Everything you need to know about Cosmos (ATOM)

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What is Cosmos? (ATOM)

Heralded as an “Internet of blockchains” by its founding team, Cosmos (ATOM) plans to create a network of crypto networks united by open-source tools for streamlining transactions between them. 

It’s this focus on customizability and interoperability that makes Cosmos different from other projects.  Rather than prioritizing its own network, it aims to foster an ecosystem of networks which shares data and tokens programmatically, with no central party facilitating the activity. 

Each new independent blockchain created within Cosmos (which is called a “zone”) is then tethered to the Cosmos Hub, that maintains a record of the state of each zone and vice versa. 

The Cosmos Hub, a proof-of-stake blockchain, is powered by its native ATOM cryptocurrency. 

Who created Cosmos?

The Interchain Foundation (ICF), which is a Swiss non-profit that funds open-source blockchain projects, is the organization that developed and launched Cosmos. 

Developers Jae Kwon and Ethan Buchman co-founded the Cosmos network in 2014, at the time creating Tendermint, the consensus algorithm that would go on to power Cosmos project. 

Then Kwon and Buchman authored the Cosmos white paper, and released its software in 2019.  

The Interchain Foundation held a two-week initial coin offering (ICO) of the ATOM token 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.
 

How does Cosmos work?

The Cosmos network is made of three layers:

  • Application – Processes transactions and updates the state of the network
  • Networking –  enables communication between transactions and blockchains
  • Consensus – Helps nodes agree on the current state of the system.

In order to tie all the layers together, and to enable developers to build blockchain applications, Cosmos relies on a set of open-source tools. 

Tendermint

The most important element to this layered design is the Tendermint BFT engine, the part of the network that enables developers to build blockchains without having to code them from scratch. 

Tendermint BFT is an algorithm used by the network of computers running the Cosmos software to secure the network, validate transactions and commit blocks to the blockchain. It connects to applications through a protocol called the Application Blockchain Interface.

Tendermint Byzantine Fault Tolerance (BFT)

Central to Tendermint is Tendermint Core, a proof-of-stake (PoS) governance method that keeps the distributed network of computers running Cosmos Hub in sync.

In order for the participants (“validator nodes”) to power the blockchain and vote on changes, they have to first stake ATOM. To become a validator, a node has to be in the top 100 of nodes staking ATOM. Voting power is determined by the amount of ATOM staked.  

Users can also delegate their tokens to other validators, allocating votes to them while still earning some of the block reward. 

Validators are incentivized to perform honestly, as users have the flexibility to easily switch between the validators they delegate ATOM to, depending on their voting preferences.

Cosmos Hub and Zones

The Cosmos Hub was the first blockchain to be launched on the Cosmos network. It was created to act as an intermediary between all the independent blockchains created within the Cosmos network, called “zones.”

In Cosmos, each zone can carry out its essential functions on its own. This includes authenticating accounts and transactions, creating and distributing new tokens and making changes to its own blockchain.

The Cosmos Hub is tasked with facilitating interoperability between all zones within the network by keeping track of their states. 

Inter-Blockchain Communication Protocol

Zones are connected to the Cosmos Hub via the Inter-Blockchain Communication protocol (IBC), a mechanism that allows information to travel freely and securely between each connected zone. 

When a zone is connected to the Cosmos Hub, it is interoperable with every other zone connected to the hub, meaning blockchains with vastly different applications, validators and consensus mechanisms can exchange data. 

Cosmos SDK

The Cosmos team has also create the Cosmos software development kit (SDK), enabling developers to build blockchains using the Tendermint consensus algorithm. 

Why does ATOM have value?

The ATOM token plays a key role in keeping interoperability between all zones in the wider Cosmos network, and can be used for holding, spending, sending or staking. 

As such, ATOM may become more valuable the more other blockchains are created within the network, relying on the Cosmos Hub to store their transaction histories. 

By owning and staking ATOM, users are able to vote on network upgrades, with each vote being proportional to the amount of ATOM they stake. 

Cosmos rewards validators with ATOM based on how many tokens they are staking, with the delegators receiving a small portion of the reward.

There is currently no limit on the supply of new ATOM that can be created. Rather, Cosmos adjusts the amount of tokens created based on the number of ATOM being staked. In 2020, this resulted in an annual inflation rate of anywhere between 7% and 20%.

Why use ATOM?

Users may find the Cosmos network appealing based on its focus on facilitating interoperability between blockchains. 

There are different projects built on the Cosmos network. Some examples include a price-stable cryptocurrency and a decentralized finance (DeFi) project enabling traders to leverage their assets. 

Investors may also seek to purchase ATOM and add it to their portfolio should they believe developers will flock to frameworks that allow them to launch custom blockchains.

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