Cosmos.

If you have read about Polkadot, it is similar to Polkadot’s Relay chain.

The Cosmos Hub wants to be the one-stop shop for all things blockchain.

Think of it as the equivalent of Shopify for someone who wants to build an e-commerce site.

When building an e-commerce store you can either get someone to code everything up from scratch or you can open a Shopify account and, hey presto, your e-commerce site is good to go.

At the heart of the Cosmos Hub is the Cosmos SDK.

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3/11. What is the Cosmos SDK?

SDK stands for Software Development Kit.

Think of it as a collection of ready-made tools for the specific type of app you want to build.

The Cosmos SDK contains all the tools you need to build a blockchain.

This is very different from Ethereum’s proposition.

Let me explain how.

Why Cosmos claim they are better than Ethereum

On Ethereum, you can build a decentralized application using its smart contract functionality.

This sounds great because all the blockchainy stuff happens in the background (validators, security, consensus, etc.) while you can focus on building your dapp.

But there are a few problems with this

Ethereum drawbacks vs. Cosmos

  1. What you end up doing is limited by the functionality baked into Ethereum’s smart contracts. For example, it is not possible to implement automatic execution of code on an Ethereum virtual machine. Also, the number of functions is limited. This means that smart contracts are not as flexible as you would think.
  2. If everyone is building on Ethereum then there is competition for processing power which can restrain performance and lead to high fees. This is what is happening with Ethereum nowadays.
  3. A decentralized app on Ethereum is not completely self-sovereign since it relies on the decisions of Ethereum’s governance. If you’ve got a bug that is due to the structure of the Ethereum platform then the Ethereum community may not consider it as urgent to address as you might.

The team behind Cosmos argues that the Cosmos SDK model is far superior because you can build an application-specific blockchain.

In fact, they claim a 10x improvement in performance.

An application-specific blockchain is not only self-sovereign and more performant but it is comparatively more flexible.

Ethan Buchman tweets about Cosmos values after the Terra – Luna crash. Source: Twitter.com. If you don’t know much about the infamous crash you should read: Why Did Luna Crash

The Cosmos SDK allows you to choose the programming language and directly add the consensus mechanism of your choice as if you were picking up fruit at the greengrocer’s.

Today there is only the Tendermint consensus mechanism on offer.

However, in the future, they plan to offer more options.

Overall, flexibility, modularity, and ease of implementation are key reasons why developers and apps are flocking over to Cosmos.

Which blockchains are using Cosmos crypto

Currently, there are 265 apps, blockchains, wallets, and explorers that were built using Cosmos.

These include big names like Terra, Binance Smart Chain, THORChain, Crypto.com, Injective Protocol, Juno, Loop Finance, OKExChain, and Polygon Matic; you get the picture.

You can find out more about some of these below

Apps built on Cosmos
Apps on Cosmos. Images sourced and collected on: cosmos.network/ecosystem/apps

Ok! Up until now I have been walking you through Cosmos crypto in a fuzzy way.

Time to put some structure in place.

4/11. Cosmos crypto layers and structure

We have talked about the SDK which is the make-your-own-lego type of kit.

It has all the tools you need.

At one conceptual level below that we have the blockchain that Cosmos uses.

Conversely, at a higher level, we have the Inter-Blockchain Communication (IBC) protocol which allows blockchains to talk to each other.

Let’s examine the blockchain in more detail.

The Cosmos blockchain uses a consensus mechanism called Tendermint.

5/11. Tendermint consensus mechanism

First developed by Jae Know, the Tendermint consensus mechanism is Byzantine Fault Tolerant (BFT).

Huh? Byzantine whatie?

If you don’t want to geek out completely then just know that BFT means that even if a third of the machines participating in the blockchain fail, the consensus mechanism will still work.

If you do want to geek out you can read the section below.

What Byzantine Fault Tolerance does

Byzantine refers to Byzantium, the Roman/Greek Christian empire that had its headquarters in Constantinople which is modern-day Istanbul in Turkey.

The empire was frequently attacked by marauding tribes from the East.

Imagine enemy army generals that are distributed around the city.

