The Bankless Guide to Cosmos
Cosmos is a decentralized network of independent, scalable, and interoperable blockchains, creating an ecosystem where highly customizable and performant chains can seamlessly communicate and transact across each other.
Key takeaways
- Cosmos uses the Inter-Blockchain Communication (IBC) protocol to enable interoperability between different blockchains and a unique consensus mechanism called Tendermint, which offers fast finality and high security.
- Cosmos Hub, powered by the ATOM token, serves as the central blockchain in the Cosmos ecosystem.
- Right now, the largest network built atop Cosmos is Hyperliquid, which currently boasts $670 million in total value locked (TVL), making it the 10th-largest DeFi chain today.
What is Cosmos?
Cosmos aims to overcomes the weaknesses that traditional blockchains sometimes face by creating an ecosystem of interconnected blockchains. As such, the network is designed to address three primary challenges—scalability, usability, and interoperability—and it’s credited with pioneering the “app-chains” model accordingly.
In powering independent parallel blockchains, Cosmos allows for high transaction throughput and enables different projects to retain their sovereignty while still being able to interact with other chains in the network.
The Cosmos ecosystem itself is centered around the Cosmos Hub, the first blockchain launched on the network. The Hub serves as a central ledger that keeps track of the state of all connected blockchains, facilitating seamless communication and token transfers between them.
How does Cosmos work?
Cosmos operates on several key technical pillars that enable its unique functionality:
- 🍬 Tendermint Consensus: Cosmos uses an implementation of the Tendermint consensus algorithm, CometBFT. This Byzantine Fault Tolerant (BFT) consensus mechanism allows for quick transaction processing and confirmation.
- 🌐 Inter-Blockchain Communication (IBC) Protocol: The IBC protocol is a core feature of Cosmos, enabling secure communication and data transfer between independent blockchains. It allows different blockchains to exchange messages in a standardized manner, facilitating interoperability across the network.
- 🌌 Zones and Hubs: In the Cosmos ecosystem, individual blockchains are called "zones," while "hubs" like the Cosmos Hub facilitate communication between these zones. Each zone can have its own validator set and governance system, maintaining sovereignty while still being part of the larger network.
- 🧱 Cosmos SDK: This software development kit provides developers with tools to build application-specific blockchains, i.e. app-chains, quickly and easily. It offers common blockchain functionalities like staking and governance, allowing developers to focus on their attention elsewhere.
Why Cosmos?
Unlike many Layer 1 (L1) blockchains that struggle with throughput as they grow, Cosmos allows for horizontal scaling. By enabling the creation of numerous sovereign Zones that can interact, Cosmos circumvents the scalability limitations of monolithic blockchain architectures.
Additionally, Cosmos is great on customization, as it empowers developers to create purpose-built blockchains tailored to specific applications or use cases. This level of flexibility allows for optimized performance and governance structures that best suit each project's needs, without sacrificing interoperability.
That said, the Cosmos ecosystem is currently facing challenges like internal strife and a demoralized community. To reclaim its position, Cosmos must address these issues by rebuilding trust, doubling down on user experience, further empowering developers, and clarifying its unique value proposition.
These goals are all achievable, and Cosmos has many bright thinkers in its community, so revitalizing the network’s ecosystem is absolutely possible.
How to invest in Cosmos?
The native cryptocurrency of the Cosmos Hub, ATOM, plays a crucial role in the network. It's used for staking, governance, and as a reserve currency for the ecosystem. Validators and delegators can stake ATOM to secure the network and earn rewards.
At the time of this guide's update, ATOM was trading around $5.05 per token with a market capitalization of approximately $1.97 billion, making it the 42nd-largest cryptocurrency in the market.If you’re interested in staking ATOM, the yield is currently 14.7% APR. To begin, you could follow these steps:
- 👛 Create a Cosmos wallet — We recommend Keplr, a user-friendly browser wallet for Cosmos chains that also offers a streamlined staking interface.
- ⚛️ Acquire ATOM — The easiest path here is to buy ATOM on a crypto exchange like Coinbase or Kraken. When you have the funds you want to stake ready to go, deposit them into the Cosmos Hub address provided in your Keplr wallet.
- 🪙 Stake through Keplr — With your ATOM in hand, click on the “Manage Portfolio in Keplr Dashboard” button in your wallet. In the “Staking” hub, click on “Cosmos Hub,” and then choose a validator to stake with from the provided list. Input the amount of ATOM you want to stake and approve the final transaction with your wallet. You can also unstake through this dashboard when you’re ready.
Top Cosmos projects
When it comes to user-facing activities, the main Cosmos Hub chain isn’t used for much besides ATOM staking. Where most of the action is found is in the dozens of independent app-chains that exist atop the Cosmos network today. Some of the top app-chains to explore here include:
- 🌊 Hyperliquid — a popular perpetuals exchange
- 💱 dYdX — a DeFi derivatives chain
- 🧪 Osmosis— a decentralized exchange app-chain and DeFi ecosystem
- ⛓️ Sei — a newer L1 with parallelized transactions
- 📁 Celestia — a leading data availability (DA) blockchain