Web3 is far from intuitive and easy to understand, and for some, the Cosmos Ecosystem is even harder to understand. But it doesn’t have to be!
The benefits of understanding and using it are immense, so in this article, we will be compiling some of the most commonly asked questions about Cosmos, and giving you the answers you need to not just explore, but thrive throughout the Cosmos 🚀
Note, ICI is currently building out an interactive and dynamic onboarding tool for the Cosmos, and eventually Web3 in general. Much of the content here can be thought of as an MVP/preview for that project, which we are calling the Interchain Academy, or ICA. This note will be updated with a link once the ICA is live!
What is Cosmos?
Cosmos is a term used for a collection of independent, scalable, and interoperable blockchains, creating the foundation for a trustless network of platforms that let’s you build anything you can think of in Web3.
Put simply, Cosmos is an ever expanding collection of unique blockchains that are all built on similar technology that let’s them work together seamlessly.
It’s often referred to as the “Internet of Blockchains,” and aims to solve problems of blockchain interoperability and scalability. Cosmos chains use the TendermintBFT consensus mechanism (recently upgraded/migrated to CometBFT,) for fast transaction finality, and it employs the Inter-Blockchain Communication (IBC) protocol for blockchain interoperability, both of which are integral parts of the CosmosSDK.
This ecosystem has a bit of confusing naming scheme, so to help keep things clear, “Cosmos” and/or “The Interchain” refers to this collection of chains, not the blockchain that is home to the $ATOM token, The Cosmos Hub.
What is the Cosmos Hub?
The Cosmos Hub, or, “The Hub,” was the first blockchain in Cosmos, and is home to the $ATOM token, making it the largest chain ins Cosmos by marketcap as well at the time of writing. What $BTC is to the Bitcoin blockchain, $ATOM is to the Hub.
It’s a proof of stake blockchain, meaning instead of mining, it is secured by staking tokens with validators.
The Cosmos Hub does not support smart contracts in the way a chain like Ethereum or Solana does. Rather, it leverages Replicated Security to provide blockspace and security to other chains in the AEZ, deriving additional revenue for it’s stakers and helping maintain a secure network of diverse chains that collaborate with one another.
It also utilizes the Inter-Blockchain Communication (IBC) protocol to connect to many other blockchains in a fast and trustless manner, making it easier for users to move assets between them, hence the term, “Hub.”
What is the Atom Economic Zone (AEZ)?
The Atom Economic Zone (AEZ) refers to a collection of sovereign blockchains that rent security from and are tightly aligned with the Cosmos Hub. These blockchains, including the Cosmos Hub, Stride, Noble, and Neutron, maintain a close alignment with the Cosmos Hub. They benefit from the security and interoperability features offered by the Cosmos Hub, while each maintaining their sovereignty and unique functionalities.
A Quick Terminology Recap
Cosmos can be difficult to navigate, in large part simply due to these poor naming conventions, and non-standardized colloquial terms and names. However, here’s a good high level recap to keep this all as simple as possible:
– Cosmos Hub: The native chain for the $ATOM token. The Hub is the oldest and largest blockchain built on the Cosmos SDK; it’s unique however in that it does not have the ability to host and run smart contracts via CosmWasm or any other means as of January 2024.
– Cosmos/Cosmos Ecosystem: All chains built on the Cosmos SDK and connected to one another by IBC is the most commonly accepted definition when talking about “Cosmos” or the Cosmos Ecosystem. Most of these chains are entirely sovereign, meaning they have their own token, governance, validator set, etc. Though not necessarily exhaustive, you can see most of the chains the make up the ecosystem on MintScan, here.
– Atom Economic Zone (AEZ): Within the Cosmos Ecosystem, there are a small handful of chains that are considered semi-sovereign due to something known as Replicated Security. These chains, currently composed of Stride, Noble, and Neutron, all rent security and blockspace from the Cosmos Hub, and are tightly integrated with each other and the Hub.
– EXTRA: The Interchain/Beyond Cosmos: While there’s no widely agreed upon name or definition, there exist both Cosmos SDK chains that are not IBC connected, as well as non-CosmosSDK chains that are IBC connected. This wider concept of all projects in Web3 that share, integrate, or otherwise tap into Cosmos tech, is something that many people have taken to colloquially calling “The Interchain.” Chains like Thorchain and Polygon are built on the CosmosSDK, though IBC hasn’t been enabled. And ecosystems like Polkadot, Avalanche, and even Ethereum are working on integrating IBC technology, despite not being built on the CosmosSDK.
What is IBC? The Inter-Blockchain Communication protocol
The Inter-Blockchain Communication (IBC) protocol is a standard for allowing independent blockchains to communicate and transact with each other. It’s the worlds first cross-chain, non-custodial, trustless bridge, which may seem like a bunch of buzzwords, but is actually massively important.
In short, IBC makes moving assets between blockchains as simple and secure as moving assets around on a single chain.
IBC consists of two layers: the transport, authentication, and ordering (TAO) layer, and the application (APP) layer built on top of TAO. A key feature of IBC is that connected blockchains don’t need to communicate directly but can send packets of information via dedicated channels using smart contract modules that include a light client for trustlessly verifying the state sent by the other blockchain. This protocol enables interoperability and sovereignty without isolation, a key objective of the Cosmos ecosystem. The core of IBC is part of the Cosmos SDK, allowing any chain that builds on it to easily connect to other chains, including ones like the Cosmos Hub that don’t support traditional smart contracts.
What is the $ATOM token, and what is its role in the Cosmos Hub?
ATOM is the native token of the Cosmos Hub, serving as a key component in securing the network and paying for transaction fees, similar to how ETH functions in Ethereum. ATOM token holders can participate in the Hub’s consensus mechanism by staking their tokens, which contributes to the security and governance of the Cosmos Hub. Every staked $ATOM gives you 1 vote towards governance proposals that go on-chain. The $ATOM token is also unique at the moment in that it, and the Hub, secure a number of other chains as part of the AEZ.
Thanks to IBC, the ATOM token can also be used in a number of other protocols across various chains for a wide range of purposes. ATOM can be used to pay TX fees (gas) on many other chains, deposited into LP pools for yield, used to buy NFTs, used as collateral in lending & borrowing platforms, and much more.
What is the Cosmos SDK?
The Cosmos SDK is a blockchain framework that allows developers to build custom, secure, and scalable blockchains. It’s designed to be modular and customizable, enabling developers to create unique blockchains tailored to their specific needs. The SDK provides tools and modules for building decentralized applications (dApps), and its modular architecture allows for the creation of blockchains of all shapes, sizes, and purposes that can all benefit from core Cosmos tech, like IBC and the Tendermint/CometBFT.
What does permissioned vs permissionless mean?
In the Cosmos Ecosystem, chains can be broadly categorized into permissioned and permissionless, in a perfect world, this would only matter to developers, but for now it’s a helpful concept for everyone to grasp, particularly in understanding Appchains.
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Permissionless Chains: These chains allow anyone to deploy code without seeking permission, and are by far the most common. This open model, exemplified by Ethereum, is typical for general-purpose ecosystem chains. It enables a wide range of decentralized applications (dApps), protocols, and services to be launched without approval from anyone.
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Permissioned Chains: These chains restrict code deployment through governance. Stakers vote on code updates and new deployments before they go live. It’s important to note that regular end-user activities like token transfers and dApp usage are not considered code updates; significant changes like new dApp deployments or changes to the core code however, are.
The permission model of a chain is primarily important for developers. For users, understanding this distinction helps in grasping the concept of Appchains and why some dApps are on some chains, and not others.
What is an Appchain?
Appchains are blockchains that are purpose built for one thing or set of things. The Cosmos SDK‘s modularity allows for a lot of flexibility in this regard, however generally speaking, chains in Cosmos are separated into two broad categories:
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General Purpose Ecosystem Chains: With no specific name, these are the most common type of blockchains, and are often permissionless or have a community understanding that any code can be deployed, like Ethereum. They support a diverse range of functionalities like DEXs, NFTs, lending platforms, oracles, DAOs, and more. In the Cosmos Ecosystem, examples include Juno, Neutron, Terra, Archway, Migaloo, and many others.
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Appchains: These blockchains are designed with a specific purpose or set of purposes, leading to a narrower scope. Notably, all Appchains in the Cosmos Ecosystem have achieved this through decentralized, trustless mechanisms like governance-based permissions. An example is Stargaze, a dedicated NFT-centric chain in Cosmos, where the community and validators guide development through governance to align with its core mission of being an NFT platform.
