While the blockchain evolution began with Bitcoin and the next stage of development via smart contract platforms such as Ethereum, the age of the third DLT generation has begun with projects such as Cardano, Solana and Avalanche. This also includes Cosmos.
With a focus on interoperability and scalability, the multichain ecosystem is intended to lay the foundation for an “Internet of Blockchains” – and thus no less than the seeds for the core rehabilitation of cyberspace. An ambitious goal that Polkadot is also pursuing in a similar way with its parachain model. Both projects have a lot in common, and the race for the Web 3.0 standard seems to be heating up between the platforms. The fact that the paths of Cosmos and Polkadot cross does not have to be interpreted as a disadvantage. On the contrary.
Cosmos: Web makeover
Blockchain technology is the driving force behind a development that is intended to herald a new era for the Internet – Web 3.0, the revolution in the network architecture monopolized by tech companies. The renewal process is accelerated by the growth of the token economy. Only: There is a lack of exchange. One of the most important and at the same time biggest challenges.
As long as blockchain networks remain isolated from each other, the great Web 3.0 revolution will be a long time coming. With this in mind, the software company Tendermint started developing the Cosmos blockchain in 2014. Breaking down data silos and thereby creating new application possibilities: This is one of the essential functions of the Cosmos blockchain. The fact that the associated token ATOM has worked its way up among the 30 largest cryptocurrencies indicates the potential of the cross-chain platform, which shows its strengths in cross-network data exchange, high scalability and user-friendly development of its own blockchain applications.
Focus on interoperability
Cosmos has been tuned from the ground up for sharing between networks. The common port is the Cosmos Hub – a kind of basic blockchain that processes transactions, connects different networks, at Cosmos they are called zones, with each other, secures them and synchronizes them via the Inter-Blockchain Communication Protocol (IBC).
The IBC protocol implemented in March 2021 forms an important interface. It enables communication between networks, for example the transfer of tokens, which means that the connected blockchains can be optimized for cross-chain applications from the outset. Theoretically, thousands of blockchains could be connected via the Cosmos Hub, which is in marked contrast to Polkadot, which is limited to 100 parachains, at least so far.
Basically, Cosmos is open to all proof-of-stake based blockchains. The protocol also allows token transfer between public and private blockchains. But PoW-based blockchains such as Bitcoin and (still) Ethereum can also be connected to Cosmos via so-called peg zones. The IBC protocol should thus develop into the industry standard for the all-networking Web 3.0 structure.
Native cryptocurrency ATOM is used for transactions, governance, and to fuel the Proof-of-Stake mechanism, which rewards validators for processing blocks and penalizes stake deductions for misconduct. Blocks are waved through with a two-thirds majority of validators. The principle, also known as Byzantine Fault Tolerance (BFT), is considered to be particularly attack-proof and is implemented in Cosmos by the Tendermint software.
Currently, 150 validators secure the Cosmos Hub, with the number of validators expected to increase to up to 300 as the Cosmos ecosystem grows. As a “delegator”, smaller wallets can also benefit from PoS returns by providing validators with ATOM tokens. In contrast to Polkadot, where all connected blockchains are secured via the relay chain and the DOT staking pot fills up accordingly as the ecosystem grows, the zones at Cosmos secure themselves as independent networks via their own tokens – which is why the profit expectations are at ATOM tend to be lower.
To infinity – and much further?
The transaction throughput of a blockchain will inevitably reach its limits at some point. That’s a problem. If user activity increases, the bottleneck clogs – and blockchains become sluggish. Transactions are pushed back, piling up in the mempool, and in turn increasing transaction fees.
To solve the problem, Cosmos takes a two-pronged approach: vertical and horizontal scaling. With 1,000 to 4,000 transactions per second, depending on the number of active validators, the TendermintBFT consensus procedure already ensures a high throughput. However, if these capacities are also exhausted, multichain networks can be built as a horizontal scaling solution that outsource one and the same application to chains running in parallel. At least in theory, this makes Cosmos infinitely scalable.
Similar to Polkadot, which provides a framework for the development of blockchains with its substrates, developers can use ready-made modules to build specific blockchain applications on Cosmos with comparatively little effort. In addition to the basic building blocks, new, individualized modules can also be developed with the SDK framework (Software Development Kit), which constantly expands the range of applications.
The modular principle enables the comparatively resource-saving development of application-specific blockchains and is therefore one of the keys to building a comprehensive Web 3.0 economy. By standardizing new modules, even more complex applications can be developed more easily over time.
Pulsating network effects
With its open structure, Cosmos creates the framework for an ever-evolving blockchain ecosystem. 262 applications are now live on the Cosmos Network, and a total of 28 blockchains are connected to one another using the IBC protocol. Together, they cover a market cap of over $63 billion.
But this is only a snapshot. By the end of 2022, Tendermint CEO Peng Zhong expects around 200 blockchains on the Cosmos Network. The overarching goal is thousands of sovereign blockchains. If you consider that each individual one can cover the possibilities of action of an Ethereum blockchain, the possibilities can only be guessed at.
Further development steps
There are also important upgrades on the roadmap, including the Gravity Bridge that connects Cosmos to the Ethereum Virtual Machine, interchain accounts for better usability, liquidity pools, and the alpha version of Gravity DEX, a decentralized exchange that uses its cross-chain swaps becomes an important token distributor within the Cosmos system. An important building block is the “Interchain Security” planned for January 2023, which is intended to increase security in the Cosmos network.
Further development priorities should also be in the areas of NFTs and gaming. In addition to the forthcoming integration of Layer 2 scaling solutions such as ZK and Optimistic Rollups, which further increase the already high transaction throughput, a macrocosm of nested application possibilities is opening up. And the further the network is nested, the higher the price expectations are.
Cosmos or Polkadot?
Measured by the growing importance for Web 3.0 development, there is still potential for growth for the ATOM token. The same applies here, especially in the blockchain sector: success is a marathon, not a sprint. In the long term, the high-performance blockchain appears well-placed to meet Web 3.0 needs. What is hidden under the hood has what it takes to play a major role in shaping the Internet turnaround and to intertwine the separately running blockchain applications.
Whether cosmos or polkadot is a question that arises with regard to the same goals, but does not necessarily have to be asked. Rather, both platforms, which stand out from each other with different accents, should be seen as complementary parts and enrichment for the overall development of the Internet of Blockchains.
Disclaimer: The article first appeared in the April issue of BTC-ECHO Magazine and has been updated accordingly. Click here for the magazine shop.
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