An introduction to the blockchain paradigm that is Cosmos with comparisons to Bitcoin for reference.
Hello readers! If this is your first encounter with Notional and perhaps the Cosmos in general, allow me to welcome you! As the Cosmos has been getting a lot of attention lately – both positive and negative – you might find yourself wondering: “...but what IS Cosmos, anyways?”.
If you consider yourself fairly new to cryptocurrencies in general, I think it will be beneficial to start with “What is Bitcoin?”. If you already feel comfortable with Bitcoin, feel free to skip ahead.
# What is Bitcoin?
There are a few answers to this question which are all correct in different ways, so let’s explore three of them here so that we can reference these ideas in our later explanation of Cosmos.
## Bitcoin is a digital asset
It has no representation in the physical world, and for this reason it is often called an *internet-native* asset. It can be bought and sold at exchanges and its price fluctuates over time depending on the forces of supply and demand.
**Note**: Bitcoin is not a stock – when you buy bitcoin (or any fraction of one), you are not purchasing ownership in any company. It is also not a bond – it does not represent debt of any kind.
## Bitcoin is a blockchain.
A *blockchain* (originally defined [here](https://bitcoin.org/bitcoin.pdf)[^1] ) is a special way of organizing data, and the data it contains is a complete history of transactions between Bitcoin users. In this sense, it is a ledger - if you transfer Bitcoin to (or receive Bitcoin from) another user, your address, their address, and the amount of Bitcoin transferred will be recorded in the blockchain for as long as Bitcoin continues to exist.
The existence of the ledger gives Bitcoin its credibility as an asset. Because it is open and transparent, anyone can verify how much Bitcoin exists, who has it, and who they have been sending it to.
## Bitcoin is a network.
More specifically, there are computers (operated by people) all over the world that are currently running the Bitcoin software and communicating with each other. Miners are checking that all transactions published in the blockchain are valid – that no one is cheating – and they can also attempt to add new transactions (packaged into blocks) to the blockchain.
This second part requires a large amount of electricity and involves showing **proof of work** – a topic which we will not dive into here. It must suffice to say that proof of work ensures the security and the trustworthiness of the Bitcoin blockchain, and allows for miners all over the world to reach consensus – or agreement – about the blockchain.
Since all miners must hold a complete copy of the Bitcoin blockchain, it is sometimes referred to as a distributed ledger. Finally, in exchange for successfully adding blocks to the ledger, miners are paid a block reward – a payment in Bitcoin for their computational effort.
# So... What is Cosmos?
As with Bitcoin, there are a few different answers to this question and each provides a different perspective on this unique ecosystem. Allow me to clarify.
## Issues with Bitcoin
Bitcoin, despite its tremendous success as a decentralized and censorship-resistant digital asset, does have some serious limitations. For one, it is slow – the block-time is approximately 10 minutes, and a given transaction is not extremely secure until about an hour after it is published in a block. This is far too slow for everyday transactions, like purchasing a coffee.
Another serious issue is that Bitcoin cannot communicate with other blockchains like Ethereum. I cannot, for example, transfer bitcoin from a Bitcoin address to an Ethereum address (please never try this) or vice versa. This is because Bitcoin and Ethereum (at the time of writing) cannot interoperate.
Finally, Bitcoin has no formalized governance mechanism. How should the Bitcoin software / network improve or evolve over time? We will leave the history of how this has happened for another day, but this idea of governance will be important later.
## Enter Cosmos
In 2016, a [technical paper](https://github.com/cosmos/cosmos/blob/master/WHITEPAPER.md) (called a *whitepaper*) was published entitled *Cosmos – A Network of Distributed Ledgers* [^2], authored by Ethan Buchman and Jae Kwon. In it, the authors describe a blueprint for constructing blockchains that:
1. Do not use proof of work
2. Can process transactions much faster than Bitcoin
3. Have on-chain governance systems
4. Can interoperate with each other
This brings me to my first answer for ‘What is Cosmos?’ : **Cosmos is a design framework for building blockchains.** It is a set of rules which, when followed, allows anyone to set up a blockchain that is fast, secure, and can interoperate with other Cosmos-based blockchains.
The Cosmos Hub was the first blockchain built using the Cosmos specifications. Like Bitcoin, it is a blockchain whose central job is to track the ownership of a native asset called ATOM. Also like Bitcoin, there are computers all over the world running its software, checking that transactions are valid, and adding new transactions to the blockchain. These computers are called *validators* rather than miners because they do not use large amounts of electricity to show proof of work.
The curious reader may wonder at this point: If proof of work is what gave the Bitcoin blockchain its security, how can a Cosmos blockchain be trusted without it?
