Deep Dive on Cosmos: The Focus on Interoperability

With so many blockchain projects being built, and new ones constantly emerging, there needs to be a way for them to exchange data — also known as interoperability. The current lack of interoperability, where blockchains are siloed and are unable to speak to one another, creates a problem of capital inefficiency. Enabling different blockchains to communicate and interact with each other is no easy task. Many blockchain developers have created a variety of bridging or cross-chain solutions to connect blockchains, but some of them are more or less centralized or suffer from security risks.

This is where Cosmos, an ecosystem currently securing over $62.67 billion in digital assets between 28 IBC-enabled chains, comes in. It is attempting to build a “universe of systems” by facilitating blockchain interoperability. Cosmos is unique in that it provides a framework for building out independent blockchains, makes swapping assets and interprets without the need for specialized tooling. Today, this article will talk about how Cosmos works, analyze its traction thus far, and what future it will build.

Unpacking Cosmos

To solve the problem of high development difficulty and poor extensibility of Layer 1s, Cosmos was designed to be an ecosystem of interoperable but autonomous blockchains that can exchange information and tokens between each other in a permissionless manner. It aims to be an “Internet of Blockchains”, and makes it easy for developers to build blockchain for different use cases or applications.

Cross chain and ease of use are two key features for Cosmos and it has since attracted so many decentralized applications onto its blockchain. According to Map of Zones, more than $8.21 billion in volume has occurred in the last 30 days between inter-blockchain communication (IBC) protocol, which allows independent blockchains to talk to each other and transfer data and assets.

But how does Cosmos attract so many projects? Before we jump into to the more complex points of Cosmos, let’s clarify several key points about Cosmos:

• Tendermint：A protocol that can communicate with blockchains within a network and with external blockchains. With Tendermint, you can create any blockchain system seamlessly. Cosmos uses a blockchain engine called Tendermint Core, which creates proof-of-stake (PoS) consensus algorithms.
• Cosmos Software Development Kit (Cosmos SDK): It allows developers to easily build custom, scalable and interoperable blockchain applications on top of Tendermint. IBC is a module in Cosmos SDK, and is a standardized inter-chain communication protocol, which builds a blockchain TCP/IP protocol that makes multi-chain data interoperability possible and helps unlock the interoperability between blockchain platforms.
• App-Chain: An independent blockchain optimized for a specific application and built using Cosmos SDK.

Here is a helpful framing about a decentralized system that we see frequently: a blockchain technology functions can be divided into three layers — execution layer, data layer and consensus layer. Correspondingly, the above three concepts make Cosmos different to other layer 1s. The Cosmos-SDK more or less covers execution and data function, and Tendermint Core supports security. In addition, it provides Cosmos SDK, a development framework for those who want to build independent blockchains or use cases, named App-Chains. As such, execution can be placed on top of the Tendermint consensus for a blockchain to then join the Cosmos network at any time. They are the main essentials for Cosmos to build a multi-chain universe. To understand how Cosmos can achieve ease of use and cross chain in practice, let’s now walk through the process with some examples.

Ease of Use

If a developer wants to build applications, he has 2 options: write their own blockchain from scratch — which is too hard and time-consuming, or turn his attention to Ethereum (or other alternatives). Building on Ethereum is the primary choice before 2021: you can piggyback on its consensus and networking layer based Ethereum Virtual Machine (EVM). A lot of Layer1 solutions like Solana and Near, they want to build a better performance infrastructure, and also committed to providing a better development environment for developers.

But if the developers use the Cosmos SDK, they do not have to follow the conventions of building on the EVM (Solidity, opcodes). Instead, they have the ability to quickly deploy a Tendermint blockchain while retaining the flexibility to customize some things like validators, governance, staking, etc. Yes, if you’ve read our previous Avalanche article, it’s a bit like subnets, where application developers have full permission to design their own stuff.

