The coin market has seen drastic changes over the past decade and particularly in the previous 3-year period. Through all this, though, one thing has remained constant – BTC is still King of Coins. Many promising projects have attempted to topple BTC’s dominance but even as of this publication it still has a 69% dominance. The ‘flippening’ is yet to occur and no longer seems likely. So perhaps the trick is not to beat BTC but rather to create something that connects all the coins, including BTC.
This is exactly what the fellows behind Cosmos were thinking about when they created this system. The system is stylized as the Internet of Blockchains because it has been made to connect all coins. As you can imagine, this is quite a bold vision and its success can have a major impact on its future success and the future of the coin markets as a whole. Whether you are an investor interested in long-term gains, a speculator waiting for a juicy opportunity or an enthusiast of coins, this is something to think about. In this post, you will learn about the history, structure, and functionality of Cosmos and how you can invest in Atom (the native token) during the year 2020 from any CFD trading brokers. (These are the: 10 Most Important Resources to a Coin Trader)
Everything you need to know about Cosmos and Atom
Cosmos is one of the latest coin systems to enter the industry since it was only launched on March 14, 2019. Nevertheless, the system is now ranked 25th by market capitalization and estimated to be worth over $420 million at the time of publication. Today, Cosmos is the biggest coin system based on a true proof of stake (PoS) consensus algorithm and the most successful to date. (These are the: Coin Regulations Around the World)
In 2014, Jae Kwon became the first person to create a blockchain that uses PoS to solve scalability issues common in BTC and other coins. That year, Jae Kwon founded All in Bits Inc. that also operates as Tendermint Inc. to create Cosmos. In 2015, he would meet Ethan Buchman to continue developing the system. Together, these two co-founders received funding for their project after publishing the system’s whitepaper. A non-profit foundation called Interchain Foundation (ICF) was set up in Switzerland to channel funds to Tendermint. In 2017, it received $16.8 million in funding within 30 minutes in an ICO that would become one of the most successful in the year.
Then the system went live on March 14, 2019, although the public ICO for Cosmos was held on April 9, 2019. During the ICO, 75% of the total 237-million-coin supply was sold to the public while 5% and 10% was reserved for seed investors and the company respectively. Following the launch of the system, Cosmos has since then weathered a hack attempt but no money was lost. To understand all this, we have to go back to the origins of Cosmos at Tendermint and how the whole system operates. (Do you ever wonder: What Is The Future Of Coin In Finance?)
A history that lead to the creation of Cosmos
Since the story of Cosmos begins in 2014 but the real origins of the story date back much earlier than that. Designers of distributed computer systems had to come up with a system of verifying all nodes on a system even if some were faulty. This problem was named the Byzantine generals problem in 1982 about the generals that would attack the Byzantine empire.
As the story goes, the generals could only conquer the empire by attacking it from multiple sides. However, the biggest problem is that there was no way of communicating instantly as we do today on mobile phones. This presented a problem because perhaps some of the generals participating in the attack were traitors who would turn on the others. Thus, the generals had to come up with a way of verifying true information among all generals even if there were traitors among them. (Ask yourself: Which Are The Most Influential Coin Arenas By Country?)
Such a problem can extend to any modern system that uses a series of sensors such as a nuclear power plant, airplane engine system or even flight control systems. One of the most effective solutions for this Byzantine problem is replication. This solution to the Byzantine problem was first used in aircraft management systems and is still used today. The aircraft constantly repeat a signature to all surrounding recipients to ensure that they are all receiving the same message. This is referred to as Byzantine fault tolerance (BFT). (Before investing: Learn How Coin Scams Operate And Avoid Them)
A more modern application of BFT, and also one more relevant to coin, is that used in BTC. To verify all transactions on the BTC blockchain, a miner has to solve complex algorithms and upon achieving a solution they have to replicate the same block to other miners. This system of replication ensures that the transactions are all verified and that all malfunctioning nodes in the system are identified. It is this simple BFT system that has kept BTC transactions secure a decade later and created one of the most disruptive technologies of our generation.
