Contents

• Cosmos explained
• Linking blockchains
• What makes Cosmos, Cosmos
• Cosmos (ATOM) coin
• FAQs

If we take Bitcoin as blockchain 1.0 and Ethereum as blockchain 2.0, Cosmos, it can be argued, is blockchain 3.0. The system, which is powered by the ATOM cryptocurrency, aims to change the way that we think about the blockchain and decentralised technology. What is cosmos (ATOM)? How does cosmos work? What is cosmos coin used for? Below, we will be answering those questions.

Cosmos explained

Before we do that, let’s take a look at the Cosmos network itself. Perhaps the most important thing about Cosmos is that it is not a blockchain but, instead, a series of individual blockchains connected by a series of open source tools that aim to make transactions between them easier.

Within the system, every new and independent blockchain, called a zone, is linked to the main Cosmos blockchain, called the Cosmos Hub. The idea behind the Cosmos network is that there are a series of blockchains which can share information and carry out tasks with no overall central authority to facilitate what is going on. There are, in effect, three parts to the Cosmos system:

1. Application: This updates the network and processes transactions;
2. Consensus: This helps the users which power Cosmos, or nodes, agree on what is going on;
3. Networking: This helps the blockchains in the network communicate with each other. 

In order to get these three layers to work together and communicate with each other, Cosmos uses something called the Tendermint Byzantine Fault Tolerance (BFT) system. This is an algorithm that also allows users to build their own blockchains to put on the Cosmos ecosystem. The idea is that users create applications which have a blockchain dedicated to them, which links in with the system overall. 

While Cosmos was created with the Tendermint system in mind, other types of blockchain can link into it. 

Linking blockchains

In the case of Tendermint blockchains, there are two types of blockchain, called hubs and zones. Zones are regular blockchains and hubs are the ones that link them together. The idea is that zones communicate with an individual hub, which helps them transfer and manage information. When a zone links to a hub, it can take information from any of the zones that are linked to it, thus meaning that more information can be processed. Because hubs can validate transactions and record them, that also means that double payments are much less likely to happen. The main hub in the system is the Cosmos hub, but there are others and zones can be linked to more than one hub. 

When it comes to blockchains that are not created using the Tendermint system, the method of linkage is somewhat different. Here, something called the Inter-Blockchain Communication (IBC) protocol is used. This is a program that can be adapted to allow two separate blockchains to work together. If one or both of the blockchains in question use a proof-of-stake consensus, then there is another level. This involves using something called a "Peg Zone". This is a separate blockchain, which is compatible with IBC, that tracks the data on another blockchain. In effect, the Peg Zone is a version of the first blockchain that can link up to the second blockchain. Basically, it allows all sorts of different blockchains to contact each other, at least in theory.

What makes Cosmos, Cosmos

One of the problems that many blockchains and online systems face is scalability. Put simply, this the problem systems have when they get bigger. While a complex network might work well when it is relatively small, as it grows and the constituent parts get bigger, they slow down as they expand. As a result, transactions take longer and, in many cases, get more expensive. Cosmos aims to avoid that in a number of ways.

First, because it uses proof-of-stake rather than proof-of-work, it can run faster. Second, because, at least in theory, each blockchain in the ecosystem is devoted to one particular application, there are fewer bottlenecks that take place when lots of applications are on just one blockchain. Third, because the individual blockchains are linked, data can, again in theory, cross over into a particular hub to speed things up. These things all work together to mean that Cosmos should be able to process transactions quickly, even when there is a lot of traffic on the network.

Cosmos (ATOM) coin

The cosmos (ATOM) coin is the native coin of the Cosmos online blockchain ecosystem. The ATOM cryptocurrency can be held and spent, it can be traded with other users, and it can be staked for rewards within the system. Since cosmos exists on a system that is based around proof-of-stake, rather than proof-of-work, that means that people get paid ATOM based on how much of the coin they already hold. The crypto’s holders can join in the governance of the system, with their voting power based on how much of the coin they have. People who contravene the rules of Cosmos can be punished by having these voting rights rescinded or reduced.

Cosmos is, at its heart, a collection of blockchains. There are other cryptocurrencies that are native, not to the Cosmos system, but to the individual blockchains that can theoretically operate within the ecosystem. There is also another, smaller, native Cosmos coin called photon, which is used to pay service fees for transactions between the individual blockchains that make up the network. However, ATOM is the main coin, as is suggested by its cosmos name. 

Tendermint was founded in 2014 by programmers Jae Kwon, Zarko Milosevic and Ethan Buchman. The program was up and running for two years. In 2016, the Cosmos white paper, which set out the stall for both the ecosystem and the cosmos cryptocurrency itself. The next year, $17.3m raised via initial coin offering (ICO). The network launched in 2019, when the coin went on the open market. As of 30 November 2021, there were 225.4 million cosmos in circulation, 79.6% of the total supply.

FAQs

Further reading

Crypto wallet explained

What is crypto staking? Your ultimate guide