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Cosmos is a project which aims to create an ecosystem of parallel blockchains that are able to both scale and interoperate together. Cosmos-based blockchains can now incorporate the recently launched Inter-Blockchain Communication (IBC) protocol. This is an industry standard that enables inter-blockchain communication, making Cosmos a strong contender in the field of blockchain interconnectivity.
 

Beginnings

Cosmos is a blockchain project aiming to facilitate connection and interaction between blockchains with different functionalities. The team behind it describes Cosmos as an “Internet of blockchains”. Cosmos claims to deliver scalability, usability and interoperability which are all characteristics required to achieve the broader adoption of blockchain technology.

The Cosmos blockchain was born in 2014 as a product of the Tendermint company. Similar to a number of crypto projects at that time, Cosmos was created as an answer to some of the perceived problems of Bitcoin’s proof-of-work algorithm, limited scripting language and lack of flexibility. Behind Tendermint was Jae Kwon, computer scientist, whose name for a long time was associated with Cosmos. In a 2017 ICO the project raised $17M, and in 2019 the Cosmos mainnet went live.

Tendermint, a BFT protocol, is the name of the consensus protocol of Cosmos. Its name “BFT” stands for “Byzantine fault tolerance” and refers to a “Byzantine Generals Problem”, well-known in the field of computer science. The problem describes a situation where decentralized actors in the system must agree on a common strategy, while some of the actors are malicious and cannot be trusted. Tendermint Core is a proof-of-stake algorithm which is supposed to be faster and more scalable compared to proof-of-work blockchains like Bitcoin.

In 2020, Cosmos weathered an internal storm when Jae Kwon resigned from the position of the project’s CEO, allegedly to work on another project. The event raised many discussions in the blockchain community on the importance of an individual behind a project for its survival and success. To date, with the market capitalization fluctuating around $4B Cosmos is among the top-25 cryptocurrencies. The research and development projects on Cosmos blockchain are promoted and supported by grants from a Swiss-based Interchain Foundation.
 

Uses

The major goal of the Cosmos blockchain is to connect other blockchains with each other, through expanding their functionalities and improving their efficiency.

The vision for the Cosmos use-cases presented in its white paper included hosting distributed exchanges, bridging to other cryptocurrencies like Ethereum and multi-application integration.

To date, more than 70 applications run their mainnets on Cosmos, while 57 more are at a proof-of-concept stage. The main areas of applications include finance (including decentralized exchanges), infrastructure, privacy and social interactions. For example, Binance Chain – a Binance project aimed to create a marketplace for issuing, using, and exchanging digital assets – is built using the Cosmos SDK. Other examples of the Cosmos projects are DATA – a blockchain based digital data authentication protocol, and CyberMiles – a blockchain for e-commerce.

Structurally, Cosmos consists of the interconnected blockchains running on Tendermint Core- so called “zones”. Cosmos Hub is the central zone connected with all the others. The communication between zones is mainly focused on token transfers and is facilitated by the inter-blockchain communication protocol which is a TCP/IP-like messaging protocol for blockchains. All token exchanges between blockchains go through Cosmos Hub which ensures their tractability.

To facilitate the development of multi-functional applications on Cosmos and increase its attractiveness to developers, Cosmos is using Cosmos SDK. It is an open-source modular framework that allows developers to build interoperable, customized blockchains.

As Cosmos is a proof of stake blockchain, investors can earn rewards by staking its native token ATOM. According to Staking Rewards, the annual reward for staking ATOMs to date is 8,97% on average, with variations between the service providers.

 

Future Outlook

Trying to solve the blockchain interoperability problem, Cosmos is competing in the field with some heavy-weight players like Polkadot. Despite having some functional and structural differences like different approaches to the blockchain security and inter-blockchain transactions characteristics, Cosmos and Polkadot ultimately compete to create a global “Internet of blockchains”. Cosmos mainnet went live earlier than Polkadot, and benefited from early adoption while Polkadot has seen strong growth since its launch in 2020.

In February 2021, Cosmos launched the Stargate update on Cosmos SDK where the long awaited inter-blockchain communication protocol (IBC) was finally implemented. In addition, the update introduced a number of improvements to the Cosmos protocol and developers’ experience. The launch of IBC aims to make it easier to build on the Cosmos network, especially for cross-chain applications, and perhaps in the future more DeFi applications and decentralised storage.

Overall, Cosmos presents a strong case trying to solve the blockchain interconnectivity problem. Its future success largely depends on the long-term performance of the Cosmos technology and the flexibility of its strategy in response to the competitors’ moves. It is quite possible that there is enough room for several projects on the interconnectivity market to accommodate more specialized demand.