Cosmos and the launch of IBC

In February 2019 we wrote about the launch of Cosmos, an exciting project that is aiming to become an “Internet of Blockchains”, building bridges to connect many different chains together. The Cosmos Hub, the central chain in the ecosystem, was launched in 2019 and a thriving set of validators formed around it. Cosmos is now set to release its Stargate update, the largest upgrade to date that activates Inter-Blockchain Communication (IBC) and unleashes full network functionality. This is hugely exciting and has been highly anticipated by the community. IBC will allow different blockchains to transfer data and value between each other, for example moving bitcoins onto the Ethereum network. This month we will dig into the Stargate update, what IBC is, how it works and how it will impact the digital asset space.

By way of a refresher, the team behind Cosmos believes that blockchain applications will not end up on a single smart contract platform. Instead, many applications will run on their own chains with their own rulesets and sovereignty. These chains will be able to communicate with each other over the Cosmos network. This is akin to the Internet, which is a network of networks. Cosmos allows the ecosystem to scale as every chain can handle its own transactions and throughput. In the way that Ethereum made it easy for developers to build apps that run on Ethereum, so Cosmos is trying to make it easy for developers to build and deploy blockchains that run in the Cosmos ecosystem.

Cosmos itself is not a blockchain. It is a network of blockchains that are built to be compatible with each other. This compatibility comes from developers using the tools that the Cosmos team has released. Specifically, the project has released Tendermint Core, a software package that handles networking and consensus, and the Cosmos SDK, a tool that lets developers easily deploy blockchains.

Cosmos launched with a single blockchain, called the Cosmos Hub. This was one of the first proof of stake networks with a fully decentralized governance system, meaning that holders of ATOMs (the Cosmos token) can vote on the direction of the Cosmos Hub's development and approve upgrades. The Cosmos Hub was built using the Cosmos SDK, an open source framework that other developers can now use to build their own compatible blockchains. Until now, the Cosmos Hub has been independent from the ecosystem in that it could not interact with other blockchains. However, it was always designed to connect the ecosystem together and that is why the Stargate update is so important.

Stargate is the largest Cosmos upgrade ever to take place. The main feature that it will enable is cross-chain transactions, although it will also facilitate greater transaction throughput and accelerate UI development. There are five primary features that are being included in the Stargate update:

  1. Inter-Blockchain Communication (IBC): the ability to transact value and data between compatible chains
  2. Protobuf Migration: this will speed up performance by up to 100x
  3. State Sync: this will allow new participants to synchronize with the network in minutes rather than days
  4. Light clients: this software means that less powerful devices, such as mobile phones, can become part of the network and safely receive blockchain data
  5. Chain upgrade module: this significantly speeds up validators ability to upgrade their software

The most notable of these upgrades is the launch of IBC, which will allow blockchains to interoperate. IBC has been in development for a number of years, with the original design appearing in the Cosmos whitepaper in 2016. Suitably, the development of IBC has not been centralized and tied to one team. Instead, there are a number of project teams that have been contributing to the design and codebase. In particular, Cosmos was the first project to assemble an incredibly strong set of validators, akin to miners in proof of work systems. These validators have become keen participants in the ecosystem and have contributed significantly to IBC.

The Cosmos ecosystem is made up of Zones and Hubs (both are blockchains), with IBC as the connecting layer between them. Zones that are built using the Cosmos SDK will natively support IBC and will be able to connect directly to the Cosmos Hub. Tokens can move from one zone to another by flowing through the Cosmos Hub. It is also possible for blockchains that are not built using the Cosmos SDK to connect into this ecosystem. To do this, these blockchains must connect to a “peg zone” which connects to the Cosmos Hub. Blockchains like Ethereum and Bitcoin have probabilistic finality, meaning that the probability that a transaction will be reversed decreases over time as blocks are added. The peg zone takes account of this and only allows token transfers to be received by the Cosmos Hub after an acceptable period of time has elapsed.

IBC is important as it will allow digital asset markets to function in a multi-chain world. Looking at the topography of the Internet, it is a giant network of interconnected networks that all use an agreed upon communication protocol — Transmission Control Protocol/Internet Protocol (TCP/IP). Should there end up being thousands of blockchains that each house their own applications, then these blockchains will need to be able to communicate with one another. It would make sense for there to be an agreed upon protocol like TCP/IP, but for blockchains. IBC is leading the way in this regard, and there is already an array of Zones (including the Decentralized Exchange built by Binance) as well as alternative Hubs to the Cosmos Hub. The ecosystem is decentralized, healthy and growing.

The promise of IBC is what makes Stargate such an important update. It will be an enabler to the growth of the Cosmos ecosystem. The update in isolation does not impact existing Cosmos activity. However, it opens up new functionality and new opportunities for developers in the ecosystem to explore. Chains will be able to communicate with each other natively and, amongst other uses, we anticipate exciting new projects that move digital assets between chains to be used as collateral in decentralized finance applications.

CMCC Global's Fund 1 invested into the Cosmos ICO in March 2017 and all funds have since added exposure to Cosmos. We follow the ecosystem closely and have good relationships with the Cosmos founders as well as the leading validators that are powering the network. We remain excited and optimistic about the future usage and performance of Cosmos.

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