Hybrids and Evolution Over Time
The distinction between these chain types isn’t rigid due to the absence of hardcoding specific roles. Permissioned chains can become permissionless through governance changes, and vice versa. The scope of an Appchain can also evolve. For instance, Osmosis started as a permissioned, dedicated DEX Appchain but has expanded into a broader DeFi ecosystem. While still permissioned, it now encompasses features and third party protocols like perpetual swaps and lending, with all new code still undergoing governance review.
This flexibility in the Cosmos Ecosystem underscores its adaptability and the potential for chains to evolve in response to community needs and technological advancements.
How do blockchains in the Cosmos Ecosystem interact with each other?
Blockchains in the Cosmos Ecosystem interact with each other primarily through the IBC protocol, a built in bridge between chains. This interaction involves sending packets of information via dedicated channels established between blockchains. These channels use smart contract modules, including light clients, to verify the validity of the information being exchanged. The process is trustless and permissionless, meaning any party can operate a relayer, and the participating blockchains don’t need to trust these parties. This setup allows for the seamless transfer of tokens, data, and other information across different blockchain networks within the Cosmos ecosystem, fostering interoperability while maintaining the sovereignty of each individual blockchain.
Beyond token transfers, IBC also allows for cross-chain smart contract communication, which was first being explored through the concept of “Interchain Accounts” and now with a focus on what’s called “IBC Hooks.” This technology is still being developed, but is live and in action for a few select chains and protocols.
Who are the main participants in the Cosmos Ecosystem?
The main participants in the Cosmos Ecosystem include independent blockchain projects, developers, validators, and users. Which one will you be?
Blockchain projects within the ecosystem use the Cosmos SDK to build their custom blockchains and leverage IBC for interoperability. Developers contribute to the ecosystem by creating decentralized applications (dApps) and improving the SDK and IBC protocol as a whole, or on/for specific chains. Validators play a critical role in securing the network and participating in consensus mechanisms, particularly in proof-of-stake blockchains like the Cosmos Hub. And lastly, users participate by engaging with dApps, staking, swapping and accumulating tokens, and being involved in governance decisions.
Does Cosmos have a block explorer like Etherscan?
Yes! Cosmos has multiple block explorers that each support various Cosmos chains, with the largest being Mintscan. These explorers, like in other ecosystems, provide visibility into the activities and transactions occurring within the Cosmos Ecosystem. It allows users to view and track the progress of transactions across various IBC-connected blockchains built on the Cosmos SDK.
In addition to Mintscan, there’s Ping.pub, ATOMScan, BigDipper, and many more.
How does renting security from the Cosmos Hub work for AEZ blockchains?
Interchain Security, also known as Replicated Security, is a feature that allows smaller blockchains to “rent” security from more established networks like the Cosmos Hub, as is the case with the AEZ. This mechanism enables these smaller blockchains to use the staking token of a larger network (like ATOM) to secure their networks. Validators of the provider chain (like the Cosmos Hub) run validator nodes for both provider and consumer chains, ensuring robust security and consistency of transactions across the networks. This approach provides instant security, community support, and liquidity to consumer chains, enhancing their defensibility against attacks and improving overall ecosystem security.
How are Cosmos chains sovereign/separate?
Sovereignty in the Cosmos ecosystem refers to the independence and autonomy of individual blockchains within the network. Aside from chains using Replicated security, like those in the AEZ, each blockchain, or “zone,” in Cosmos can have its own validator set, consensus mechanism, and governance structure. This independence allows them to operate and make decisions without being subordinate to other blockchains in the ecosystem, while still being tightly connected to them. Sovereignty is a key feature of Cosmos, as it allows for diverse and specialized blockchains to coexist and interact through IBC while maintaining their unique characteristics and governance models.
How does the Cosmos Hub differ from other blockchains in the Cosmos Ecosystem?
The Cosmos Hub acts as a central hub in the Cosmos network, facilitating the transfer of assets and data between various interconnected blockchains, or “zones.” It’s native token, $ATOM, is the largest Cosmos coin by marketcap. The Cosmos Hub is distinct from other blockchains in the ecosystem in that it has a strong focus on minimalism, with no smart contract support by design, and being permissioned since day 1. This approach, though somewhat controversial, has been taken to keep the chain as secure as possible. The less complexity on chain, i.e. smart contracts, the less possible attack vectors.
What are some key advantages of using the Cosmos SDK for blockchain development?
The Cosmos SDK offers several advantages for blockchain development:
Modularity: It provides a modular design, enabling developers to pick and choose components for building custom blockchains.
