Comparing ETH and Cosmos Who can be the king of modular blockchains?

Monolithic blockchains are fine as long as they last.

But because they try to do everything in each node (consensus, data availability, settlement and execution), they end up with the blockchain trilemma.

Want decentralized security? Then you have to accept that it’s going to be a slow chain. Want to create a fast TPS chain with high security? Then you have to let go of the centralization.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

Modular chains bypass this problem by splitting the many roles of the blockchain into different layers.

This then allows the chain to scale in a way that minimizes tradeoffs.

Leading the way in this modular race are Ethereum and Cosmos.

The author of this article will analyze the key differences between the two.

Author: Ben Giove

Ethereum vs. Cosmos

Comparing ETH and Cosmos Who can be the king of modular blockchains?

The future of blockchain is modular.

As users and novices have learned in the 2021 bull run, whether due to sky-high gas fees, congestion, or stability issues, monolithic blockchains are not suitable for meeting the scaling needs of a few, let alone dozens around the world. The expansion needs of billions of people.

Thankfully, many forward-thinking developers have long anticipated these challenges and are hard at work executing a roadmap capable of creating modular blockchain networks, two of the most prominent being Ethereum and Cosmos.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

Ethereum and Cosmos have been around for a while and are relatively grassroots and decentralized, and VCs and investors have far less influence than other ecosystems. Both are moving towards similar but different visions of this modular future.

Ethereum has a Rollup-centric roadmap that aims to scale a highly decentralized single settlement layer through a set of Layer 2 (L2).

Cosmos, on the other hand, is trying to create an “Internet of Blockchains,” or an interoperable network of numerous sovereign, application-specific blockchains.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

Ethereum L2 TVL – Source: DeFi Llama

Both ecosystems are in their early stages. Ethereum L2 accounted for 1.58% of the total DeFi TVL, while the Cosmos chain’s share was 0.82%.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

Cosmos Ecosystem TVL – Source: DeFi Llama

However, the competition between the two is heating up. Ethereum L2 recently lost one of its biggest applications to Cosmos. Decentralized perpetual exchange dYdX recently announced its decision to build its V4 version as a sovereign Cosmos chain.

This raises the question…are these ecosystems complementary or rivals?

What does each offer that the other doesn’t?

Let’s see if we can answer these questions by comparing the technical capabilities of each ecosystem and their ability to act as a trusted neutral settlement layer.

technical skills

Let’s start by exploring some of the design features of Ethereum L2 and Cosmos to better understand the strengths and tradeoffs of each.

The capabilities of Ethereum L2

L2 leverages Ethereum for consensus and data availability, while moving execution from off-chain into a transactional environment called Rollup. These Rollups batch, compress and submit transaction proofs back to L1, doing so reduces the high Ethereum gas cost for a single user by amortizing them across all traders on L2.

This allows Ethereum to scale by storing more transactions in the same amount of block space, allowing the network to scale while maintaining economic sustainability and maximum decentralization, as users can still easily run nodes to Verify the state of the chain.

There are two main types of L2, Optimistic Rollups (ORU) using Proof of Failure and zk Rollups (ZKR) using Proof of Validity. Although ZKRs have greater transaction capacity than ORUs, the challenges of implementing them in production, and the current lack of EVM compatibility, means that the latter are more likely to be Ethereum’s primary scaling solution for the foreseeable future.

Nonetheless, there are many scaling solutions at both L1 and L2 levels, such as invocation data compression, proto-danksharding, and EIP-4488. Additionally, fractal extensions to L3, ie Rollups that settle on L2 rather than directly on L1, will further improve scalability and can open up new design spaces for application-specific Rollups.

L2 also offers a considerable degree of composability, as generic Rollups such as Optimism and Arbiturm each host a large and rapidly growing ecosystem of protocols and applications. This composability is expected to be enhanced in the future by the adoption of common messaging protocols such as Layer 0 and Nomad, which increase interoperability between Rollups despite introducing new risk and trust assumptions.

Capabilities of the Cosmos Chain

Cosmos is great for building application-specific blockchains or appchains. These are chains optimized for running a single application, such as exchanges like Osmosis, TVL’s largest Cosmos chain, and the aforementioned dYdX chain.

This is achieved through the Cosmos SDK, a blockchain development framework that allows developers almost complete control over its design. Therefore, the Cosmos chain is considered sovereign.

For example, builders can choose whether their chain will use an account model or a UTXO model, what language the state machine will be built in, and various other parameters. This is much more flexible compared to networks like Ethereum, where these parameters are already set by Ethereum developers and must be followed by all developers.

The added customizability of Cosmos also extends to governance and security, as each chain can bootstrap its own set of individual validators or, starting in Q3 2022, take advantage of a feature called inter-chain security, which can be compared with Ethereum. Like L2, this will enable chains to outsource their validator setup to other networks, such as the Cosmos Hub. Interchain security may prove to be a key feature of the Cosmos chain, as bootstrapping a validator set is difficult and can lead to reduced security and increased vulnerability to attacks.

The Cosmos chain also benefits from native interoperability through Inter-Blockchain Communication (IBC). IBC utilizes light clients to enable trust-minimized bridging and messaging between currently enabled chains.

Another recently deployed upgrade, cross-chain accounts, allows transactions between IBC-compatible chains, enabling the creation of cross-chain applications that leverage this interoperability standard and helping to improve fragmentation brought about by application chains Composability.

Key Points:

Both Ethereum L2s and Cosmos bring tremendous value. Ethereum L2 supports low-cost applications with the highest level of security, while Cosmos currently offers a greater degree of customizability, interoperability, and sovereignty for individual applications.

As a settlement layer: Ethereum vs Cosmos Hub

As we have seen, both Ethereum and Cosmos plan to utilize some form of shared security. Ethereum L1 will serve as the settlement layer for Rollup, and the Cosmos Hub could play a similar role for chains wishing to take advantage of interchain security.

Let’s see how the two stack up in this regard.

Ethereum L1

There are currently over 13.01 million ETH (~$13.67 billion at current prices) staked on the beacon chain, which will be the canonical chain after Ethereum merges from PoW to PoS. This makes the cost of reviewing transactions and reorganizing the chain (requiring ⅓ and ⅔ total stake to attack the chain) to be ~$4.51 billion and ~$9.1 billion, respectively.

The Beacon Chain currently has 404,125 validators, and each validator needs to stake 32 ETH (~$33,632), the threshold required to participate in consensus and earn staking rewards and transaction fees. Although no specific numbers were given, according to Ethereum Foundation researchers, the theoretical maximum number of validators is around 4 million.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

ETH staked on the beacon chain – source:‌

Rather than using native staking delegation as a solution to the high cost of running validators, