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Cosmos - Dawn Of The Interoperability Era

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Satoshi&Co Daily Crypto Newsletter

March 14 · Issue #141 · View online
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One of the most awaited projects of the crypto ecosystem finally went live yesterday. We are not talking about the Lightning Network. “Cosmos” is an interoperability protocol that aims to solve the problem of cross chain communication. The current infrastructure of value transfer across different blockchains is heavily controlled by trusted third parties like centralized exchanges, which introduce various types of rent-seeking/self-serving/skin-saving restrictions on crypto owners, besides being vulnerable to external hacks. As we have mentioned before centralized exchanges wield a disproportionate amount of power, sometimes to the detriment of users. The self-sovereignty that is fundamental to the ethos of any blockchain can only be attained when inter-blockchain communication becomes a reality, thereby removing the dependencies on centralized third parties.
Cosmos - the Internet of Blockchains
Houston, we have liftoff 🚀
What is Cosmos?
We understand that there are quite a few concepts to ‘grok’ here, but if you want to start diving into this exciting protocol, you should take a quick gander at the Cosmos wiki, and then head straight to the white paper.
Research on interoperability protocols has been continuing for quite some time now, but the complexity of interoperability architecture presents many challenges to the developers. At the bleeding edge of innovation, it often takes a long time to move from the abstract to the concrete. Polkadot and Cosmos are the two leading projects in the interoperability space with the former expected to follow Cosmos and launch soon as well. Cosmos uses a hub and spoke model where there is a central hub that sort of plays the role of a translator for all the protocols connected to that hub. For example, one could imagine a hub for DEXs where Ethereum-based tokens can be interoperable with EOS-based tokens as long as they are connected to the same hub. Initially there is only one central hub called the Cosmos hub; in the future more and more hubs will likely come up. Cosmos uses dBFT, which is based on Tendermint, which is also a variant of the PoS (Proof of Stake) consensus mechanism. Tendermint offers fast finalities (~5s) and also a high throughput of 200 transactions per second, and is also the blockchain powering Binance’s upcoming DEX. Cosmos SDK provides the framework for developers to build applications in a specialized language called Golang and the applications can run on tendermint consensus. Using Cosmos SDK and IBC (Inter Blockchain Communication protocol), applications can become interoperable by connecting to a hub. ATOM is the native token of the protocol that will be used for choosing validators who verify transactions and for voting on protocol changes and upgrades. Until the state of the system meets the necessary safety requirements and fixes bugs that usually prop up after the launch, the transfer of ATOM tokens is prohibited. BinanceDEX and Nomic, which is a Bitcoin sidechain, are the first major adopters of Cosmos SDK.
Source: Cosmos hubs via YouTube.
Source: Cosmos hubs via YouTube.
Cosmos has a complex block reward system that dynamically adjusts the block rewards based on the amount of ATOMs staked in the system. New atoms are created every block and distributed to validators and delegators participating in the consensus process. This provides an incentive to atom holders to not just passively hold their tokens in wallets, but to put them at risk in order to secure the network. The number of new atoms created per block is variable and depends on the percentage of the atom supply that is staked in the network. The target rate of atoms put up as collateral to secure the network is at least ⅔ of the total atom supply. If less atoms are staked, atom supply via block rewards increases up to a ceiling of 20% annualized inflation of the total supply. If more than ⅔ are being staked, atom block rewards decrease gradually down to a floor of 7% annualized inflation.   
Why is Cosmos interesting?
While Lightning Network is a layer-2 solution trying to move the needle for bitcoin as a medium of exchange, there is something ‘super-meta’ about the way Cosmos is designed. Cosmos could eventually truly live up to its name, and encapsulate multiple other blockchains, enabling interactions between these in a seamless, trustless fashion. Cosmos could potentially do all that Lightning Network is trying to and possibly much more. It allows BTC itself to be staked and it bolts on true smart contract scriptability as another layer to bitcoin. As Eric Meltzer observes, it opens up new uses cases for bitcoin. A number of the Cosmos team are at heart ‘bitcoin maximalists’, or ‘absolutists’ as the term should rightfully be, and the Cosmos team, it almost seems, wants to build out a new layer of internet infrastructure, with bitcoin as the base layer. Think of this as analogous to TCP/IP that powers most modern communications, as cliched as it sounds.
The launch of Cosmos will also increase the number of ‘staking service providers.’
For now, ATOM tokens, the Cosmos native network currency, cannot be transferred among users. That will have to wait until the system and the validator set are deemed to be stable, as ascertained by voting among Atom holders. However, ATOMs are apparently expected to be listed on a few exchanges in a few days. We expect a fair bit of run up in ATOM prices, if current hype levels on the internet and social media are anything to go by. Of course, we have always held that the price of an asset often moves to different drum beat, as compared to the value of an asset. Make of that what you will…
Meanwhile in Crypto Wonderland....
“Stellar Lumens Soon To Be on Coinbase Pro”
Coinbase Pro will have active trading of Stellar Lumens (XLM) by morning. The exchange announced in a blog post earlier today that it is currently accepting deposits. They are conducting the listing in a similar manner to how they did Ripple, in stages. The “deposit only” stage will last until at least 1 AM PT. Again, Coinbase Pro users can currently make deposits of XLM. Trading will commence everywhere but New York tomorrow. Three pairs will be listed: Bitcoin, Dollars, and Euros.
“Monero’s Fight Against ASICs”
Monero (XMR) network was successfully upgraded via a hard fork. The new code curbed application-specific integrated circuit (ASIC)-powered mining with a new proof-of-work (PoW) algorithm. Additionally, new dynamic block size algorithm and improved privacy — which is considered to be Monero’s key feature — were introduced. Once the ASIC miners were taken out of the equation, the network’s hash rate dropped over 80 percent — which, however, might be positive for the cryptocurrency in the long term.
“World’s First Security Token Trading Platform”
Estonia-based Nasdaq-powered digital trading platform DX.Exchange is claiming an industry first with its launch of security token trading and security token offering (STO) listings. DX.Exchange went live in January, with support for various fiat and cryptocurrency trading pairs and tokenized stocks. In March, the platform added tokenized exchange-traded funds (ETFs) to its supported products. According to the press release, the platform now allows investors to purchase security tokens using both fiat and major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Tether (USDT) and Ripple (XRP).
“IBM’s Entry Into Crypto Custody”
2018 may have seen Bitcoin (BTC) fall by over 70%, but institutions and powerhouses in traditional industries are still actively seeking to get their foot into the crypto door. IBM, one of the largest forward-thinking technology companies across the globe, has quietly entered into the cryptocurrency custody space with a little-known partner. Shuttle Holdings, a New York-headquartered investment group, will be launching custodial services for this newfangled asset class sometime in late-March. Shuttle has purportedly built the offering on IBM’s private cloud service, backed by the Corporate America darling’s encryption technology. It is important to note that Shuttle is offering the tools for cryptocurrency custody, rather than handling the nitty-gritty itself.
Crypto Twitter Pick
Ƀrock PiErce 🦄🎩🙏🏼 🇵🇷🇵🇭
Bull markets produce bull shit. Bear markets bear fruit.
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This newsletter does not constitute an offering of securities in any jurisdiction. The contents of this note should not be construed as investment advice or as a recommendation to purchase securities. This note is intended for the consumption of the recipient alone and not for public distribution. Please consult a certified financial advisor or other appropriate practitioner as may be appropriate as per your jurisdiction.
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