Cosmos’ Journey: The Internet of Blockchains and ATOM’s Future
Will ATOM’s price continue to rise as we move through the year? Let’s dive into the Cosmos ecosystem and explore the factors that are likely to influence Cosmos’ price predictions for 2022 and beyond.
Unveiling Cosmos: The Internet of Blockchains
Known as ‘the internet of blockchains’, Cosmos is a foundational blockchain network that offers open-source tools for developers to craft public Proof-of-Stake (PoS) blockchains.
The brainchild of Jae Kwon and Ethan Buchman, launched in 2016, Cosmos aims to establish an ecosystem of autonomous, customizable, and interconnected blockchains. According to its official site, well-known blockchains built on Cosmos include Binance Chain (BNB), THORChain (RUNE), and Crypto.org (CRO).
Cosmos allows blockchains to communicate through its ‘zones’ architecture. Users can develop multi-asset, public proof-of-authority (PoA), and PoS blockchains. What sets Cosmos apart is its focus on customization and interoperability, offering a fresh alternative to networks like Ethereum.
“With Cosmos, developers can opt to create fully independent, application-specific chains that can easily interconnect. This means they’re not confined to being just smart contracts on someone else’s chain,” explains Cosmos.
Central to Cosmos is its software development kit (SDK), designed to help developers craft custom blockchains that can seamlessly interact with others within the Cosmos network. The Tendermint Byzantine Fault Tolerance (BFT) consensus algorithm is the default consensus engine in the Cosmos SDK.
Cosmos also boasts features like Inter-Blockchain Communication (IBC), enabling Cosmos-based blockchains to share data and transfer tokens among themselves.
The Cosmos Hub acts as the main blockchain within the ecosystem, offering essential services to other chains like staking, voting, interchain accounts, and interchain security.
The Economics of ATOM
ATOM is the native token of the Cosmos Hub and is primarily used for staking and voting within the hub.
Holders who stake ATOM receive transaction fees and staking rewards. As additional services like interchain security and inter-blockchain bridges roll out, staking rewards are expected to increase, per the project’s website.
Interestingly, Cosmos’ GitHub plan from 2017 mentions that ATOM tokens are not intended to be “a medium of exchange nor a store of value”.
“Inactive or unbonded atom holders do not earn the inflationary atoms, and are thus taxed. This makes atoms ill-suited as a medium of exchange or a store of value. Instead, atoms are a tool, like Bitcoin miners are a tool,” the GitHub post states.
Critics have noted that Cosmos-based chains can operate independently without relying on the ATOM token. However, the introduction of interchain security, which allows smaller app-chains to lease security from ATOM-staking validators, is viewed as a significant step toward enhancing ATOM’s utility.
As of mid-September 2022, ATOM’s inflation rate was 5.74%, and the current ATOM staking yield stood at 9.7% annually, according to data from Messari. ATOM ranked as the 22nd largest cryptocurrency with a market cap exceeding $4 billion, and over 286.3 million ATOM coins were in circulation, according to CoinMarketCap.
ATOM’s Price Journey: Peaks and Valleys
ATOM traded within a range of $1 to $7 until July 2020, when it experienced a major leap, closing August 2020 up by about 90%.
The year 2021 was a game-changer for ATOM. Starting at roughly $6.50, the coin surged almost 600% to reach an all-time high of $44.70 by September 20, 2021.
Past performance is not a reliable indicator of future results
Much of this price appreciation was fueled by advancements like the Gravity DEX (decentralized exchange), Gravity Bridge, interchain accounts, and other Cosmos Hub features.
By January 2022, ATOM was nearing its record high, buoyed by a burgeoning Terra ecosystem, which had become one of the largest chains in terms of total value locked (TVL) at the time. Terra was also the largest Cosmos-based blockchain by market cap.
However, ATOM couldn’t quite break its previous record, peaking at $44.70 in early January 2022, according to Binance data.
The collapse of the Terra ecosystem and a broader cryptocurrency bear market led to four consecutive months of losses for ATOM between March and June 2022. By June 18, 2022, ATOM tumbled to a one-and-a-half-year low of $5.55.
Since then, ATOM has bounced back over 136% to trade around $15 as of mid-September 2022.
Investor sentiment shifted positively following the announcement that Ethereum-based crypto futures exchange dYdX would migrate to Cosmos as an independent blockchain.
As of September 15, ATOM was trading over 68% below its peak of $44.70, with a year-to-date (YTD) loss of about 55% in 2022.
dYdX’s Move: Sparking a Cosmos-Ethereum Rivalry?
The 2022 announcement of dYdX’s migration to Cosmos was a significant boon for the ecosystem and the cosmos crypto price outlook.
dYdX is currently built on an Ethereum-based layer 2 (L2) solution known as StarkWare.
On June 22, 2022, dYdX revealed that its upcoming version, dYdX V4, would be developed as a standalone blockchain using the Cosmos SDK and Tendermint proof-of-stake consensus protocol.
“The fundamental problem with every L1 or L2 we could develop on is that none can handle even close to the throughput needed to run a first-class orderbook and matching engine,” dYdX stated.
dYdX also expressed its desire for “full decentralization” and dissatisfaction with “existing off-chain orderbook systems.”
“This is where Cosmos comes in. A massive benefit of developing a blockchain dedicated to dYdX V4 is that it offers full customizability over how the blockchain itself works, as well as the jobs that validators perform,” dYdX noted.
This news spurred a bullish shift in investor sentiment for ATOM, with the token posting eight consecutive weeks of gains from mid-June to early August.
So, does Cosmos pose a significant threat to Ethereum’s dominance? Ben Giove, analyst at the crypto newsletter Bankless, observed:
“As we can see, Ethereum and Cosmos are both building towards similar visions. While Ethereum offers higher levels of security and a more credibly neutral settlement layer, Cosmos chains are more flexible, interoperable, and optimized for individual use cases.”
“Although there can only be one winner for the largest ecosystem, with billions of users and trillions in capital still to be onboarded into Web3, it seems likely that both Ethereum and Cosmos will wind up to be complementary, serving different use cases, rather than direct competitors,” Giove added.
Looking Ahead: Cosmos Price Predictions for 2022 and Beyond
According to cryptocurrency research firm Delphi Digital, Cosmos is “best positioned” to benefit from the “increasing number of app-chains” in the blockchain space. The firm also announced its research and development arm would build on Cosmos.
“If most interesting dApps are deployed on monoliths (end-to-end L1s) and never move to their own execution environments, this would be an invalidation of our thesis,” the company said.
“After all, right now, the costs of deploying app-chains are much higher than deploying smart contracts on monoliths, while the composability, brand, and UX advantages of popular general-purpose chains are also strong.”
Elsewhere, CoinCodex’s ATOM price prediction as of September 15 suggested the token’s value could decline to around $12 in a month’s time.
Algorithm-based forecasting service Wallet Investor took a bearish
Image Credit: capital.com