Many of the coins that came after BTC have also used this approach, but it has presented several problems. These problems have forced the coins to look for a solution with the most promising solution being proof of stake (PoS). PoS was first proposed in 2011 in a BTC forum as a solution, but it was only in 2014 that Jae Kwon conceived its use in the context of a public blockchain. (This is: The Strategy Of Coin Whales In 2019)
What exactly is proof of stake (PoS)
To understand a proof of stake, we first need to understand proof of work since it is the most common method of achieving consensus in the coin industry. A system like that of BTC is decentralized in that there is no single point from which the entire system is based. The problem with this decentralized system is that it may be difficult to coordinate between all the nodes and find a consensus – the Byzantine generals problem described above.
Therefore, Satoshi Nakamoto came up with proof of work where all the nodes with miners would have to solve complex algorithms to successfully hash a block and then distribute it to other nodes on the system. This system works because the algorithms to be solved keep getting harder and harder, requiring either more time to solve or more improved hardware (ASICs). As long as the miners keep investing their money in hardware and power bills, they have a vested interest in seeing the value of BTC rise so that they don’t lose their entire investment. This is a self-correcting system that keeps miners rewarded for their effort and motivated to maintain the system while simultaneously catering to inflationary pressure. (Do you know: How Did Tether Coin Survive The Coin Arena Selloff?)
One glaring problem with such a system, though, becomes the miners’ greed for bigger profits. When you think about it, who wouldn’t want to make more money by, say, raising the transaction fees? After all, they have invested millions of dollars to create BTC mining hubs around the world and want to see some returns. On the other hand, it means that the miners have a lot of power over the system and then it gradually becomes less decentralized as these mining pools band together like an oligopoly. Add to that, at least 6 nodes have to approve a transaction before it is deemed valid and this can take time due to latency especially when there is a lot of traffic on the system. As you shall see, Cosmos has a pretty ingenious way of beating all of BTC’s problems.
Enter… proof of stake (PoS). In a PoS system, it is not processing power that determines who can validate blocks but rather who has the most coins at stake. Think of it as a democracy – validators are the representatives and they are voted on by delegates. Anyone who puts their ATOM tokens at stake automatically becomes a delegate, and they can delegate any validator they want. Just like in a PoW system, the validator who is chosen to validate a block is rewarded with new ATOMs and they distribute these to their delegates proportionately after deducting a commission. This became the delegated proof of stake system. Once again, this creates a system where the delegates and validators have an incentive in keeping their coins in the system and to see it grow. (Forex Trading in Singapore: Laws and popular FX brokers)
One of the problems with these systems was first highlighted by Jae Kwon and later popularized by Vitalik Buterin in 2014 – nothing-at-stake. In Satoshi Nakamoto’s whitepaper, the miners were discouraged from allowing forks in the system because this would take away from the main system. Furthermore, it was not possible to split processing power among two forked systems without losing something. In PoS, however, there is no processing power needed and the validators could, in theory, keep supporting an unlimited number of forked systems. To counter this, first, any amount of coins at stake is kept frozen or locked for a certain period. Then, any suspicious behavior spotted is punished by slashing where the suspected validator and their delegates get at least a third of their ATOMs destroyed. (Learn about: The Future Of Ethereum In 2019 And What To Expect)
Because of this, validators are motivated not to ‘misbehave’ within the system, while the delegates keep an eye on the validators’ activities. The good news here is that not everyone has to put their tokens at stake and it is completely voluntary. Just remember that by opting out you may be missing out on the rewards issued upon the creation of new blocks.
To keep the system running, the validators work on a voting system that occurs in rounds. During a single round, the authorizers propose the blocks be validated, signal their commitment intent and then commit to signing the validated blocks into the cryptographic ledger. This voting system makes Cosmos a weakly synchronous protocol and not a completely synchronous nor an asynchronous one. That is because there is a timeout period during which the selected authorizer is expected to validate the block before they are skipped. (Will Institutional Investors and Sharks Invest Massively in Bitcoin in 2019?)
If a third or more of the authorizers are either offline or away due to system latency, then the system may stop completely until the authorizers agree to a restart. As you can see, the Cosmos system puts a priority on the safety of the cryptographic ledger over liveness, and there is a high risk of the system stopping, most likely due to system latency. All the same, it does give holders of ATOM tokens secure in knowing they are on the right system at all times. (Gram (TON) Vs Bitcoin in 2019: Best Worldwide Coin Fight, Pros, and Cons)
Is there any benefit in staking ATOMs?
The primary use of ATOM tokens within the Cosmos system is for staking on authorizers to keep the system running. Currently, staked ATOMs have an annual yield of just under 10%, which means you can earn $0.2 for every token within a year based on the current market price of $2.05 at the time of publication. While this may not be a huge return in itself, the yield is expected to keep rising to between 13%and 20% until a stake ratio of 66% is reached.
There are currently 160 active authorizers out of a total of 189 authorizers, and you can choose to stake your tokens on any of them. Nevertheless, it is always preferable to select the top authorizers because they have the highest amount of tokens staked and thus less likely to ‘misbehave’ and lead to slashing of your tokens. Furthermore, they are the most likely to get selected to validate blocks and thus more likely for you to get rewarded. That being said, you can also choose to diversify your tokens among several top authorizers and increase your chances of getting rewarded in the selection process. Another reason is that you won’t have all your eggs in one basket and thus won’t lose a lot of money if one of your authorizers gets slashed. (These are: The Most Prominent Cryptocurrency Hacks and Scams You Should Know)
The first step is of course to acquire the ATOM tokens. Fortunately, ATOMs are available in 86 active markets according to CoinMarketCap including some popular crypto exchanges such as Binance, Coinbase, OKEx, etc. Once you have the tokens, you can keep them in several wallets including Atomic Wallet, Lunie, Trust Wallet and many more. From these wallets, you will need only to choose one or several of the over 100 authorizers on Cosmos and stake your coins. Any rewards gained from the investment will also be deposited into the same wallet as soon as the rewards are distributed.
Now, how does Cosmos actually work?
All the above only described how Cosmos is different from other coins, but now you are going to learn how the system learns. It is important to know this as an investor or trader and most importantly an enthusiast so that you can predict how some situations will affect the system. (Should You Invest In CFDs Or Stocks To Make More Money?)
To understand this system, you have to look at it through three separate levels. The lowest and most basic level is Tendermint core, which is also the cryptographic ledger on which the entire system is run. A cryptographic ledger is simply an immutable record of data that is replicated over a system of several nodes. The only difference with Tendermint core and other cryptographic ledgers such as Bitcoin or Ethereum is that this one uses a Proof of Stake (PoS) consensus system described in detail above. The native token in Tendermint Core is ATOM that is used by delegates to vote for authorizers and keep the system secure and running. (Do you know these: 5 Tips to Choosing the Ideal Cryptocurrency Platform?)
The most innovative level of Cosmos, though, is Cosmos Hub, the second level of the system. Remember how Cosmos is supposed to be the Internet of Cryptographic ledgers (IoB)? Well, all cryptographic ledgers that are going to be on the Cosmos system will co-exist on the Cosmos Hub. The Hub is connected to the Core through an APCI socket protocol.
In the Cosmos Hub, any cryptographic ledger can be hosted in the form of zones. Thereafter, these zones can communicate with each other through hubs that allow for the exchange of tokens. For example, there is a zone called Ethermint that is similar to the Ethereum cryptographic ledger. If someone who has ether tokens would like to use them in Cosmos, all they would have to do is deposit their ether into Ethermint. These ether tokens would be converted into photons, which are the native token for the Cosmos Hub. With these photons, the user can utilize Ethermint just as if it was Ethereum, only that it would be much faster since it was based on Tendermint Core. (Do you know: How easy is it to trade Cryptocurrency in the Forex market?)
In case we didn’t cover this, remember that photons are the native tokens for the Hub and can be used on any hub. For instance, if the above user would like to use another hub based on Bitcoin, their newly acquired photons will be usable. In case they want to convert photons into actual Bitcoin, the exchange can be made on the Bitcoin peg zone. There can be any peg zone on the hub as this is the main feature of the Cosmos Hub. (Find out more about the: Growth Of The Forex Market In Africa And Other Developing Countries)
For example, a developer can even create a euro peg zone where users can deposit fiat in euro and convert it into photons for use on any other zone in the Hub. Every zone can exist independently with its own rules, just like an independent cryptographic ledger. The advantage is that all these zones can communicate with each other. In this way, Cosmos is not looking to replace any already existing cryptographic ledger but rather integrating them into the Cosmos Hub. Instead of a fork, this process is referred to as a hard spoon.
