What is Cosmos (ATOM)? | Cosmos Explained for Beginners

what is cosmos

What is Cosmos?

The first thing you should know about Cosmos, is that they are the self-proclaimed ‘internet of Blockchains’. The goal of Cosmos is to unite networks through open-source tools and applications and streamline transactions between them. Interoperability is the key focus of the blockchain and it’s what sets it apart from the rest. The Cosmos network was created in 2014 by developers Jae Kwon and Ethan Buchman, helped by the Interchain Foundation (ICF). Kwon and Buchman created a consensus algorithm called Tendermint – this is the power behind Cosmos, and then later authored the Cosmos white paper.   

The Interchain Foundation held a two-week initial coin offering (ICO) of the native token ATOM in 2017, at the time raising over $17 million. Tendermint Inc. raised $9 million to continue development of the project through a Series A funding round in 2019. There are currently more than 262 apps and services in the Cosmos network, including Binance Smart Chain, Terra, Crypto.org, and Cosmos Hub, with over $130 billion of digital assets under management (AUM).

How Does Cosmos Work?

Rather than the prioritisation of its own network, the goal of Cosmos is to create an ecosystem of networks that share data and tokens, with no central party or authority facilitating the activity i.e. fully decentralised. Each new independent blockchain created within Cosmos (called a “zone”) is then tethered to the Cosmos Blockchain, which maintains a record of the state of each zone and vice versa. The Cosmos development team have built a software development kit (SDK), allowing developers to build blockchains using the Tendermint BFT (Byzantine Fault Tolerance) engine and consensus algorithm – offering the common functionality contained among most blockchains (staking, governance, tokens). Developers can then build any additional features they want to have.

When a new blockchain (zone) is created within the Cosmos network, it can carry out its essential functions on its own. This includes the authentication of accounts and transactions, creation/distribution of new tokens and executing changes to the zone. These zones are connected within the Cosmos network via something called: The Inter-Blockchain Communication protocol (IBC). This protocol enables information to travel freely and securely between each connected zone. Once a zone is connected within the Cosmos network, it becomes interoperable with every other zone connected to the network. This gives the opportunity for blockchains with vastly different applications, validators, and consensus mechanisms to exchange data.

The Cosmos Token - $ATOM

Cosmos, itself, is a proof-of-stake (PoS) blockchain, which is powered and secured by the native ATOM token. The ATOM token plays a key role in maintaining the interoperability within the wider Cosmos network, and can be used for either sending/receiving, spending, or staking. By staking ATOM, users gain the ability to vote on things such as network upgrades, and voting power is proportional to the number ATOM that is staked. Cosmos rewards validators with ATOM based on how many tokens they are staking, and those delegating receive a small percentage of that reward. One thing to consider is that there is no limit on the supply of ATOM tokens. Cosmos adjusts the number of tokens created based on the number of ATOM being staked. As of 2020, this results in an annual inflation rate of anywhere between 7% and 20%.

What’s Next for Cosmos?

Over the past year Cosmos have been working on delivering improvements to their Gravity DEX and Gravity Bridge, building a scalable automated money maker (AMM) model for token swaps and facilitating the transfer of ETH and ERC-20 tokens across the bridge. Given that NFT’s burst onto the scene in 2021, for 2022 Cosmos will adding an NFT module to their SDK to give developers and projects the ability to manage NFTs going forward. V2 of Liquid Staking is following fast, and the P2P team behind Lido have drafted a proposal that will make this a significant part of the Cosmos ecosystem. 

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