Interoperability: The SDK facilitates blockchain interaction and value exchange through the IBC protocol.
Scalability: Developers can create scalable blockchains tailored to specific needs.
Developer-Friendly: It offers a developer-friendly environment with extensive documentation and tools.
Security and Governance: Incorporates robust governance mechanisms and security features.
Flexibility: Allows for updates without triggering forks and supports private blockchain updates.
Tendermint BFT/Comet BFT Consensus: Ensures secure, consistent, and fast transaction processing.
What are some common use cases for blockchains within the Cosmos Ecosystem?
Decentralized Finance (DeFi): Building DeFi applications such as decentralized exchanges (DEXs), lending platforms, and stablecoins.
Cross-Chain Applications: Leveraging IBC for applications that operate across multiple blockchains, enabling asset transfers and data sharing.
Non-Fungible Tokens (NFTs): Developing platforms for minting, trading, and managing NFTs.
Supply Chain Management: Creating transparent and traceable supply chain solutions.
Gaming and Metaverse: Building blockchain-based games and virtual worlds with interoperable assets and experiences.
Decentralized Autonomous Organizations (DAOs): Facilitating governance and community-driven decision-making processes.
Identity and Verification Services: Implementing decentralized identity solutions for secure authentication and verification.
And pretty much anything else you can think of!
What is “Staking”?
Staking in the Cosmos Ecosystem involves token holders locking up their tokens (like ATOM) with validators on-chain to both participate in the network’s consensus mechanism, and earn rewards.
Every blockchain has one token that is able to be staked for consensus, governance, and rewards. For most chains, that token is it’s native asset; i.e. you stake $STARS on Stargaze, $OSMO on Osmosis etc.
The only exception is with replicated security and the AEZ, where all chains in the AEZ are governed and secured by ATOM staked on the Hub.
What are Validators and what do they do?
Staked tokens are delegated to validators, who are responsible for maintaining the blockchain, validating transactions, and creating new blocks. They are similar to the miners for a Proof-of-Work chain like Bitcoin.
Staking and validating blocks provides security to the network and, in return, validators earn rewards in the form of newly minted tokens and/or transaction fees, which are then passed on to stakers. Stakers can either run their own validator nodes or delegate their tokens to existing validators, however, every chain has a set maximum number of validators, and only those with the most amount of tokens staked with them are considered “active,” so most people stake with existing validators.
What are the risks and rewards associated with staking Cosmos tokens?
The primary reward for staking any native L1 asset on it’s home chain is to earn more of that assets through staking rewards and/or fees, which are distributed to validators and their delegators (stakers) based on their staked amount. However, there are risks involved:
Slashing: If a validator behaves maliciously or incompetently (like double-signing or having excessive downtime), a portion of their staked assets (including those delegated to them by users) can be slashed as a penalty.
Liquidity Risk: Staked tokens are locked for a period of time set by each chain on an individual basis, and cannot be transferred or sold until they are unstaked, which involves an unbonding period during which no rewards are earned.
Validator Performance: Delegators’ rewards depend on the performance and reliability of the validators they choose to delegate to, while a validator may not behave or operate poorly enough to be slashed, it can still miss blocks and have downtime for other reasons, during which no rewards are accrued to anything staking with them.
How does governance work in Cosmos?
Cosmos blockchains, including the Cosmos Hub, typically implement on-chain governance mechanisms. These mechanisms allow token holders and stakeholders for each of these Cosmos-based blockchains to participate in the decision-making processes. Governance proposals can include protocol upgrades, parameter changes, new dApp deployment, and community fund allocations. Token holders can vote on proposals with their staked token, and decisions are made based on the majority votes, usually with a 66% threshold for passing. The governance on each chain is separate and unique it itself, aside from the AEZ, every chains has a primary, native L1 token that can be staked for both rewards, and the ability to participate in governance; this token is usually named very similarly to the blockchain it lives on, i.e. $STARS on Stargaze, $KUJI on Kujira, etc.
Can non-CosmosSDK chains use IBC?
Yes, although not right out of the box.
IBC-connected blockchains that are not built on the Cosmos SDK, such as Avalanche and Polkadot, fit into the Cosmos ecosystem as part of its extended interoperability goals. Through IBC or IBC-like protocols, these blockchains are working towards interacting with Cosmos SDK-based blockchains, allowing for the transfer of assets and data across different blockchain architectures. This connection expands the reach and utility of the Cosmos ecosystem, enabling it to function as a more inclusive and comprehensive “Internet of Blockchains.” It’s important to note that the integration complexity and degree of interoperability might vary depending on the specific blockchain’s architecture and compatibility with IBC standards.