All this is possible because Cosmos is extremely fast thanks to the PoS consensus system it uses. Indeed, the block time is just 1 second and the cryptographic ledger can handle 10,000 transactions every second. To facilitate the handling of multiple zones in the hub, Cosmos uses horizontal scaling where every zone can create parallel branches like those of a tree from the same trunk. This kind of scaling is unlike vertical scaling used in other cryptographic ledgers or even sharding that was proposed for the Ethereum system because there is no limit on the number of branches that can be created. Therefore, there can never be any lags in the system due to higher traffic. (After The BTC Cash Fork, Which Is The Real BTC?)
The third and topmost level in Cosmos is the Cosmos SDK where anyone can create a decentralized app (dApp) and run it on the Cosmos Hub. Cosmos have attempted to make the process of creating dApps simpler through pre-built SDK modules. With these modules, even that developer without skill can create a simple app and run it on the Hub. The apps to be created can be based on any industry from gaming to healthcare, payments, etc.
These three levels of Cosmos are what comprise of the most revolutionary cryptographic ledger so far and the reason why there is so much buzz. Now you know everything you need to about Cosmos. (Investor Tips 2019: What To Include In Your Portfolio)
Investing in ATOM tokens
All this is great, wonderful technology, but how can it help you as an investor or speculator? Then put your focus on ATOM tokens. Although Photons (PHO) are also used, these are more for transaction purposes within the Hub and not for investment. ATOMs, though, are among the most popular coins in the market right now with a ranking of 25 on CoinMarketCap. At the time of publication, a single ATOM token is worth $2.08 and the coin has a market cap of $396.7 million with about $95 million being traded in the past 24 hours. That in itself should tell you that there is a lot of liquidity in ATOM and this makes it a worthwhile investment. (Some of the: Alternative Coins beside BTC to invest in)
Cosmos Hub went live on March 13, 2019, and the ATOM tokens quickly rose in value to reach a high of $8.31. At this time, tokens were still not available to the public as this would happen later on April 6, 2019. Unlike other coins that are made available through an ICO, ATOM tokens were issued in a public fundraiser at $0.10 apiece. The total supply of ATOMs is almost 238 million tokens, but the Interchain Foundation only needed to raise $17.3 million so they made 190 million tokens available to the public.
After this fundraiser, the coins were valued at around $4.50, and they would go on to reach $5.20 after Binance announced that they would be listing the coin on their exchange. Since Binance is the largest crypto exchange by traded volume, the news obviously drew a lot of demand. To date, a majority of the trade volume for ATOM tokens still comes from the Binance exchange. ATOM would then peak at about $7.15 in June along with other coins because of increasing demand for Bitcoin futures on CME brokers that demonstrated interest from institutional investors. (This is the: Binance Coin Price Prediction 2019)
Anyone who invested in ATOM during the public fundraiser is now enjoying enormous returns at the token’s current price of $2.08. KR1 is a cryptographic ledger investment company that sold 70,000 ATOM tokens during the June price surge for a price of $360,605. The company claimed this was one of their most successful investments because the initial investment was only $7,000 to provide a gain of 5,150%. You can bet there were a lot more companies and individuals that contributed to the $17.3 million raised who are now enjoying the benefits. (These are the: 10 Most Important Resources to a Coin Trader)
Even though the fundraiser is long gone, ATOM is still a great opportunity for any crypto investor. First off, the coin is one of the most promising because of the revolutionary technology. And second, staking in the consensus program has a decent yield of about 10% per year. This has the potential to provide a very good passive income just by holding the token while the price also rises.
One reason to believe that ATOM tokens have the potential to rise higher is that the PoS system provides finality and prevents forks in the network. This was illustrated during the May 2019 hack where some hackers took advantage of a vulnerability to bypass the 21-day lockup period. Although the company did not state whether any tokens were lost, they did execute a hard fork on May 31, 2019, to fix the vulnerability. (Learn the: 5 tips to forming the most promising coin investment portfolio)
The wide adoption of ATOM tokens by several major exchanges and wallets also goes to show that market leaders are confident in the technology and that it has a bright future in the crypto-sphere. (Have you ever wondered: How Did Tether Coin Survive The Coin Arena Selloff?)
A lot is going for the ATOM token and the Cosmos network in general, and these are all factors promoting the future growth of the token. As an investor, you should look at this as a solid investment with the promise of future growth. However, ATOM is just another coin on a list of thousands and it generally follows the trend of Bitcoin, so you should be aware of the trends in the most popular cryptocurrency.
Do you still have questions? Who better to answer them than Jae Kwon himself who founded the entire thing: