Cosmos (ATOM) : Beginner’s Guide (2022) – Coinstory#6

Cosmos (ATOM) is an ecosystem of sovereign blockchains, connected to each other through IBC (Inter Blockchain Communication). Cosmos aims to become the “Internet of Blockchains” thanks to its interoperability. This project is very ambitious and could well change the game as Ethereum did with smart contracts.

Cosmos, a new generation of Blockchain

To fully understand why we are talking about 3rd generation Blockchain regarding Cosmos, we need to understand why and how they came about.

Bitcoin, the first generation

Bitcoin, 1st generation Blockchain
Bitcoin, 1st generation Blockchain

This part will be quick so let’s focus on the basics. Bitcoin was born following the subprime crisis of 2008. In 2009, Satoshi Nakamoto (we don’t know who he is) created Bitcoin. It was primarily to propose an alternative model to the current financial system. Of course, the Blockchain had already existed for 30 years at that time (the first work dates back to the 1970s).
Nakamoto‘s genius was to find a way for computers to agree with each other, so that they have an economic interest in doing so. This was the birth of the Proof of Work consensus. Thanks to this system, it was now possible to exchange value on a peer-to-peer basis, without a central organization.

Ethereum, the second generation

Ethereum, 2nd generation blockchain
Ethereum, 2nd generation blockchain

The problem with Bitcoin was that it only allowed the exchange of economic value. It was impossible to program this currency, that is, to give it conditions to run a program. And that’s where Vitalik Buterin comes in with Ethereum and smart contracts in 2014/2015.
With smart contracts, it is now possible to program the currency. This has opened the way for many applications, such as DeFi (decentralized finance), NFT (Non Fungible Tokens) , etc. These smart contracts are processed by what is called the Ethereum Virtual Machine (EVM). Developers were now able to deploy “smart contracts” and build decentralized applications (dApps).

Cosmos, the third generation

Cosmos, 3rd generation Blockchain
Cosmos, 3rd generation Blockchain

However, Ethereum is a victim of its own success: more and more people are using the network, so it’s getting crowded and the fees to use it are getting higher and higher. It’s a bit like being on a highway and having more and more cars wanting to pass the toll booth (to validate their transactions). This is called a scalability problem: the more a network is used, the harder it is to manage the number of transactions with similar performance.
To increase this scalability, there are two possible choices:

  • increase it vertically. This is the choice of what is called “layers 2”.
  • increase it horizontally. This is the solution proposed by layers 0 like Polkdot or Cosmos. Instead of having a single computer that manages a lot of transactions, it is a question of having a multitude of computers, connected to each other, that relay information.

Let’s go into a little more detail about the Cosmos solution. Cosmos simply wants to create the “Internet of Blockchain”. One of the problems with Ethereum is that it only allows you to make smart contracts and create tokens. This causes problems, because if you use Ethereum for your smart contracts, you can suffer the rising costs of the congested network when you have nothing to do with it. Cosmos allows you to create more than just smart contracts, it allows you to create blockchains (with the SDK we’ll come back to below). This offers much more flexibility and scalability.

The founding pillars of Cosmos

To achieve this feat, Cosmos relies on 3 pillars:

  • Tendermint (the Proof of Stake consensus algorithm) ;
  • Cosmos SDK (a development kit to create a Blockchain in no time) ;
  • the IBC (so that Blockchains can communicate with each other).
A picture is worth a thousand words. It's clearer that way, right?
A picture is worth a thousand words. It’s clearer that way, right?

Tendermint (now Ignite)

Tendermint (now Ignite) was created in 2014 by Jae Kwon and Ethan Buchman. It is a Byzantine Fault resistant Proof of Stake consensus algorithm. A lot of barbaric words, I know. Let’s deconstruct things a bit to better understand.

Proof of Stake (PoS) refers to a consensus process that involves stacking (“staking”) a certain amount of tokens to secure the network. If one of the validators tries to corrupt the network, it will be “slashed” and some of its tokens will be burned. Currently, the most secure chain in the Cosmos ecosystem is the Cosmos Hub with 175 validators and about 2 billion dollars stacked. Liquid stacking will soon be implemented, which will make exchanges within the Cosmos Hub even more fluid.

PoS is more “eco-friendly” than the Proof of Work on which some blockchains like Bitcoin are based.

The term BFT (Byzantine Fault Tolerant) means that a decentralized network is able to continue validating transactions even if some malicious actors try to corrupt the network. There is no need to go into technical details to avoid getting lost. The main thing to remember is that BFT is fast, very fast.

The Cosmos SDK

For this Proof of Stake consensus to work, you need Blockchains that rely on this consensus. This is where the Cosmos SDK (Software Development Kit) comes into play. It allows to create Blockchains (and not only smart contracts) in a few months, even in a few weeks, where it took several years before.

How is this feat possible? Simply because it is an open source library, where developers can pick the modules they are interested in to build their Blockchain. The Cosmos SDK was set up back in 2014 by Jae Kwon (co-founder of Cosmos) to solve the problems of Bitcoin. Indeed, at that time, to create your own Blockchain, you simply forked Bitcoin (# Litecoin and company). Yes, the man was very early.

Many Blockchains have been built with the Cosmos SDK (e.g. Binance Smart Chain,, …), some of them by modifying the source code to their liking (e.g. Celestia). Let’s remember in passing that it is a permisionless system, and that Blockchains are sovereign (unlike Polkadot).

For the more daring:

The IBC Protocol

It’s great to be able to create your own Blockchain in PoS, but isn’t Cosmos supposed to be the “Internet of Blockchains”? How do they communicate with each other? Well, that’s where IBC (Inter Blockchain Communication) comes in.

Just like TCP-IP allows websites to talk to each other, IBC will allow Blockchains to talk to each other. And it will not only be a matter, contrary to what many may think, of simply sending tokens from one blockchain to another. Blockchains will also be able to send messages to each other, they will be able to call functions of other blockchains. This opens up a huge field of possibilities. We can definitely talk about a paradigm shift, just like Ethereum in its time.

The Cosmos ecosystem continues to grow (2021-2022)
The Cosmos ecosystem continues to grow (2021-2022)

At the time of writing, there are 53 blockchains connected to each other thanks to the IBC. This IBC protocol allows to drastically increase the scalability of blockchains that use this standard, going up to 10,000 transactions per second (for information, Ethereum currently manages only 14 transactions per second and the VISA network ~1000).

IBC also helps to counter a huge problem, especially in the DeFi world: bridges. There are countless hacks on bridges that happened between 2021 and 2022. Hundreds of millions of dollars have been stolen due to flaws in the smart contracts of bridges. With CBI, the problem is solved. Instead of creating token representations, tokens are transferred natively (and I emphasize the word natively). No need to create token representations anymore.

ATOM: at the heart of the Cosmos ecosystem

Now that the foundations of Cosmos are laid, let’s talk about the ATOM token, which is at the heart of the Cosmos ecosystem.

The Cosmos Hub

As you can see, Cosmos is a layer 0 that allows the different layer 1 blockchains to communicate with each other. ATOM (the Cosmos Hub) is one of these layer 1, the most important one. As we mentioned earlier, it currently has 175 validators and 2 billion dollars stacked.

As a reminder, Cosmos works with Hubs and Zones. The Comos Hub will undoubtedly be the biggest Hub and Cosmos ecosystem, even if other Blockchain (Osmosis in particular) are starting to take up quite a bit of space.

The ATOM token, tokenomics and price

ATOM is currently in 22ᵉ place in the cryptocurrency market cap rankings, at a price of about $10.

A 2017 fundraising round had raised $17 million. ATH (All Time High) is located at $44.89. Like Ethereum, Supply has no limit. This therefore makes the ATOM token inflationary (between 7% and 20% per year). This inflation was designed voluntarily, to encourage holders of the ATOM token to stack and delegate it to validators in order to secure the network. In exchange, it is possible to earn aridrops (tokens from other Blockchain ecosystems).

NB: The crash of Terra Luna (built with the SDK and running on the IBC) probably explained in part the drop in value of the ATOM token. Likewise, the FTX crash (which has been much talked about) will not improve things for the ATOM token’s valuation.

Atom 2.0

We can’t talk about Cosmos without talking about Atom 2.0 and the dramas that happened around it. It would be necessary to make a specific article about it, but globally, the idea of Atom 2.0 was to give a utility to the ATOM token. At the moment, it doesn’t serve much purpose (except to be stacked to win airdrops). Atom 2.0 was to give the token some use by making it indispensable in securing the Cosmos Hub with “Interchain Security” (working on the same model as Polkadot’s relay chain, but in permissionless mode).

More details:

Where to buy ATOM ?

You have two possibilities to buy ATOM. The first possibility is to go through a CEX (Centralized Exchange) like Binance, Kraken or Coinbase. This is probably the easiest way to get this cryptocurrency. You just need to create an account and buy with your credit card.

The second way to get ATOM is to go to a DEX (Decentralized Exchange). The main DEX in the Cosmos ecosystem is Osmosis. The user experience is excellent and easy to navigate. Many crypto pairs are available to get your ATOMs. Let’s remember that the FTX experience has taught us to be wary of centralized exchanges and to prefer to turn to decentralized exchanges (not your keys, not your coins).

Anecdote: the founders of Osmosis refused to list their OSMO tokens on centralized exchanges. If you want to get some, you just have to… go to Osmosis!

So you can see from this article, Cosmos has a lot of potential. It reminds me (and this is my personal opinion) of Ethereum in 2016: builders into their thing. Of course, this article is just an introduction to the Cosmos ecosystem and not an investment advice. We haven’t gone into detail about how Hubs and Zones work, nor airdrops, and even less about validators. And by the way, don’t forget to protect your cryptos!