When Bitcoin launched 12 years ago, it launched with what’s known as a proof-of-work (“PoW”) consensus mechanism. With PoW, the network is secured by powerful computers performing difficult calculations. As long as a network can attract enough participants, it’s remarkably secure. Bitcoin, for example, is the most powerful computing network in the world.
But PoW comes with significant trade-offs. It requires vast amounts of energy and sophisticated computers, and it’s difficult to scale. However, that likely won’t be a problem for bitcoin as new “layers” are built that allow cheap, near-instant transaction speeds.
Cosmos uses a consensus mechanism called proof of stake (“PoS”). With PoS, the network is secured by users “staking” or locking up their crypto – specifically ATOM tokens – as a pledge that they won’t cheat the system. If users try to cheat, they lose their ATOM. If they operate honestly, they earn additional ATOM.
Staking is similar to renting out your house on Airbnb. You still own the house, but you’re giving up control over it for a short period of time in exchange for a financial reward.
Staking doesn’t require powerful computers, so it’s much cheaper and less energy-intensive. It also promises faster, cheaper transactions, and more importantly, better scalability than PoW – all things crypto needs to go mainstream.
So ATOM isn’t necessarily a form of money. It’s a staking asset. It’s Cosmos Hub’s workhorse that keeps the network secure. Users who stake ATOM will get compensated in the form of new ATOM that’s minted and distributed to all stakers. Plus, every transaction that passes though Cosmos Hub requires a small fee. That fee will also get distributed to stakers.
We don’t know exactly what form those fees will take (ATOM stakers will get to vote on that), but one proposal suggests paying fees in a secondary token called photons. This would be similar to VeChain, which earns stakers a secondary token called VTHO.
These fees are at the heart of the investment thesis for Cosmos. Currently, Cosmos fees are tiny. It costs about $0.02 to $0.03 to send thousands of dollars in value across the Cosmos network. That may seem insignificant, but those pennies will add up rapidly if Cosmos’ vision of a world of interconnected blockchains comes true.
The Cosmos Hub could become the gateway for all financial transactions that move across different blockchains.
That promise is part of why Binance, the world’s largest crypto exchange, chose to launch Binance Chain on Cosmos’ technology. Binance Chain powers Binance’s DEX. It’s a place where traders can swap cryptos directly without needing to go through a third party like Binance.com’s own exchange.
Currently, all of the transactions on Binance DEX are processed directly on Binance Chain, but we can expect Binance DEX to tap into cross-chain assets. That’s probably the main reason why Binance built it on top of Cosmos. That means any future cross-chain transactions on Binance DEX will likely pass through Cosmos Hub.
But it doesn’t stop there… Any zone that touches Cosmos Hub also generates transaction fees for ATOM stakers. That will include peg zones for Ethereum and bitcoin, as well as other DeFi projects like Kava. Kava gives users the ability to mint their own stablecoin, USDX. If users want to send USDX across zones, that will need to go through Cosmos Hub.
That means one day there could be multiple DEXs routing hundreds of millions of transactions through Cosmos Hub every day. Stablecoins for every major fiat currency could also pass through Cosmos Hub, as well as fast, simple cross-chain transactions with the bitcoin and Ethereum blockchains.
It hard to know how profitable staking ATOM will be, but it has a lot of potential to be a great long term high yield staking coin.
Cosmos is on the verge of becoming a “blue chip”. It launched its IBC (the hub we been talking about) just last week, and there’s a lot of news that goes along with that. The hub upgrade worked well and this means multiple blockchains can communicate and trade back and forth. And this is going to help a lot of other projects in the ecosystem and it should be something that Cosmos has a competitive advantage, already cheaper, already faster, and now multiple blockchains can move back and forth and talk to each other across the Cosmos hub structure. So it is phenomenal.
ATOM price continues to rise. So buy carefully. You can see that even in the course of a rally here, we did have a sell-off recently. 20%, 30% sell-offs, and corrections should be expected in this market. So it is a great candidate for buy the dip or buy pieces of your position at a time. I know I will be.
This post was originally shared in r/cosmosnetwork