Editor’s Note: Due to a production error, we failed to post this recommendation from last October. You have our sincere apologies. We have taken measures to make sure that mistake does not happen again. Additionally, we’re in the process of updating our portfolio provider. Once that change is made, it will be added to the Crypto Asset Strategies portfolio page.
New Recommendation: Cosmos (ATOM)
Ticker: ATOM
Market cap: $1.055 billion
Circulating supply: 204,144,631
Total supply: Uncapped
CoinMarketCap rank: #20
Project homepage: Cosmos.Network
Altcoins and the broader world of Decentralized Finance (DeFi) have staged a major comeback in 2020. And I believe it’s finally time to start dipping our toes back in the water. With interest rates near zero — and likely to stay there for years I think that interest in bitcoin and alternative cryptocurrencies will continue to increase.
My first new recommendation is a project called Cosmos (ticker: ATOM). The goal of the Cosmos network is to build an “internet of blockchains,” making it easy to create highly customizable blockchains and then trade and communicate between them. In essence, Cosmos is a speculative bet on a future where there are multiple cryptocurrencies and tokens being swapped constantly. Those tokens and cryptocurrencies would communicate with each other via Cosmos and use the ATOM as a medium of exchange and staking reward.
Here is how the goal is described on Cosmos.Network, the project’s primary site.
The vision of Cosmos is to make it easy for developers to build blockchains and break the barriers between blockchains by allowing them to transact with each other. The end goal is to create an Internet of Blockchains, a network of blockchains able to communicate with each other in a decentralized way. With Cosmos, blockchains can maintain sovereignty, process transactions quickly and communicate with other blockchains in the ecosystem, making it optimal for a variety of use cases.
This vision is achieved through a set of open source tools like Tendermint, the Cosmos SDK and IBC designed to let people build custom, secure, scalable and interoperable blockchain applications quickly.
Cosmos has built a very promising suite of open source tools — including a software development kit (SDK) and Interblockchain Communication (IBC) Protocol. Cosmos uses a well-regarded consensus engine called Tendermint — created by Cosmos’ founder — to sync and validate data on the network.
These tools are the foundation of how Cosmos plans to connect multiple blockchains. You can think of them like a crypto version of the TCP/IP protocol which powers the internet. Cosmos is building something very ambitious — the protocols and tools that could power the blockchain projects of the future.
The Cosmos project is well-regarded in the crypto community. In fact, Binance uses the Cosmos SDK in its own Binance Chain project. Here’s an excerpt from Binance.org explaining their usage. Emphasis is mine.
Our current implementation is built on forks of Tendermint and Cosmos SDK. We make use of a revised edition of Tendermint consensus and leverage its p2p networking logic, and Cosmos SDK features such as “bank” which is used for basic token transactions. Some of the changes have been contributed back to the projects.
Projects like Binance Chain and Binance DEX are often built as forks of Bitcoin or as smart contracts on platforms like Ethereum. With a foundation of clean, well-structured code from Cosmos SDK, we were able to build on a codebase that we saw as a better alternative. Many thanks to the Cosmos developers and its community for their work (and for being really helpful in our issues and pull requests!)
Cosmos technology is also used by major exchange OkEx for its Ok Chain blockchain. Other projects using Tendermint/Cosmos tech include Aragon, E-Money, and Kira Network. You can see a larger list of projects using Cosmos infrastructure here and here.
In essence, Cosmos allows developers to launch highly customizable, flexible blockchains. Cosmos is known for its technical savvy in the crypto world. I believe it’s one of the most innovative and promising projects on the market today.
Impressive Team and Investors
The Cosmos project was founded by Jae Kwon, who built Tendermint in 2014. This project has been in the works for a long time. The initial coin offering (ICO) and release of ATOM onto public exchanges only happened recently.
Jae Kwon is no longer a full-time employee of Tendermint. But he is still involved in the project and has remained in his role as a member of the Interchain Foundation, which administers the project.
Kwon is a very well-respected programmer and attracted a number of very bright developers to the project. You can see the full Tendermint team lineup here. They have a large and talented group of people working on this project full-time — in addition to hundreds of volunteers in the community.
The Tendermint/Cosmos team has attracted investment from top venture capital firms including Bain Capital Venture and Paradigm, which both participated in the project’s $9 million funding round in March of 2019. These are reputable venture capital firms that perform extensive due diligence prior to making an investment. They obviously see significant potential in what Cosmos and Tendermint are building.
Like most blockchain projects, the governmental structure of Cosmos is a bit unusual. Tendermint is the primary developer of Cosmos and is backed by top-tier venture capital firms. The Interchain Foundation is a Swiss-based non-profit that is heavily involved in the Cosmos project. This type of structure is common in the crypto world, as it allows projects to avoid regulatory problems and remain as decentralized as possible.
Ethereum Competitor
While Cosmos will likely interact with Ethereum, it is also a direct competitor to the Ethereum network. Many large blockchain projects rely on Ethereum as the backbone of their network. But I like the fact that Cosmos has struck out on their own and is taking a different approach.
On the official project site, the Cosmos team provides a very useful introduction section. In it, they describe Cosmos as Blockchain 3.0 (Bitcoin being Blockchain 1.0 and Ethereum being Blockchain 2.0).
The Cosmos team makes a convincing case that Ethereum may not be up to the job it has set out to do (and implies that Ethereum tries to do far too much).
The first limitation is scaling – decentralized applications built on top of Ethereum are inhibited by a shared rate of 15 transactions per second. This is due to the fact that Ethereum still uses Proof-of-Work and that Ethereum dApps compete for the limited resources of a single blockchain.
Cosmos’ Tendermint Engine can reportedly handle up to 1,000 transactions per second (TPS) currently. If this holds up in real world uses, it’s a very impressive improvement from Ethereum’s current 15 TPS. Ethereum has planned to switch to a proof-of-stake system for years — but this is proving extremely difficult and has been delayed year after year.
Cosmos also highlights some of the problems that Ethereum presents for developers building on it.
The second limitation is the relatively low flexibility granted to developers. Because the EVM [Ethereum Virtual Machine] is a sandbox that needs to accommodate all use cases, it optimizes for the average use case. This means that developers have to make compromises on the design and efficiency of their application (for example, requiring use of the account model in a payments platform where a UTXO model may be preferred). Among other things, they are limited to a few programming languages and cannot implement automatic execution of code.
Cosmos was built with these problems in mind. The network was built to be highly flexible and allows almost any programming language to be used. It’s a very developer-friendly project — one of the main reasons it is so popular in the crypto community.
The Token: ATOM
The ATOM is the crypto token that powers the Cosmos Hub and Network. This is what you’d be buying, should you choose.
Demand for ATOM will be driven by the need for ATOM to complete actions on the Cosmos network, as well as speculative buying betting on future demand. ATOM tokens also act as voting units. The power of each participant’s vote is proportional to the number of tokens they hold. These votes can be used to help decide the direction of upgrades and improvements to the network.
If developers continue building on Cosmos — and it becomes a serious Ethereum competitor — the price of the Cosmos ATOM could rise substantially. In the meantime, holders can collect stalking rewards and increase their number of tokens.
Cosmos is a premier crypto project. And ATOM has been listed by the most selective exchanges, including Coinbase and Kraken.
Proof-of-Stake
One of the main reasons I’m interested in Cosmos is its innovative network architecture and proof-of-stake system (PoS). Proof-of-Stake has the potential to be far more scalable than proof-of-work systems (like what Bitcoin uses). And to achieve its ambitious goals, Cosmos definitely needs to be highly scalable. I believe it is the most promising PoS system available today. The team which created Cosmos and Tendermint has deep experience building consensus algorithms and large-scale networks.
Cosmos has taken an innovative approach in building their network. Here’s an excerpt from Kraken’s very useful writeup on Cosmos/ATOM.
It’s this focus on customizability and interoperability that sets Cosmos apart from other projects.
Rather than prioritizing its own network, its goal is to foster an ecosystem of networks that can share data and tokens programmatically, with no central party facilitating the activity.
Each new independent blockchain created within Cosmos (called a “zone”) is then tethered to the Cosmos Hub, which maintains a record of the state of each zone and vice versa.
The Cosmos Hub, a proof-of-stake blockchain, is powered by its native ATOM cryptocurrency.
The Cosmos Hub is the central proof-of-stake blockchain which acts as intermediary for other “zones” created on Cosmos. Anyone can create their own “zone” (blockchain) on top of the Cosmos network. Learn more about the process of building on Cosmos here on Cosmos.Network.
The Cosmos PoS system also means holders get rewarded for “staking” their coins, which helps secure the network. According to StakingRewards.com, the current annual “yield” on Cosmos staking is approximately 8% as of 10/12/2020.
One of the convenient things about Cosmos staking is that you can easily do it through a reputable exchange such as Coinbase. This is a nice new feature and will help less technically-advanced users participate in DeFi. Note: Coinbase takes a small commission on staking rewards. New York and Hawaii residents cannot use Coinbase for staking.
Challenges and Risks
Like all crypto projects, there are significant challenges ahead for Cosmos. They still need to solve a lot of problems around blockchain interconnectability. Achieving massive scalability will also be a key goal for this project going forward. They will need to continue to attract developers who wish to build on Cosmos.
I recommend buying ATOM as part of your speculative crypto portfolio. While I believe the majority of a crypto portfolio should remain in Bitcoin, it makes sense to diversify into a few select promising altcoin projects. And I think Cosmos is one of the best ones available today. The DeFi trend is getting stronger. I think ATOM is a solid way to play it.
Cosmos ATOM has done quite well this year, rising from $4.41 at the beginning of the year to around $6.00 today. The staking rewards are a nice cherry on top, but they don’t truly mitigate the primary risks around this project. So don’t buy thinking that you’re getting an 8% dividend — these rewards are being collected by a large portion of the network and are inflating the overall token supply.
Cosmos has taken a more “reasonable” approach to marketing than projects like Chainlink. I believe this is the right long-term move, as they are setting more realistic expectations. Cosmos could underperform more aggressive coins like Chainlink. However, I believe Cosmos has more potential than Chainlink in the long run, by far.
Of course, you should never invest money into crypto you can’t afford to lose. That said, I like the risk/reward ratio here.
Where to Buy
Cosmos is listed on a number of premier cryptocurrency exchanges, but I continue to prefer Coinbase. Yes, it does cost a little more than other exchanges. But the extra security and built-in staking capability makes me personally favor Coinbase. Kraken is also a very solid choice and generally has lower commissions than Coinbase.
Feel free to buy elsewhere if these exchanges aren’t available in your area. And do your own staking if desired. You will need to find a reputable validator node and delegate your staking through it. You can find a comprehensive guide here by Exodus (note that they will recommend you use their app and validator node, but you can choose other options such as Atomic Wallet).
Resources
- Cosmos Beginner Guide – From Kraken (recommended reading)
- How to Run Your Own Validator – From Cosmos.Network
- Cosmos.Network Blog – updated regularly, fairly technical
- Cosmos Subreddit – Cosmos community on Reddit
- Staking Cosmos on Coinbase
- Guide to staking Cosmos on your own