The total active internet users exceeded 4.5 billion in 2021, or almost 60% of the global population. In comparison, we see the number of global crypto and blockchain users is approaching the 300 million mark, according to the Q2 2021 reports from Crypto.com. This shows we are still very far away from mainstream adoption.
A major reason for this is the lack of interoperability between blockchains. There are multiple approaches that enable cross-chain interaction, but they do so between only two existing blockchains. None of the current interoperability techniques make a significant impact in terms of network efficiency, seamless upgradeability, and sustainability.
Addressing these shortcomings is the Cosmos network, a one-of-a-kind interoperable ecosystem that is aimed to provide cross-chain communication between multiple blockchains with different functionalities. Currently, Cosmos is the leading blockchain project with the most prominent interoperability solutions.
Cosmos is a network architecture that allows multiple parallel blockchains to interact and share data. It aims to create the next Internet where blockchains replace computers. As a result, no blockchain will feel the need to compete, and they can all coexist under one umbrella ecosystem.
The interoperable network adopts an independent approach for building blockchains within the Cosmos ecosystem. In that approach, the application layer is separated from networking and consensus layers. This is done to give extra flexibility to the developers, as they can create different customized applications that have their own flexibility and needs.
Along with independent management of blockchains, the Cosmos network also streamlines application development by providing necessary tools and platforms. Developers can leverage the existing blockchains and modules within the network and increase adoption and liquidity in a significantly less amount of time.
The underlying architecture of the network is what boosts interoperability and sovereignty within the Cosmos ecosystem. And that architecture has three main layers: Consensus, Networking, and Application.
The independent blockchains in the Cosmos network use a consensus algorithm called Tendermint. This algorithm takes a different approach as compared to Bitcoin’s Nakamoto consensus and Ethereum’s Ethash. While both are probabilistic in nature, which means blocks are not finalized instantly, Tendermint allows the blocks on Cosmos to achieve instant finality upon validators’ votes, making the network more secure.
The Cosmos consensus layer also prioritizes safety over liveliness. So, when a proof-of-work chain is split into two, the network automatically selects the longest chain as primary and reverses the transactions made on the secondary one. However, on Tendermint, the network stops operating until ⅔ validators come to a consensus. This helps maintain consistency of truth even when there is a network partition.
Similar to Bitcoin and Ethereum, the Cosmos Tendermint consensus mechanism uses a gossip protocol to fast-track peer-to-peer communication. In the networking layer, nodes can also contribute to the consensus process. They are considered as “non-validator nodes.”
The messages transmitted on the networking layers can be anything, such as proposals, blocks, and votes. The validator and non-validator nodes work together to facilitate smooth communication and let all their network peers catch up to speed on the latest messages and transactions.
Till now, it’s clear that the consensus and networking layers are responsible for validating nodes and propagating messages, respectively. But how are the transactions actually passed on to these layers? This is where the application layer comes into the picture.
The Cosmos application layer defines the transactions made on blockchain and submits them to the consensus layer. The interaction between the two happens via the Application Blockchain Interface (ABCI). The specialty of this interface is that it is not limited to any one programming language. Applications built on Cosmos can literally use any language to establish communication with the base layers of the protocol.
The Cosmos network uses multiple software innovations to make the interoperable platform more secure and efficient. Among those innovations, the most important one which lays the foundation for the entire ecosystem is Tendermint Core.
It is the primary building block of Cosmos Hub and other essential components within the Cosmos ecosystem. The Tendermint Core mainly brings Byzantine Fault Tolerance (BFT) methodology to the network architecture of Cosmos. So, it is responsible for reproducing applications using existing blockchain networks in the Cosmos ecosystem.
In simple words, it acts like a plug-and-play replacement for you to step into other blockchain universes. For example, you can take the Ethereum codebase and run it on the Cosmos network using the ABCI application. In fact, Cosmos overcame the bottlenecks of Ethereum by transporting the EVM to Cosmos. It was called Ethermint.
The IBC protocol provides the interoperability factor that Cosmos boasts about. It helps establish communication between blockchains by using a hub and zone model. Hubs manage multiple zones. And zones communicate indirectly with the help of IBC. It doesn’t do this directly because then it would hinder blockchain’s scalability.
The first hub of the IBC protocol is Cosmos Hub. It is the primary handler to connect different deterministic blockchains to the Cosmos hub. For those that aren’t deterministic, like Bitcoin and Ethereum, Cosmos uses Peg Zones. These act like links between non-Tendermint based chains and the IBC protocol. So, in a nutshell, IBC protocol helps all types of blockchains to interoperate using Cosmos hub.
The third building block driving more innovation within the Cosmos network is Cosmos SDK. Developers can avoid building applications from scratch, as they can take advantage of the Cosmos PoS module to secure the foundation. On top of it, they can do all the required customization.
This is proof that Cosmos makes blockchains more powerful and easy to deploy with the modularity given through its SDK. Even in terms of security, it is superior. Many popular application-based blockchains are built on the Cosmos SDK. Some of them are Binance Chain, Terra, and Kava.
Sifchain is an omni-channel DEX built using the Cosmos SDK. This DEX selected Cosmos network for its high transaction speed and ability to transact at significantly lower fees. It is a high-performing cross-chain DEX, targeting connections to more than 20 of the leading blockchains. Sifchain bridged Cosmos and Ethereum, so that token holders benefit from both chains while still pooling together liquidity. On top of this, they will also offer cross-chain deep margin trading.
Another project that is improving the versatility of Cosmos is Band Protocol. It is a cross-chain oracle that uses web APIs to extract real-world data and feed it onto different blockchain smart contracts. Band Protocol has unlocked many cross-chain functionalities for developers and is now considered a top oracle provider with partners like Terra and Mirror protocol.
Staked assets' illiquidity has plagued crypto investors for too long. pSTAKE Finance aims to change that with their liquid staking protocol on the Cosmos network. pSTAKE’s dual token model allows stakers to use their staked assets to issue 1:1 pegged representatives and explore other investment opportunities in the DeFi ecosystem. ATOM holders can also increase their capital efficiency by using pSTAKE and supplying liquidity to a variety of cross-chain DEXs through pBridge - a major component of the protocol.
As the name suggests, Comdex is a decentralized exchange in the Cosmos ecosystem. It is built on the Persistence SDK and creates synthetic versions of various real-world and tokenized community assets. Comdex’s trading platform overcomes the flaws of traditional commodity markets by providing exposure to a hard-to-get asset class in a highly liquid market. Comdex plans to roll out a dApp called ShipFi in 2022 that will supposedly propel the seamless transfer of value or cash flow from DeFi to CeFi.
If we fail to take blockchains and their data out from the silos in which they currently function, it would be extremely difficult for users to navigate the fragmented ecosystem. That is why, if we want widespread adoption of blockchain technology, it is crucial for us to improve the interoperability of blockchains. Furthermore, lower transaction fees and higher scalability are other concerns that need addressing. In this regard, the Cosmos network is a ray of hope. It can create a universe of blockchains that don’t compete with others but work in unison, and it can maximize network efficiency and provide a better user experience.