Guide to Cosmos

January 26, 2022

Cosmos is a decentralized network of independent parallel blockchains

An introduction to Cosmos

Cosmos is a decentralized network of independent parallel blockchains. Cosmos aims to make it easy for teams to custom-build new blockchains that are highly interoperable with others that share Tendermint consensus. Due to this interoperability, the chains can easily and securely transfer assets and arbitrary data between one another with low transaction fees and fast speeds. Cosmos launched with Cosmos Hub, the first blockchain in the ecosystem, in 2019.

The protocol’s goal is to increase adoption and liquidity by breaking down the barriers between blockchain economies, creating a so-called internet of blockchains that can communicate swiftly and directly with one another while maintaining their own sovereignty.

The blockchains of Cosmos are interconnected via four core functions:

  • Blockchains in the network are built on top of the Tendermint Core consensus engine

  • The hub & spoke architecture of Cosmos is designed to host any number of hubs, or state-tracking protocols that enable the inter-chain transfer of assets between their spokes (referred to within Cosmos as zones), or groupings of sovereign but connected application-specific blockchains

  • These hubs and zones use the Inter-Blockchain Communication (IBC) protocol to securely send and receive messages to and from other blockchains, similarly to how computers use the IP (the communication protocol that has enabled the internet) to communicate

  • Blockchains in the Cosmos ecosystem are generally built using the Cosmos Software Development Kit (SDK), which allows developers to easily build custom blockchains using modular components

The Stargate upgrade enabled the hub and zone architecture within the Cosmos ecosystem by turning on the functionality of the IBC protocol. Following Stargate’s implementation in 2021, blockchains within the ecosystem can now opt in to utilizing the IBC to connect to one another, and can connect to the Cosmos Hub blockchain to interoperate.

ATOM is the native token of Cosmos Hub, used by validators in Cosmos to secure the network and earn rewards in return. ATOM are also used in the Cosmos Hub to pay for transaction fees.

Tendermint

The Tendermint Core consensus engine is one of Cosmos’ key building blocks. Tendermint is software for securely and consistently replicating an application on many machines, and Tendermint Core is Tendermint’s consensus layer application. A consensus layer provides the outline for how nodes come to agreement on the state of their blockchain, and the use of Tendermint Core supports Cosmos’ interoperability in two ways.

First, by using Tendermint Core as its consensus layer, Cosmos simplifies the development of new blockchains within the ecosystem by removing the need for developers to build a consensus layer for their blockchain from the ground up. Additionally, Tendermint Core supports state machines written in any programming language and also supports either proof of stake or proof of authority protocols, allowing for diverse blockchains to be built within Cosmos using Tendermint as their consensus layer.

Tendermint also enables a high transaction throughput in the Cosmos ecosystem, and its instant finality consensus mechanism means that transactions are finalized as soon as blocks are created and that they cannot be changed. Tendermint also ensures resiliency due to its Byzantine Fault Tolerant design—it can continue to operate and come to consensus even when up to one-third of participating nodes fail to communicate or act maliciously.

Cosmos SDK

The independent blockchains within the Cosmos ecosystem are typically built using the Cosmos Software Development Kit (SDK), an open source framework for building custom public (PoS) and permissioned (PoA) sovereign blockchains on top of the Tendermint Core consensus engine. The Cosmos SDK is a middleware design framework with modular components that are designed to function seamlessly within the Cosmos ecosystem.

The Cosmos SDK framework allows developers to create customized blockchains via the use of modules, either by creating new modules or integrating ones that have already been built. Blockchains built with the Cosmos SDK are often referred to as application-specific blockchains. By using the Cosmos SDK, developers can build a custom blockchain to support their own decentralized application (dApp) within the Cosmos ecosystem, which enables them more flexibility in the build and governance of the dApp, enabling for more customized use cases.

These application-specific blockchains ensure a higher level of sovereignty for the application’s stakeholders, as the stakeholders control the governance and validation of the chain underlying their application.

IBC Protocol

The blockchains within the Cosmos network communicate using the Inter-Blockchain Communication (IBC) Protocol. The IBC Protocol allows for communication between blockchains with compatible consensus standards (i.e. that all use Tendermint as their consensus layer) without needing special permissions to do so.

IBC formalizes the light client mechanism, allowing the blockchains to act as light clients on each others’ networks, reading each others’ states and interoperating without the need to function as full nodes or to store each others’ full states. You can learn more about IBC and how it works in our overview.

