How Cosmos Aims to Revolutionize Web 3.0

Thousands of blockchains, infinite scalability: Cosmos is a top player in Web3 development.

Thousands of blockchains, infinite scalability: Cosmos is one of the leading players in Web3 development. Here's how the crypto network works.

If blockchain evolution started with Bitcoin and the next phase took off through smart contract platforms like Ethereum, the era of the third-gen distributed ledger technology began with projects like Cardano, Solana, Avalanche, and also Cosmos.

With a focus on interoperability and scalability, the multi-chain ecosystem should lay the groundwork for an Internet of Blockchains and kickstart the redevelopment of cyberspace. An ambitious goal similar to what Polkadot pursues with its Parachain model. Both projects share a lot, and the race to define Web 3.0 seems to be reaching a peak between the platforms. The fact that Cosmos and Polkadot paths cross shouldn't be viewed as a disadvantage. On the contrary.

Cosmos: Web Rejuvenation

Blockchain technology is the engine driving a development that aims to usher in a new era of the internet, Web 3.0—the network-architecture revolution that's being monopolized by tech giants. The renewal is accelerated by the growth of the token economy. But liquidity is scarce—one of the biggest challenges.

As long as blockchain networks stay siloed, the big Web 3.0 revolution will be delayed for a long time.

With this context, Tendermint—the software company—started developing the Cosmos Blockchain in 2014. Breaking data siloes and unlocking new application possibilities: that's one of Cosmos Blockchain's core functions.

The fact that its native token ATOM has risen to among the world's 30 largest cryptocurrencies signals the potential of the cross-chain platform, which leverages its strengths in cross-network data exchange, high scalability, and user-friendly development of own blockchain apps.

Emphasis on Interoperability

Cosmos is built from the ground up for inter-network exchange. The common hub is the Cosmos Hub. It's like a base blockchain that processes transactions, connects different networks, secures and synchronizes them via the Inter-Blockchain Communication protocol (IBC).

The IBC protocol, launched in March 2021, is a key interface. It enables communication between networks, such as token transfers, meaning the connected blockchains can be optimized for cross-chain use from the start. In theory, thousands of blockchains can be connected via the Cosmos Hub, in sharp contrast to Polkadot, which has so far been limited to 100 parachains.

Cosmos is basically open to all PoS-based blockchains. The protocol also enables token transfers between public and private blockchains. But PoW blockchains like Bitcoin and (for now) Ethereum can also be connected to Cosmos via so-called peg zones. So the IBC protocol is expected to become the industry standard for a fully networked Web 3.0 architecture.

Token Functions

ATOM, the native cryptocurrency, is used for transactions, governance, and to run the proof-of-stake process by rewarding validators for processing blocks and punishing them with stake slashes for misbehavior. Blocks are finalized with a two-thirds majority of validators. The Byzantine Fault Tolerance (BFT) concept is considered highly attack-resistant and is implemented in Cosmos via the Tendermint software.

Currently, 150 validators secure the Cosmos Hub, and the number is expected to rise to 300 as the Cosmos ecosystem grows. As a delegator, smaller wallets can also benefit from PoS yields by supplying validators with ATOM tokens.

In contrast to Polkadot, where all connected blockchains are secured via the relay chain and the DOT staking pool fills up as the ecosystem grows, in Cosmos the zones secure themselves as independent networks using their own tokens. That's why ATOM's reward potential tends to be lower.

To Infinity—And Beyond?

Blockchain throughput will inevitably reach a limit. That's a problem. As user activity grows, the bottleneck gets congested and blockchains slow down. Transactions line up in queues, pile up in the mempool, and push transaction fees higher.

To solve this, Cosmos uses a two-pronged approach: vertical and horizontal scaling. With 1,000 to 4,000 transactions per second, depending on active validators, the Tendermint BFT consensus already delivers high throughput. If even that capacity is exhausted, multichain networks can be built as a horizontal scale-out, with one and the same application run on parallel chains. At least in theory, Cosmos is infinitely scalable.

Custom Applications

Like Polkadot, which provides a framework for building blockchains via its subnets, developers on Cosmos can build specific blockchain apps with prefabricated modules at relatively low costs. In addition to the core building blocks, new, customized modules can be developed with the SDK (Software Development Kit), widening the use cases over time.

The modular approach enables cost-efficient development of application-specific blockchains and is a key to building a self-sustaining Web 3.0 economy. By standardizing new modules, more complex applications can be developed more easily over time.

Pulsing Network Effects

With its open structure, Cosmos is creating a framework for a growing blockchain ecosystem. 262 apps are live on the Cosmos network, with 28 blockchains connected via the IBC protocol. Together they have a market cap of more than $63 billion.

But this is just a snapshot. By the end of 2022, Tendermint CEO Peng Zhong expected about 200 blockchains in the Cosmos Network. The broader goal is thousands of sovereign blockchains. If you consider that each could cover the functionality of a single Ethereum blockchain, you can only imagine the possibilities.

Further Development Steps

Beyond that, big upgrades are on the roadmap, including Gravity Bridge, which connects Cosmos to the Ethereum Virtual Machine, interchain accounts for better usability, liquidity pools, and the alpha version of Gravity DEX, a decentralized exchange that will be a major token distributor within the Cosmos system with its cross-chain swaps. A key building block is the January 2023-planned 'Interchain Security,' set to boost the Cosmos network’s security.

Further development will also focus more on NFTs and gaming. Alongside upcoming Layer 2 integrations like ZK and Optimistic Rollups, which will further boost the already high transaction throughput.

Cosmos or Polkadot?

Measured against its growing importance for Web 3.0 development, the ATOM token probably still has untapped upside. Yet in the blockchain space, success is a marathon, not a sprint. In the long run, this powerful blockchain seems well-positioned for Web 3.0 demands. What’s under the hood has what it takes to significantly shape the internet’s shift and weave independently running blockchain apps together.

Whether Cosmos or Polkadot emerges as the leader is a question tied to the same goals but doesn’t have to be binary. Both platforms, each with its own emphasis, should be viewed as complementary parts that enrich the overall development of the Internet of Blockchains.