[Messari Research] Into the Cosmos

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TBI - March 13, 2019

Cosmos officially launched this evening, beating its closest interoperability competitor, Polkadot, to the punch. What is Cosmos and why does it matter?

Along with scalability, interoperability has long been considered one of the biggest roadblocks to widespread crypto adoption.

Siloed networks with incompatible tokens and protocols have made it difficult to envision a truly fluid and connected “internet of value.” High fees or long transaction times are superficial reasons to use existing payment rails vs. blockchain solutions.

Yet Cosmos aims to address both scalability and interoperability issues in crypto by creating what it calls the “internet of blockchains.” The project was developed as a practical application of the Tendermint protocol in a public network.

Tendermint was first proposed in 2014, and had previously been used for some time in a permissioned setting with Hyperledger Burrow. It’s a pioneering approach to proof-of-stake systems that even Vitalik and the Ethereum team have kept a close eye on.

Tendermint’s core value proposition, and (by extension Cosmos’s value prop), lies in separating the application layer from the consensus and networking layers. This allows developers to use their preferred programming language, regardless of what language the other application layers are written in. As a PoS system, it also promises fast finality and increased throughput.

Conceptually, Cosmos is constructed as a hub-and-spoke model where a Hub acts as the center for multiple blockchains, called zones.

The first Hub on Cosmos will be the Cosmos Hub.

Source: Cosmos

Here’s where things get interesting: each zone in Cosmos is its own blockchain, allowing the network to both scale and interact with other blockchains.

Because a zone is simply an individual blockchain, developers can always create new parallel zones to increase scalability for their applications. The zone model is interesting because it addresses the need for interoperability between both public and private (permissioned) networks.

In Cosmos, any chain that uses Tendermint can connect via the Interblockchain Communication (IBC) protocol hops between other blockchains easy. For chains that don’t use Tendermint, a “Peg Zone” can be created to connect to the Cosmos network.

This means the Ethereum blockchain could interact with the Bitcoin blockchain by passing transactions from peg zones through the Cosmos Hub, which is responsible for tracking transactions (and token balances) between chains.

Source: Cosmos Blog

In order to conduct cross-chain transactions, Cosmos uses a native token, ATOM, as an internal representation of other assets.

An Ethereum hub, for example, could lock ETH in a smart contract and create an ETH-ATOM token on Cosmos, then send that token to the Bitcoin network using an ATOM-BTC token. The same could be done for assets on private chains, fiat currencies, or any other cryptoasset.

The Hub tracks all locked tokens and ensures transactions between networks are properly relayed and settled.

For users, the ability to use multiple applications without the need to exchange various tokens is a huge deal. The concepts are somewhat intuitive (after you’ve absorbed the core concepts), but it remains to be seen how the network will function in practice.

Polkadot, which is planned to launch later this year, uses some similar concepts, but with slight variations on how users interact with the main chain and how consensus is achieved. Both projects have strong teams and have spent considerable R&D on building their solutions. It will be interesting to see how much these “interoperability” solutions can (perhaps paradoxically) capture value.

You can watch a replay of the launch event on YouTube, or check out our full profile on Cosmos and the team, investors, and contributors behind it.

Some other solid Cosmos references to check out:

• 1confirmation Investment Thesis
• Epicenter podcast (from 2017, but still good)

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