Are all Cosmos SDK chains IBC connected?
No.
Examples of Cosmos SDK-based blockchains that are not connected via IBC include Thorchain and Polygon. These blockchains have chosen to build their ecosystems independently, using the Cosmos SDK for its flexibility and modularity but not opting to integrate the IBC protocol for cross-chain interactions. Thorchain focuses on enabling cross-chain liquidity pools without wrapped tokens, while Polygon (previously Matic Network) aims to provide scalable and efficient blockchain infrastructure as a dedicated Ethereum L2. Their decision not to integrate IBC reflects the diverse range of strategies and use cases that the Cosmos SDK supports, even outside the direct Cosmos interoperability framework.
Are there bridges in Cosmos?
Sort of.
If you consider IBC a bridge, then absolutely. But if not, there’s isn’t really any need for traditional bridges between Cosmos chains. However, there are still a number of bridging projects building in Cosmos that aim to bridge to non-IBC connected chains. For example, Axelar is a cosmos appchain that’s dedicated to being a bridge between all the chains that IBC isn’t currently compatible with or deployed on.
What’s needed to launch a new chain in Cosmos?
For a new blockchain to join the Cosmos Ecosystem, it typically follows these steps:
Develop the Blockchain: Utilize the Cosmos SDK to build the blockchain, ensuring it meets specific requirements and use cases.
Implement IBC Protocol: If the blockchain intends to be interoperable with other chains in the ecosystem, it needs to integrate the Inter-Blockchain Communication (IBC) protocol.
Launch and Establish the Validator Set: Set up the initial validator nodes and launch the blockchain, possibly through a public or private sale of the native token to secure initial stake.
Governance Proposal (for AEZ integration): If desired, for integration into the Atom Economic Zone (AEZ), the blockchain project would need to submit a governance proposal to the Cosmos Hub, which is then voted on by ATOM token holders.
Connect to the Cosmos Hub and other chains: Establish a connection with the Cosmos Hub (and potentially other hubs and zones) via IBC, either by running your own relayers or by bringing third parties on board, enabling asset and data transfers across the ecosystem.
How does Cosmos handle blockchain upgrades and forks?
Cosmos handles blockchain upgrades and forks through governance proposals and on-chain voting. Validators and token holders in a blockchain can vote on proposals, which may include upgrades to the software or changes to the network’s parameters. If a proposal is approved, the upgrade can be coordinated across the network without requiring a hard fork. This governance mechanism allows the network to adapt and evolve while minimizing disruption. Additionally, the Cosmos SDK‘s modular architecture makes it easier to implement upgrades and new features.
Do Cosmos chains share tokenomics?
No.
The economic models of various blockchains within the Cosmos Ecosystem vary widely, reflecting their diverse use cases and governance structures. Common elements that can vary chain to chain include but are not limited to:
Tokenomics: Each blockchain typically has its own native token, used for transaction fees, staking, and governance. Both the initial token distribution mechanisms, as well as the inflation/deflation models vary between chains.
Staking Rewards: All blockchains in Cosmos use a Proof-of-Stake (PoS) model, where token holders can earn rewards by staking their tokens to secure the network, however the source of the reward tokens, as well as the amounts and APR % vary.
Governance and Treasury: Most blockchains have on-chain governance systems where token holders vote on proposals, including the allocation of community funds or treasury for ecosystem development, however, some chains require governance to be used far more than others, i.e. permissioned chains need to go through governance just to deploy a new dApp.
Interchain Fees: For chains using IBC, there are usually fees associated with cross-chain transactions and data transfers, however the cost of IBC transactions is determined by a number of factors, and thus can range in cost and speed.
Utility and Value Capture: Blockchains may have specific mechanisms for capturing value within their ecosystem, such as transaction fees for specific dApps, DeFi protocols, or NFT marketplaces, some blockchains even impose chain-level version of these things, such as Archway which takes a small additional fee for every network TX that is then distributed to various developers, dApps, and communities, depending on what kind of TX was processed.
Are we missing something?
Do you have a question that’s not addressed here? Maybe we got something wrong, or it needs an update! Shoot us an email at [email protected], or shoot us a message on X, @InterchainInfo!