## Tendermint and Consensus
Cosmos chains run an algorithm called [Tendermint](https://tendermint.com/static/docs/tendermint.pdf) [^3] to reach consensus. Tendermint is a *delegated proof-of-stake* algorithm, which means that validators must commit funds before they attempt to add blocks to a Cosmos blockchain. If a validator is found to have proposed a ‘bad block’ – one which contains illegal transactions or in which the rules of the protocol are broken – the validator has some or all of their committed funds *slashed* or removed from the ledger.
Thus validators in Cosmos blockchains are heavily incentivized to produce blocks that follow the rules of the protocol, just as Bitcoin miners are incentivized not to waste expensive electricity trying to add bad blocks to Bitcoin (which would also be rejected by the rest of the network).
As payment for producing valid blocks and securing the Cosmos blockchain, validators are paid a block reward just like Bitcoin miners. If you are interested in the details of how this algorithm works, we covered it extensively across two dedicated articles, and you can find the first one [here](https://notional.ventures/blogs/tendermint-cosmos-security-engine).
Because Tendermint does not rely on proof-of-work, it is able to achieve much faster block times than Bitcoin – typical block times on Cosmos chains are around 6 seconds, with some chains pushing sub-second block times at the time of writing.
(Since we are on the topic, we at Notional are Cosmos validators! One of core jobs is to process transactions and ensure the security of various Cosmos blockchains.)
## Delegation and Governance
Cosmos chains have another interesting feature as well – *delegation*. In Bitcoin, only the miners receive block rewards while holders receive nothing. Holders of a Cosmos asset, however, can delegate their funds (called *staking*) to an active validator and thus receive a share of the block rewards. This delegation process is extremely important because Cosmos chains have an on-chain governance system.
Any user can propose an improvement, and it can be voted on by the validators and stakers. This governance process can allow Cosmos chains to change and evolve much faster than chains like Bitcoin and Ethereum, but it can also lead to issues. Validators often refer to themselves as ‘protocol politicians’ because if they want to maximize their profits and the importance of their vote, they need to convince users to delegate to them.
Since understanding delegation is one of the most important pieces of being a Cosmos participant, we wrote all about it [here](https://notional.ventures/blogs/delegation-and-governance).
So far, I have (hopefully) justified how Cosmos chains achieve the first three features described in the original whitepaper. What about interoperability?
## Inter-Blockchain Communication Protocol (IBC)
Cosmos chains can enable the **Inter-Blockchain Communication Protocol** (or IBC) if they so desire. A chain that supports this feature can easily transfer tokens and other data to another IBC-enabled chain without compromising the security of either. This is made possible by a *relayer* – a special computer that directs information back and forth between the chains over a dedicated IBC *channel*.
If all of this sounds a bit mystifying, don’t stress: we wrote a [separate article](https://notional.ventures/blogs/introducing-the-inter-blockchain-communication-protocol) that walks you through how this critical piece of the Cosmos works. For now, it is enough to know that the architecture of the IBC makes it much more secure, decentralized, and flexible than other token-bridge protocols.
The IBC went live in late 2021 and at the time of writing, only its most basic applications have been explored. But its implementation and adoption by dozens of Cosmos chains leads me to my second and final answer to “What is Cosmos?” :
**Cosmos is a network of networks** – a network of blockchains that can seamlessly send and receive digital assets and information permissionlessly, allowing a parallelism that is simply not possible in other cryptocurrency ecosystems.
A beautiful visualization of this can be seen at [Map of Zones](https://mapofzones.com) [^4]. This meta-network is sometimes referred to as the *interchain* – a reference to the internet being a network of computers. At the time of writing, there are 51 blockchains running applications, smart contracts, and communicating with each other via the IBC.
So here we are. The core components of the original Cosmos whitepaper have been realized. The speed and security of Tendermint consensus has been battle-tested across dozens of blockchains. The creativity and focus seen in a huge community of programmers and validators has led to a Cambrian explosion of applications and use-cases in the Cosmos. But in reality, we are just getting started and we hope you’ll come along for the ride.
Thanks for reading <3
[^1]: S. Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, [https://bitcoin.org/bitcoin.pdf](https://bitcoin.org/bitcoin.pdf) (2008)
[^2]: J. Kwon, E. Buchman, Cosmos – A Network of Distributed Ledgers, [https://github.com/cosmos/cosmos/blob/master/WHITEPAPER.md](https://github.com/cosmos/cosmos/blob/master/WHITEPAPER.md) (2016)
[^3]: J. Kwon, Tendermint: Consensus Without Mining, [https://tendermint.com/static/docs/tendermint.pdf](https://tendermint.com/static/docs/tendermint.pdf) (2014)
[^4]: Map of Zones, [https://mapofzones.com](https://mapofzones.com/home?columnKey=ibcVolume&period=24h)