They need to either all agree to attack or all agree to retreat.

If half of them attack while half retreat it could lead to serious losses.

The generals and their respective armies are stationed away from each other and they need to send couriers carrying messages to each other.

The problem is that the courier may get intercepted by the enemy or, even worse, some of the generals may act maliciously and confuse the rest by enticing some to attack and the rest to retreat.

Byzantine generals problem
Byzantine generals’ problem. Source: medium.com

I am sure you can see the analogy of generals being nodes in a network and the messages being transactions in a blockchain.

We are not going to do a complete technical analysis here but suffice it to say that a Byzantine Fault Tolerant blockchain can deal with stuff breaking.

For this reason, BFT consensus mechanisms are generally thought to be robust.

However, do not translate this in your mind as 100% secure.

The Cosmos Network could still theoretically come under attack.

In a simulation, it was shown that if 55% of validators colluded they could overpower the blockchain.

Cosmos crypto consensus mechanism

Tendermint uses a proof-of-stake mechanism to verify transactions.

The Cosmos crypto team uses this fact to say that they are eco-friendly.

You will probably already know that Ethereum is transitioning to proof-of-stake and that there are a large number of other blockchains using proof-of-stake consensus mechanisms.

What’s a consensus mechanism again?

For the newbies here, a consensus mechanism is just a way for everyone to agree on what happened.

For example, Gina transferred John $10 worth of a token.

This information goes in a block.

Subsequently, a bunch of code and cryptography ensures everyone agrees that this is the truth after which the block gets added to the chain.

And there you have it: your immutable blockchain with all transactions that have ever happened.

The high adoption of the Tendermint blockchain indicates that most people in the industry have faith in this type of blockchain.

So enough about blockchains. Let’s go on to explore IBC

6/11. Inter-Blockchain Communication Protocol

Right! Imagine you have used the Cosmos SDK to quickly build your own blockchain that uses the Tendermint BFT consensus mechanism.

Everything is working great: you now have a flexible, secure, performant, and self-sovereign app.

What else could you possibly need?

Well, what if you want your blockchain app to talk to other blockchain apps?

Enter IBC, the Inter-Blockchain Communication protocol.

IBC is equivalent to the modern-day internet but for blockchains.

It allows blockchains to send tokens and data to each other.

How does Cosmos Crypto IBC work?

Here is a short description:

Say blockchain A wants to send some MadTokens to blockchain B.

How Cosmos crypto IBC works
How Cosmos IBC works. Source: v1.cosmos.network/intro

Because we are talking about blockchains we are effectively talking about ledgers. So in reality we are not sending stuff; we are merely updating the respective ledgers on each blockchain.

Anyways, blockchain A proceeds to update itself and uses a cryptographic mechanism to lock up, or bond, 10 MadTokens.

Using IBC, blockchain A relays a proof to blockchain B that it has now bonded 10 MadTokens.

Blockchain B in turn verifies the proof using cryptography. If all is good then B will create 10 MadToken vouchers on its chain.

Note that these are not real MadTokens but something like a receipt showing that they represent the MadTokens that are bonded on A along with a proof that this is so.

To all intents and purposes, it is as if MadTokens have moved from one blockchain to another.

Conditions for IBC to work

The IBC is just another module that is part of the Cosmos SDK. But for IBC to work two conditions need to be met:

  1. First the blockchains need to have fast finality. Finality means that transactions have entered into the blockchain and are unalterable. Many blockchains fulfill this criterion especially those that have used the Cosmos SDK to build their blockchain.
  2. Succinct client proofs. This means the whole database hashes up to a hash that proves no one has messed with the state. Most blockchains can offer this to prove that data is accurate.

As a result, any two blockchains can talk to each other no matter how different they may be in their actual setup.

For example, through IBC a public blockchain can talk to a private blockchain belonging to a banking conglomerate.

To connect each blockchain to another directly would require the network to grow quadratically which is inefficient.

complex network
Complex network example. Source: springer.com

In order to simplify the process Cosmos uses a hub and spoke model.

7/11. Cosmos Hub

The Cosmos Hub was the first blockchain to be created on the Cosmos Network.

What is cool about it is that it allows other blockchains to relay information through itself.

You can visualize it as being a hub to which all other blockchains (called zones) in the network connect, to relay their messages via IBC.

The hub-and-spoke model is a much more efficient way of organizing communication compared to the messy quadratic model above.

Cosmos hub and spoke model
Cosmos hub and spoke model. Source: v1.cosmos.network

The founders of Cosmos Crypto liken the Cosmos Hub to a port city.

It’s a comfortable place to live but more of a mesh of cultures and mosaics to expand from.

“Port cities are where distant cultures and economies and imaginations come together as dynamic, vibrant living spaces,” write the authors.

Below you can check out all the blockchains that connect to the Cosmos Hub.

map of zones on cosmos
The cosmos blockchains connect to the Cosmos Hub. Source: mapofzones.com

The Cosmos Hub secures its proof-of-stake blockchain with its native token called ATOM.

8/11. The ATOM token

ATOM is the native staking coin used on Cosmos.

It is used for securing the network and allows holders to vote on governance issues.

The staking rewards are 8% per year and currently, 70% of ATOM is staked.

There is no ceiling to the amount of ATOM that can exist so the staking rewards exert downward pressure on its price.

Ethan claims that people are not paying enough attention to the velocity of money.

Yes, store of value and sound money are useful concepts but it is somewhat equivalent to stuffing your mattress with cash.

For money to have an economic impact on society, he wants to see money move.

He believes ATOM can be just such a type of money as it flows through the Cosmos Network.

I don’t fully get it but I accept it.

9/11. Who built Cosmos Crypto?

The founders of Cosmos are Jae Kwon and Ethan Buchman.

Jae was first to start working on Tendermint in 2014.

He is currently the president of the Interchain Foundation which focused on the development of core protocols such as Tendermint and IBC.

Jae Kwon and Ethan Buchman
Jae Kwon (left) and Ethan Buchman, creators of Cosmos. Source: forbes.com

Ethan is currently the CEO of Informal Systems which is one of the core developer companies focusing on Cosmos.

For example, Informal Systems built the IBC relayer which is responsible for making IBC function.

They also build tools for coders and run security audits to identify complex bugs.

The ideological attitude of the Cosmos team is evident in Informal Systems’ organizational structure.

Rather than following a strict corporate structure they follow a cooperative model.

10/11. Cosmo’s values and mission

The team behind Cosmos Crypto has a strong ideological angle. Ethan Buchman talks about going from degen finance to regenerative finance.

What is the meaning of degen in crypto?

Degen is a popular crypto Twitter meme alluding to the new generation of crypto adopters who have dropped everything to work on crypto and are willing to experiment.

They believe others may see them as degenerates while they are actually building a brave new world.

On the other hand, degens talk about taking a token “to the moon” and making so much money that they can easily afford a Lamborghini (“wen lambo?”).

How Cosmos stands apart from degens

The Cosmos team looks down on the gambling and speculative nature of degens.

Like many in the space, they believe that blockchains can have a positive impact on society.

They would like to take all the learnings around how tokens incentivize certain behaviors and apply them to global problems such as climate change, land use, and so on.

They also view the distributed nature of Cosmos as key to this.

Instead of one global solution, building on Cosmos allows people to develop more diverse solutions to meet region-specific problems.

Ethan refers to crypto also becoming co-opted by banks, Facebook, and a new generation of rich people who act like the old guard.

In the next few years, Ethan expects there will be thousands of IBC chains that allow different blockchains to connect to each other.

11/11.Wrapping up Cosmos crypto

“We’re just getting started” is a phrase you often hear crypto investors use to describe the crypto industry.

As foundations are still being laid down Cosmos’s interoperability could be the head cornerstone (Any Bob Marley fans out there?).

Cosmos’s mission is to unlock value that is locked in silos and allow it to flow throughout the crypto ecosystem.

While there are a plethora of blockchains that claim to be ETH killers, Cosmos does not place itself in that bucket.

They believe any group of stakeholders will want their own blockchain. And the easiest way to do this is on Cosmos.

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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