Cosmos aims to create what they describe as the “‘Internet of Blockchains”, a network of blockchains able to communicate with each other in a decentralized way.
Cosmos is a network comprised of many independent blockchains, all of which use byzantine fault tolerant (BFT) consensus algorithms. Cosmos enables developers to build both permissionless and permissioned blockchains. The network launched with the release of its first blockchain, the Cosmos Hub, in 2019.
In 2017, the Interchain Foundation, a Swiss non-profit that funds open source blockchain projects, contracted for-profit Tendermint, Inc. (which also utilizes the name All Bits, Inc.) to develop and launch the Cosmos software. Tendermint was founded in 2014 by Jae Kwon, who developed his own byzantine fault tolerant (BFT) consensus mechanism earlier that year and started the company to develop business opportunities related to the algorithm.?
Kwon also co-authored the Cosmos whitepaper, and Tendermint raised $9 million to continue the development of the project through a Series A funding round in March 2019.
Cosmos is a network made up of many independent blockchains which utilize byzantine fault tolerant (BFT) consensus mechanisms, including Tendermint BFT. Each individual blockchain maintains control of its own governance, but is interoperable with other blockchains in the network. Blockchains that do not utilize BFT algorithms can be connected to the Cosmos network via “adaptor” blockchains. Cosmos was not designed for one particular use case, but to be adaptable to suit many different use cases.
Cosmos has two types of blockchains: Zones and hubs. Zones are regular blockchains, while hubs are blockchains that connect zones with one another. The Cosmos Hub was the first blockchain (and hub) to be launched in the Cosmos ecosystem. It is a public, proof-of-stake (PoS) blockchain whose native asset is the atom (ATOM).
Launch and Issuance
Though atom is the native staking token of the Cosmos Hub, it is not the sole asset of the Hub or the entire network. The Cosmos Hub is a “multi-asset” blockchain and other blockchains in the network can have their own native assets.
Atoms enable network users to vote, pay for transaction fees, validate transactions or delegate transaction validation to other users. Atoms are also distributed to transaction validators and delegates as rewards. There is no cap on the total supply of atoms.
The Interchain Foundation conducted a two week initial coin offering (ICO) of the atom token in 2017 and raised more than $16 million. Prior to the sale, the foundation received commitments for individual contributions from “initial donors” that amounted to 5% of its funding goal. It also received “pre-funding” commitments from individuals and commitments from strategic partnerships that amounted to $1,329,472.
?After the ICO, one-third of the total number of atoms distributed through the sale was inflated and distributed to the Interchain Foundation, All in Bits, Inc. (also known as Tendermint), initial donors, pre-ICO donors and ICO donors. The Interchain Foundation and All in Bits both received 10% of tokens upon the mining of the genesis block. Initial donors received 5% and pre-ICO donors and ICO donors received 75% collectively.
Network Design and Security
Cosmos emphasizes the importance of interoperability, the ability for blockchains to transact data between each other. The design of the system incorporates three layers, Tendermint: A byzantine fault tolerant (BFT) consensus algorithm compatible with any programming language, Cosmos SDK: A tool to simplify building applications, and IBC: The inter-blockchain communication protocol as a basis for exchange between each zone. An SDK is a software development kit; the structure of the kit is divided into fixed standardized modules, or packages.
The Cosmos Hub was the “first” zone to launch, and hosts a native staking token, atom. Atoms enable network users to vote, pay for transaction fees, validate transactions or delegate transaction validation to other users. Atoms are also distributed to transaction validators and delegates as rewards.?The Cosmos Hub also incorporates other digital assets and connects zones within the network.
Tokens can be exchanged between zones without the need for liquidity between them because all token transfers are routed through the Cosmos Hub. The Cosmos Hub tracks the amount of tokens held on each zone, and is also intended to insulate zones from other failing zones.
There is no cap on the total supply of atoms. Block rewards are issued to validators and delegators for staking atoms, validating transactions or for delegating transaction validation to other users.
The amount of tokens created with each block is dynamic depending on the staking rate in the Cosmos network. The target stake rate is 66% of all tokens. The inflation will fluctuate between an upper bound of 20% and a lower bound of 7%.?
If the stake rate is below the target, inflation will increase toward the upper limit of 20%, and more tokens will be distributed as reward. The target inflation rate began at 7% and recalculates each block. There is no limit to the amount of atoms.
The first blockchain, or zone, the Cosmos Hub, is powered by the Tendermint BFT consensus algorithm, which is also a proof-of-stake algorithm. Tendermint requires validators to use cryptographic signatures to commit blocks, thereby taking ownership of their validation. Non-validators delegate their staking tokens to any validator to earn a portion of the block rewards and fees.
Within the Cosmos Hub, anyone can stake their atoms and delegate their stake to a validator, but a validator must have hardware that runs specific software to validate blocks. Outside of the Cosmos Hub, the other individual blockchains may have their own governance models.
To move a transaction from one blockchain to another, a proof is posted on the receiving chain. The IBC protocol defines this as an IBCBlockCommitTx. The proof, observable by anyone,?states that the sending chain published a packet for the alleged destination. Then the IBCPacketTx allows the blockchain to verifiably prove to anyone the data packet (transaction) has been published by the sender via the proof. These IBC transactions, transactions between “zones,” are carried out through the Cosmos Hub and must be validated on both chains.?