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Overview
ATOM (ATOM-USD) is the native coin of the Cosmos Network. Cosmos is a decentralized network of independent parallel blockchains developed by The Interchain Foundation, a Swiss non-profit. Cosmos allows interoperability between blockchains; normally, blockchain networks are siloed ecosystems that have no openness to communicate with each other. Just like on the Internet where different apps and protocols communicate with each other, Cosmos is building an Internet of Blockchains. ATOM powers transactions in the Cosmos ecosystem.
Cosmos Technology
Cosmos achieves interoperability between blockchains using a set of tools and consensus. Cosmos is a dual-layer blockchain. On the first layer, the networking and consensus are packaged into a generic engine; this allows developers to focus on application development rather than the complexities of the underlying protocol. Cosmos uses the Tendermint BFT for this first layer; BFT stands for Byzantine Fault Tolerance. Tendermint BFT is responsible for transmitting transaction and consensus-related messages on Cosmos.
The second layer, known as the application layer, allows developers to create their own blockchains using the Cosmos SDK. The Cosmos SDK is an open-source framework for building application-specific blockchains; the blockchains are built on top of Tendermint and can natively interoperate with other blockchains. Blockchains built in the Cosmos ecosystem have their own governance structures and are independent of each other; these blockchains are called Zones.
Just as applications on the Internet use the TCP/IP protocol which enables application programs and computing devices to exchange data. Zones in the Cosmos ecosystem use the Inter-Blockchain Communication Protocol (IBC).
At the center of the Cosmos Network is the Cosmos Hub; it is also referred to as the main chain in the Cosmos Network. The Cosmos Hub acts as a central ledger for other blockchains on the network. It also performs functions such as keeping track of the state of all connected blockchains to ensure security. When a Zone is created using the Cosmos SDK, it is connected to a Hub; this gives a newly created Zone the ability to interoperate with other Zones via the Hub.
Cosmos takes blockchain interoperability a step further by allowing interoperability with other blockchains outside of the Cosmos ecosystem. This is achieved by using a special blockchain called a Peg Zone. A Peg Zone is a blockchain that tracks the state of another blockchain, acting as a bridge between two blockchains.
Tokenomics
ATOM, the Cosmos native coin, has three main use cases in the Cosmos ecosystem.
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Fees: Similar to Ethereum’s concept of “gas”, ATOM is used to pay for network fees on the Cosmos blockchain.
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Staking: ATOM can be staked for rewards. Staked ATOM are used by validators to take part in the consensus of the network.
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Governance: Holders of ATOM can participate in governance voting on the Cosmos Hub. A user’s voting power is directly proportional to the amount of ATOM the user holds.
There are currently over 280,000,000 ATOM in circulation. ATOM is an inflationary coin as it has no supply limit.
Proposal 72
In terms of recent developments, proposal 72 has recently been approved by the Cosmos community.
Through this proposal 150,0000 ATOM, worth over $1 million will be used to develop new projects in the realm of interchain security and liquidity.
50,000 ATOM will go to the P2P team, who are launching an “Interchain secured, CosmWasm-enabled chain.” The chain will be called Neutron, and serve as a DeFi Hub for Atom.
The other two projects have not been allocated, but will be used to fund an independent consumer chain and also smart contract applications on top of the DeFi Hub.
With this move, ATOM moves closer towards replicating and even improving on what can be done in the Ethereum (ETH-USD) blockchain.
Risks
From its $0.1 price during its Initial Coin Offering, ATOM reached an all-time high of $44 a token in September 2021, making it a whooping 44,000% gain in 4 years, at the time it hit all-time high. Cosmos is a solid project with very few competitors in the blockchain interoperability space. As a blockchain for interoperability, Cosmos is bringing blockchains together; this makes Cosmos a great “friend of all” in the blockchain space.
Although Polkadot (DOT-USD) is often considered a Cosmos competitor, its model of implementing interoperability, its architecture and governance are different from that of Cosmos. Polkadot uses a sharding model which comprises Parachains and the Relay Chain, while the Cosmos Network uses a bridge-hub model.
As an inflationary token, new ATOM tokens are minted as reward for staking, hence there is no capped supply. ATOM’s annual inflation rate is between 7% and 20%. One downside of inflationary cryptocurrencies is that the supply of the token could easily outpace demand, thereby decreasing the value of the token. In the Cosmos ecosystem, the total amount of ATOM staked has an impact on the inflation rate; if more ATOM is staked, inflation decreases.
Takeaway
Cosmos is a unique project. Interoperability is essential for blockchain technology, if blockchain technology is to see mass adoption. The Cosmos Hub has seen lots of growth over the past years, and it continues to grow. Popular blockchains such as Crypto.com, Fetch.ai and Kava run as Zones on the Cosmos Network. Cosmos is truly living up to its dubbed name “The Internet of Blockchains.” However, the inflationary nature of the token makes this less appealing for investors.
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