Based on the features of the above SDK, Cosmos has attracted many developments to build so that we can see the whole ecosystem blossoming, and therein a rising wave of decentralized exchanges. Osmosis, a DEX that people can use to create liquidity and trade IBC-enabled tokens, is one of the representative projects. Interchain/superfluid staking is a feature unique to Osmosis. And within 10 months since mainnet launch, Osmosis garnered ~$212.77 million in TVL. In addition to Osmosis, there are other financial programs active on Cosmos. Moreover, cryptocurrency exchange and wallet provider Crypto.com’s Cronos chain runs on the Cosmos network and is IBC-enabled.

Although decentralized Finance (DeFi) applications have been the main driving force for Cosmos’ growth, and the most recognizable projects fall under this track (like Kava and Sifchain), the whole ecosystem of Cosmos will consist of a huge range of different applications, including social impact, privacy, infrastructure and marketplace, etc. Gaming blockchain Clan Network will launch its token $CLAN, and aims to provide a superior development and gaming experience with unprecedented capabilities, by leveraging cutting-edge developments on the Cosmos ecosystem such as IBC, Starport, privacy through the Secret Network, and interchain security.

Comparing Cosmos and cross chain bridge

The increasing number of cross-chain solutions and similar-sounding tokens show us that there is a large demand to meet the connectivity between different blockchains. Cross chain solutions can be thought of as exclusive roads for specific participants and assets with limited scalability, and some of them have the problem of decentralization or security.

However, Cosmos solves this problem at a fundamental infrastructural level, which is sometimes called “Layer-0”. It powers two fundamental kinds of blockchains, Hubs and Zones. Simply put, Hubs function to interconnect Zones. On the basis of this, zones can send tokens between each other seamlessly without the need of an exchange. SDK-based projects can interoperate with one another via the IBC, which uses cryptographic proofs to provide instant finality, proving a message was sent from a zone to another. they do not need to establish an IBC connection with each zone, only a connection with a Hub is sufficient.

The Cosmos Hub, the first blockchain that launched on the Cosmos network, was created to provide services such as security and decentralized exchange to the blockchains that connect to the network.

In addition to communication within the ecosystem, Cosmos is also exploring compatibility with the Ethereum ecosystem. EVM-on-Cosmos (Evmos), previously Ethermint, is a use case for this type of exploration, which allows EVM-compatible applications to integrate into the Cosmos ecosystem, acting as a gateway for Ethereum assets to enter the Cosmos ecosystem. Multiple solutions are in the works right now that will allow uses to connect to other major blockchain ecosystems, here are some innovative projects from Cosmos community:

• Axelar: Multichain — the suite of protocols supported by the Axelar network, including IBC, supports integrations with Cosmos, Ethereum, Polkadot, Avalanche, Fantom, and other chains.
• Nomic: Bitcoin — Nomic’s Bitcoin bridge creates an NBTC token that is redeemable for BTC, which can be sent over IBC and used throughout Cosmos.
• Octopus Network: Polkadot — it has been working hard at developing an IBC module for Substrate’s GRANDPA consensus mechanism. And the Interchain Foundation (ICF) has accepted Substrate IBC Milestone 2 on April 20.
• Chorus One: Celo — Celo Foundation has awarded a grant to construct a bridge between two ecosystems in November 2020.

Difference between Polkadot and Cosmos

Another well known Layer 1 infrastructure project called Polkadot, which also focuses on interoperability like Cosmos, but they differ in model, architecture, consensus, staking mechanics, message passing and governance. Both Polkadot and Cosmos work to build an efficient connection and provide an interface for different state machines to communicate with each other, but they take different approaches to achieve this goal.

Polkadot was designed on the principle that scalability and interoperability require shared validation logic to create a trust-free environment. Independent blockchains can transfer information and transactions between them via the Polkadot relay chain. Those parallel blockchains, called Parachains, use the Polkadot’s consensus mechanism and benefit from shared security. The key difference is that Polkadot uses a global model for security, while in the Cosmos Network, every chain can be independent and it uses a bridge-hub model to connect chains with independent security guarantees. There is competition between different Hubs for projects, not just Cosmos Hub.