How to participate on Cosmos Hub

Cosmos Hub is the proof of stake protocol underlying the inter-chain transfer of assets within the Cosmos ecosystem, also tracking the state of the interconnected blockchains. The active set is made up of the 125 validators with voting power determined by the amount of ATOM staked, either self-bonded or via delegation. Active validators are eligible to complete work on the chain and earn rewards. Currently, the minimum stake to be part of the active set is 14k ATOM.

The minimum self-bond for a validator is 1 ATOM; the minimum can only be increased by the SDK validator parameters governing the independent blockchains in the ecosystem. If a validator falls below the minimum self-bond, all of its delegators automatically unbond as a protective mechanism.

Delegation further secures and expands the decentralization of the network. Any ATOM holder can delegate to a validator and will be charged a fee determined by the validator. Fees range from 0-100% of total rewards earned by the delegator, depending on the validator’s goals and capacity.

A validator also specifies the maximum rate of change in delegator fee per day (e.g., setting 1% means the validator can increase or decrease their fee by 1% per day). There is a 21 day unbonding period for delegation, during which time the unbonding ATOM does not earn rewards but is eligible for losses due to slashing. Delegators also have voting rights within the protool’s governance.

Rewards on Cosmos Hub

The current annual reward rate for Comos Hub is 8-10%. The rewards rate is calculated by dividing the network’s current inflation rate by the ratio of staked ATOMs in circulation. The protocol’s inflation rate is based on a target of 67% of all ATOMs being staked, with inflation increasing as the percentage of staked ATOMs drops below 67% and the rate decreasing as it rises above. Inflation is a minimum of 7% and a maximum of 20% per year.

Risks of participation on Cosmos Hub

On Cosmos Hub, slashing can be incurred for two validator actions:

  • Downtime is penalized if a validator is offline and not participating in block validation for more than 5% of the blocks in a row of 10,000. A loss of 0.01% of all staked ATOM on the node, including any ATOMs currently in an unbonding period from the validator, is incurred. The validator is also “jailed,” or blocked from participating in consensus and earning rewards, for 10 minutes. Following the 10 minutes of jail time, the validator can submit an un-jail transaction to rejoin the active set.

  • Double-signing, or a validator signing two distinct blocks at the same height but with different hashes, is penalized more heavily than downtime on Cosmos. Double-signing results in a loss of 5% of a validator’s staked ATOM, along with the validator losing the right to participate in the network and earn rewards (permanent jailing). Any delegators to the slashed validator automatically enter the protocol’s 21 day unbonding period.

Governance on Cosmos Hub

Staked ATOM holders can submit development proposals, vote, and generally participate in on-chain governance on Cosmos Hub; each staked ATOM counts as one vote. Delegators inherit the vote of the validator they are delegated to unless they submit their own vote, which overrides their validator’s vote.

Within two weeks of a development proposal submission a minimum of 512 ATOM must be deposited to the proposal, which shows support for the proposal and reduces spam. The ATOM may be submitted by the proposer or by any other token holder and are returned when the proposal is either accepted or fails to reach the initial minimum deposit.

Once a proposal reaches its minimum, holders of staked ATOM may vote on it. The tokens can be voted as a Yes, No, No with Veto, or Abstain. The proposal is accepted if it meets the following three criteria:

  • Veto: less than 33.4% of the voting tokens voted No with Veto

  • Quorum: more than 50% of the tokens that participated (not including any who voted Abstain) must have voted Yes

  • Threshold: more than 50% of the tokens that participated (not including any who voted Abstain) must have voted Yes

If the proposal is accepted it will be implemented as part of the network’s software.

Why run Cosmos Hub nodes with Coinbase Cloud?

Participate with confidence based on Coinbase Cloud's expertise and experience with Cosmos Hub, and other chains in the Cosmos ecosystem. We were active community members in the Cosmos Gaia testnet for over a year before its mainnet launch, and are committed to supporting Cosmos and its vision of creating the internet of blockchains.

  • Participate with industry-leading security, including offline-generated validator signing keys and HSM-supported secure backups

  • Protect your validator nodes from DDoS attacks with our unique node architecture and Equinix-metal infrastructure

  • Easily access data from the Cosmos Hub blockchain to analyze trends or build robust applications

  • Delegate to Coinbase Cloud's non-custodial public Cosmos validators to earn staking rewards

  • Manage governance and participation with insights and guidance from our protocol specialists