Cosmos Ecosystem: A Beginner's Guide

Labeled as “the internet of blockchains,” what does this concept entail, and why is it a critical factor in addressing the challenges of interoperability and scalability?

Key takeaways: 

  • Cosmos innovates, focusing on interoperability and scalability, fostering a decentralized network through the Cosmos Hub for streamlined communication. 
  • Diverging from bridges and atomic swaps, Cosmos minimizes centralization risks by employing the IBC protocol for secure data transfer and decentralized validation via Tendermint. 
  • Cosmos ensures security while remaining open and scalable, facilitating real-world applications in DeFi, NFTs, and gaming through its interconnected blockchains.

Why is Cosmos a big deal? 

Cosmos is a significant and innovative project in the blockchain and cryptocurrency space, and its "big deal" primarily revolves around two key features: interoperability and scalability. These two factors have been recognized as challenges within the blockchain ecosystem, highlighting the pressing need to streamline the entire landscape for enhanced liquidity, benefits, and convenience, all while minimizing risks. 

Weren’t these problems already solved with bridges and atomic swaps? 

While bridges and atomic swaps are solutions that address interoperability to some extent, Cosmos takes a different approach. Bridges often introduce centralization risks, relying on trusted entities for asset transfers, leading to security vulnerabilities. Scalability issues and the need for more standardization across different bridge implementations can also hinder seamless connectivity between blockchains. On the other hand, atomic swaps, while technically powerful, may pose complexities in implementation and user experience, with limitations on supported assets and potential delays in execution.

Cosmos aims to resolve this by creating a network of interconnected blockchains. Think of it as a "digital city" with a central transportation hub. In this city, each mode of transportation represents a separate blockchain tailored for specific purposes, like trains for DeFi, buses for gaming, and subways for NFTs. The central hub (Cosmos Hub) seamlessly connects and coordinates these modes of transportation, enabling passengers (data, assets, applications) to transfer easily from one to another, providing a convenient and efficient way to navigate the entire city.

But let’s take it one step at a time. We’ll walk you through the basics to understand the ecosystem and how to get involved. 

Cosmos Hub: The Heart of the Ecosystem

The Cosmos Hub is the pivotal part of the wheel that serves as the central blockchain in the network to connect various independent blockchains, known as “Zones,” through the innovative Inter-Blockchain Communication (IBC) protocol. So now the question arises: Isn’t this a centralized concept? What is the difference from what we know as users/developers interacting with one centralized point? 

Its architecture might initially seem centralized because it plays a coordinating role in the ecosystem. While the Cosmos Hub acts as a central point for communication, it doesn't control the individual Zones or their operations. Each Zone is an independent blockchain with its validators and governance. The Cosmos Hub doesn't dictate the rules or decisions within these Zones. Instead, it facilitates communication and coordination through these key aspects:

  1. Interoperability without control
  2. Decentralized validation
  3. Open governance
  4. Scalability and Diversity 
  5. Permissionless and borderless 

The 3 Cosmos musketeers: IBC, SDK, Tendermint

These components create a versatile and secure ecosystem where different blockchains can work together. SDKs are used to build blockchains within the Cosmos ecosystem, Tendermint provides the consensus mechanism for these blockchains, and IBC allows these blockchains to communicate and exchange assets. Here’s a chart so you can quickly identify the differences and goals of each. 

How is validation decentralized? 

In Cosmos, decentralized validation is achieved through the Tendermint consensus algorithm, which was designed to provide Byzantine Fault Tolerance (BFT). Here's a more specific breakdown of how decentralized validation works in the context of Cosmos:

Cosmos relies on a set of validators to propose and validate blocks of transactions. Validators hold a stake in the network, typically in the form of the native cryptocurrency (ATOM). Validators are selected to participate in the consensus process based on their stake and have an economic incentive to act honestly to avoid penalties. Here’s how it works.

1. Proposal

The consensus process begins with a validator proposing a new block of transactions. Validators take turns offering blocks in a round-robin fashion. The proposed block contains a list of transactions to be added to the blockchain.

2. Prevote

After receiving a proposed block, other validators review its content and cast their "prevotes." A prevote signals that a validator has seen the proposed block and considers it valid. Validators only prevote for one block during each round.

3. Pre-commit

If a validator observes that two-thirds or more of the network has prevoted for a particular block, it proceeds to pre-commit for that block. Precommitting means the validator commits to that block and cannot change its vote for the remainder of the round.

4. Commit

Once a supermajority of validators (two-thirds or more) has pre-committed to a block, it is considered committed and added to the blockchain. This ensures that the network reaches a consensus on the order and validity of transactions.

5. Round-Robin Process

The consensus process follows a round-robin mechanism where validators take turns proposing blocks, prevoting, and precommitting. This continues in a sequence, with each round leading to the confirmation of a new block.

6. Finality and Security

Tendermint achieves finality quickly because it is considered irreversible once a block is committed. The Byzantine Fault Tolerance ensures the network remains secure even if some validators act maliciously or experience faults.

7. Slashing and Incentives

Validators are subject to slashing conditions, meaning they can lose some of their staked tokens if they behave maliciously or violate the protocol rules. This economic incentive encourages validators to act honestly and follow the consensus rules.

Real-world use cases 

Cosmos is more than just a theoretical concept; it's a thriving ecosystem with numerous real-world use cases. Developers have built decentralized applications, DeFi platforms, NFT marketplaces, and more, all taking advantage of Cosmos' unique capabilities. Maya, for instance, is built using the Cosmos SDK and utilizes Tendermint for its underlying consensus mechanism. Similarly, Kujira stands as a Cosmos chain, and with the upcoming launch of Aztec, another Cosmos-based chain, the ecosystem continues to expand and demonstrate its versatility across various domains. 

From decentralized finance (DeFi) and cross-chain token transfers to NFT marketplaces, scalable gaming, supply chain, and trade solutions, cross-border payments, content distribution, and identity/authentication applications, Cosmos provides a robust foundation for a wide range of innovative and interconnected projects, both public and private.

Where to start on Cosmos SDK? 

Participating in the Cosmos ecosystem involves understanding its components, tools, and community. Here are some recommendations: 

  1. Start by grasping its fundamental concepts and architecture, delving into the official documentation. 
  2. Follow the provided tutorials to set up your development environment and gain hands-on experience with the SDK's structure. 
  3. Explore the Cosmos SDK GitHub repository for source code, examples, and community-driven projects, learning from existing implementations. 
  4. Join the active Cosmos community on platforms like Discord and Telegram to engage with fellow developers, seek guidance, and stay informed about updates.