The ATOM issue

As the Cosmos ecosystem continues to grow, it is perhaps surprising that the Cosmos Hub has no apparent built-in privileges that would incentivize other zones to connect to its hub over others, other than a first-mover advantage. This has led to a situation where ATOM, the native token of Cosmos Hub, cannot capture the value from the whole expanding Cosmos ecosystem.

In other words, even though many App-Chains are built and developed using the Cosmos SDK, such as THORChain, ATOM tokens can’t directly benefit and accrue significant value. This is primarily by design, there are no major changes as yet.

Besides staking, another current value of holding ATOM tokens would be for future or retroactive airdrops. Given the sheer amount of projects and blockchains on the network, there is a significant demand for airdrops in the ecosystem. Perhaps, the main value for ATOM is that Cosmos Hub is the most trusted hub in the entire ecosystem, and credibility is a scarce resource in the blockchains world.

The Cosmos development team previously planned to build an exchange -Gravity DEX- in the Cosmos Hub to potentially increase the accumulation of ATOM tokens, but it caused some concerns from the community due to potential threats to other DEXs within Cosmos, and thus the project recently completed a rebrand in March and migrated to a new blockchain. As an open and decentralized project, the Cosmos community has also been exploring ways to bring value to f ATOM, which may require the team to find a balance between many factors.

Team

Cosmos brings together a large group of talented developers. The original founders of Cosmos are Ethan Buchman and Jae Kwon. Jae Kwon developed a consensus algorithm called Tendermint in 2014. Cosmos utilizes that Tendermint algorithm, and the Cosmos Hub was born in March 2019.

Currently, the core Cosmos software is maintained and supported by many parties, including Interchain GmbH, Informal Systems, and Regen Network. Initially, much of the software for the Cosmos ecosystem was built by the company named Tendermint (aka All in Bit Inc.), but it was restructured in February 2020 and rebranded to Ignite in February this year. The latest news is that Ignite split back into two entities at the end of May: Ignite and NewTendermint, with Jae Kwon rejoining his old team as CEO of NewTendermint. So far, the whole Cosmos development is going well, and achieved a lot.

The community

Cosmos has built a strong community of people with a passion for decentralized blockchain, and Cosmos’ social channels from Twitter to Reddit, Telegram to Discord and YouTube have all grown exponentially in the past few years, attracting 550,000+ followers.

In terms of expanding the developer community, Ignite has been helping build the Cosmos ecosystem from scratch to one of the most vibrant and engaged in the blockchain ecosystem. In 2021, the Cosmos developer ecosystem had a growth rate of an incredible 70%.

Informative tutorials, hands-on coding sessions and challenging hackathons are great ways for the development team to promote the Cosmos ecosystem. In April, Ignite launched the Ignite Accelerator, which will focus on the multi-chain ecosystem, involving 11 investment partners, with a total initial fund size of $150M.

Conclusion

At present, we can find that the individual App-chains based on Cosmos have gained market recognition, which can be seen from their growing market cap and TVL. Although Avalanche, Solana and other layer 1s have taken over market share from Ethereum, the information interoperability between different public chains still remains a problem. As DeFi, crypto games and NFT move towards cross-chain and more people understand the need for blockchain interoperability, we feel that Cosmos will be the difference here.

Here’s what we can expect from Cosmos on the roadmap or discussed by contributors: IBC will become an ecosystem of “200 Chains”; DeFi and NFT uses case will possibly increase; future upgrades for Cosmos Hub include Chain Name Service, IBC NFT, privacy and rollups, etc. It’s common to hear that ‘the future is multichain’ and with Cosmos coming to fruition, the path to that future is clearer than ever.

Written By Mustafa Yilham & Jermaine Wong