What is Cosmos (ATOM) used for?


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INTRODUCTION

The Cosmos project is, in essence, a decentralized network that allows for the exchange of data among different independent blockchains. By an ICO (Initial Coin Offering) in 2017 and project launch two years later, Cosmos is attempting to become an 'Internet of Blockchains' by providing resolution of the issues of interoperability and scalability that exist in blockchains.

The ATOM token is the native utility of the Cosmos Network and serves several important functions within the Cosmos ecosystem. In this subsection of the Cosmos (ATOM) Coin Guide let's investigate what specifically the ATOM token is used for in the Cosmos Network.

ATOM IS USED FOR INVESTMENTS

The ATOM token is readily available for investors wishing to take a position in the project. If an investor believes that various developers will rush to the Cosmos blockchain to launch new independent blockchains, ATOM may be a project to consider. In this regard, you should take notice of another subsection of this guide, to wit: Should I buy Cosmos (ATOM) in 2021?.

There is, however, a caveat to this investment option you must be made aware of. ATOM is a hyper-inflationary token. As such, rewards in the Cosmos chain are made by the minting of new tokens. The effect of this is a depreciation in the value of each ATOM token issued as a result of the inflation caused by the increase in total supply.

This value depreciation may be countered through the staking of the ATOM tokens you hold. Those who do not stake are in essence punished by not staking. This punishment is a result of not receiving the staking reward and having the value of their tokens diluted by the percentage increase in total supply from the rewards issued. However, if an investor does stake their holdings, they will be growing their proportionate interest in the project and hopefully adding to the potential of token price appreciation.

[Note: this staking option is often confused. Many believe that staking tokens will yield them a passive return of 15 to 20% for doing nothing more than staking. This is not the case as the staking of a proof of stake (POS) token merely rewards an investor with a greater return than it's inflationary increase. The staking rewards are not intended as a vehicle to provide an investor with a positive income stream, but rather, are intended to increase the investor's relative share in the project. (See, e.g. Cryptoseq. Cosmos Hub ATOM Token and the commonly misunderstood staking tokens — Part Three. (Accessed October 2, 2021)].

ATOM IS USED FOR OPERATIONS WITHIN THE COSMOS BLOCKCHAIN

As noted above, the ATOM token is the native utility token for the Cosmos Blockchain. As such, the ATOM token is utilized for the execution and completion of smart contracts within the Cosmos Hub. Additionally, the Cosmos Network Validators are rewarded in newly minted ATOM tokens on each block approval.

In the same vein, the Atom token may be utilized as a spam-prevention mechanism. "As a spam prevention mechanism, ATOM are used to pay fees. The fee may be proportional to the amount of computation required by the transaction, similar to Ethereum’s concept of 'gas'." [Cosmos Network. Cosmos FAQ. (Accessed October 2, 2021)

At the time of this writing (October 2, 2021 at 14:47 EDT) price data for the Atom token is as follows:

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THE ATOM TOKEN IS USED FOR SECURITY AND GOVERNANCE WITHIN THE COSMOS NETWORK

The ATOM token is used in the Cosmos Network to provide security and contribute in the functioning of governance.

First, the Cosmos Network is a proof of stake (PoS) network requiring validators and nodes to verify and approve blocks within the chain. Validators act within the ecosystem to validate transactions and approve blocks within the chain. One key to this system are the node validators, who, in the case of Cosmos, are the top 100 stakers of ATOM tokens in the system. This lock up of node validator tokens acts to insure that validators act properly within the purview of their duties.

The Cosmos Network uses the Tendermint Byzantine Fault Tolerance (BFT) protocol for it's consensus system. It is this system which provides security for the blockchain and permits the various nodes to maintain a current state.


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The Tendermint BFT engine is a proof-of-stake (PoS) governance mechanism. As such, network users act as validators. Users earn rewards when they stake their crypto on Cosmos. Staking is a term used to describe the process of locking up a certain amount of crypto in a network wallet in return for rewards. Staking is one of the hottest features in the market right now because of its low risk compared to trading.

[Hamilton, D. Investing In Cosmos (ATOM) – Everything You Need to Know. (Accessed October 2, 2021)].

Finally, "[b]y owning and staking ATOM, users gain the ability to vote on network upgrades, with each vote being proportional to the amount of ATOM they stake." [Kraken. What is Cosmos? (ATOM). (Accessed October 2, 2021)].

CONCLUSION

Investors should note there is currently no limit on the supply of new ATOM that can be created. Rather, Cosmos adjusts the amount of tokens created based on the number of ATOM being staked. As of 2020, this results in an annual inflation rate of anywhere between 7% and 20%.

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