Cosmos: How to Build a Blockchain Internet

Cosmos is a revolutionary ecosystem that has transformed the way people understand blockchain network interoperability. Unlike other platforms that consolidate all projects on a single chain, Cosmos provides an environment for independent blockchains to coexist equally and communicate seamlessly. That’s why creators refer to it as the “Internet of Blockchains.” In this ecosystem, ATOM is the key native token driving the entire network.

Core Design of the Cosmos Ecosystem

Cosmos is a distributed system composed of multiple independent and compatible blockchain networks, called “zones.” These zones operate in parallel while maintaining high scalability and interoperability. The entire system is built around the Cosmos Hub—a central hub blockchain using a proof-of-stake (PoS) consensus mechanism that tracks the state and transactions of all zones.

The unique advantage of the Cosmos ecosystem lies in its high degree of customization and open-source architecture. Developers and users can optimize transaction processes and protocols as needed, making interactions between zones smooth and efficient. All zones are fully compatible and coordinated through the Cosmos Hub. This design has led many projects—including Binance Smart Chain, Cronos, and Terra—to build their networks on Cosmos.

Three-Layer Architecture Supporting Cosmos

Cosmos achieves flexible multi-chain interoperability through a carefully designed three-layer technical structure:

Application Layer handles on-chain transactions and maintains network state.
Consensus Layer manages consensus among validators and the creation of new blocks.
Network Layer ensures stable communication between the Cosmos Hub and various zones.

Based on this architecture, Cosmos has integrated a powerful set of open-source tools. These tools enable developers to create secure, customizable, and scalable applications that seamlessly interoperate with other zones within Cosmos. This flexibility is a key reason attracting developers worldwide.

Core Development Tools of Cosmos

Cosmos SDK is the foundational tool for developers within the Cosmos ecosystem. It simplifies the development and deployment of new zones, eliminating the need to code from scratch. Essentially, Cosmos SDK acts as a universal template for blockchain development.

Inter-Blockchain Communication Protocol (IBC) is another critical innovation. IBC allows different blockchains to exchange information, transfer tokens, and data—even if they use different consensus mechanisms and application frameworks. This cross-chain interoperability works without concern for underlying architecture differences.

Tendermint BFT is Cosmos’s consensus engine. It supports high-performance PoS consensus, with a block time of just one second, throughput reaching 10,000 transactions per second, and instant finality.

The Role and Value of the ATOM Token

ATOM is the native token of the Cosmos ecosystem with multiple functions. On the Cosmos Hub, ATOM is primarily used to pay transaction fees (gas). Users can stake ATOM to validators to earn staking rewards and help secure the network. Holders of ATOM also have voting rights on ecosystem development proposals, proportional to their holdings.

As of the latest data, ATOM is priced at $1.91, with a 24-hour price change of -1.44%, and a 30-day decline of -27.46%. Its market cap is approximately $938.85 million, circulating supply is 492,578,051 ATOM, and 24-hour trading volume is $102,400.

Token Economics of the Cosmos Ecosystem

ATOM was sold out in just 29 minutes during its 2017 ICO, raising a total of $17 million. The funds were used to develop the Cosmos SDK and IBC protocol. According to Messari data, the initial supply of 236,198,958 ATOM was allocated as follows: Tendermint Inc. 10%, Interchain Foundation 10%, strategic and early supporters 7.1%, seed round participants 5%, public ICO participants 67.9%. Notably, Cosmos did not reserve any tokens for liquidity mining or community airdrops.

Cosmos Hub operates on a PoS mechanism, with new ATOM tokens continuously created and distributed to validators and delegators as staking rewards. Since ATOM has no maximum supply, it exhibits inflationary characteristics. The inflation rate fluctuates between 7% and 20%, depending on the proportion of tokens staked—higher staking results in lower inflation. This dynamic mechanism makes ATOM’s inflation rate difficult to standardize, as it is recalculated at each block.

Cosmos’s Position in the Ecosystem Competition

While platforms like Polygon also claim to be the “Internet of Blockchains,” Cosmos has unique advantages based on scale metrics. As of December 2023, Polygon’s market cap is about $5.6 billion, with a TVL of roughly $1.6 billion, far exceeding Cosmos Hub’s own market cap of $2.5 billion and TVL of only $31,000. However, this comparison overlooks the true scale of the Cosmos ecosystem.

According to cosmos.network data, the total market cap of all deployed chains within Cosmos exceeds $50 billion, nearly nine times that of Polygon, making it the second-largest blockchain platform after Ethereum. Note that this figure declined after the Terra Luna collapse in May 2022; previously, Terra was the highest-ranked project within Cosmos.

Both Cosmos and Polkadot emphasize network interoperability, but there are key differences. Polkadot, created by Ethereum co-founder Gavin Wood, can process up to 1,000 transactions per second and supports up to 100 parachains. Cosmos Hub, based on Tendermint BFT PoS, boasts a throughput of 10,000 transactions per second, with 49 zones currently connected and no hard limit on the number of zones. Zones in Cosmos operate independently, so a failure in one zone does not affect others. In contrast, Polkadot’s parachains rely on a centralized relay chain; issues with the relay chain can impact all parachains.

The Real Driving Force of the Cosmos Ecosystem

The development of Cosmos is supported by investments from leading global institutions such as 1Confirmation, Blocktree Capital, Outlier Ventures, and Dragonfly Capital. Notably, Cosmos provided the foundation for Binance Smart Chain (BSC), which ranks second in blockchain TVL. BSC’s development team was attracted by Cosmos’s architecture and chose to build on it.

The ecosystem also includes major DeFi projects like dYdX, Umee, and Osmosis. dYdX, one of the largest decentralized exchanges, recently announced building its new network on Cosmos, further demonstrating Cosmos’s application prospects in DeFi.

The Interchain Foundation (ICF), a primary supporter of Cosmos’s development, plans to invest $26.4 million in 2024 to support ecosystem growth. This funding includes $3 million for CometBFT, $4.5 million for Cosmos SDK, and $7.5 million for IBC protocol development.

Advantages and Challenges of Cosmos

Advantages: Cosmos Hub offers very low transaction fees, instant transaction finality, and a high throughput of 10,000 TPS. The infrastructure based on Tendermint BFT and Cosmos SDK allows rapid launch of new projects with scalability.

Risks: The volatility of staking rewards may lead to sustained high inflation at around 20%. Unlike Ethereum’s EIP-1559 or Polygon’s inflation mitigation mechanisms, Cosmos currently lacks a deflationary burn mechanism.

Opportunities: The expanding Web3 industry provides growth potential. As more enterprises enter the space, Cosmos’s quick chain deployment makes it attractive. New projects can deploy directly on Cosmos without competing with existing protocols.

Potential Risks: Many Cosmos projects and their native tokens are not yet listed on major exchanges. Currently, most tokens are acquired by buying ATOM and cross-chain swapping via Cosmos Hub. As projects develop and exchanges list their tokens, demand for ATOM as an intermediary may decline. However, continuous influxes of new projects can offset this risk, as these new chains will create lasting utility for ATOM.

Cosmos Roadmap

The rapid growth of the Cosmos ecosystem has prompted multiple upgrade plans. The upcoming v8-Rho update will introduce new features to Cosmos Hub, Cosmos SDK, and IBC, including multi-signature accounts, meta-transactions, governance improvements, and IBC relay incentives.

Founder Jae Kwon previously proposed creating a parallel chain called AtomOne to replace the existing governance system, aiming to limit ATOM inflation to 10%, due to management proposals like Proposal 848.

Future Potential of Cosmos

Cosmos’s widespread attention stems from its ability to quickly build and expand autonomous blockchains. As Ethereum faces high gas fees and low scalability, many projects seek alternatives, making Cosmos a preferred choice. The ecosystem continues to evolve, with DeFi projects like Umee and Osmosis demonstrating strong synergy.

Since its inception in 2016 and mainnet launch in March 2019, Cosmos has progressed from concept to practical platform with diverse ecosystem projects. Its unique multi-chain design and powerful developer tools provide essential infrastructure for Web3 applications.

Frequently Asked Questions

Who are the founders of Cosmos?
Cosmos was founded by Jae Kwon and Ethan Buchman in 2014. Both previously worked at Tendermint, and their innovations in Byzantine Fault Tolerance consensus and blockchain interoperability protocols laid the foundation for the Cosmos ecosystem.

What makes Cosmos unique?
Cosmos’s ecosystem consists of expanding independent, parallel, and fully compatible zones. This design allows new projects to operate their own blockchains without competing for market share or resources with other protocols.

What are the specific uses of ATOM?
ATOM is used to pay transaction fees on the Cosmos Hub. Holders can stake ATOM to earn rewards and help validate transactions. Additionally, ATOM holders have voting rights on governance proposals, proportional to their holdings.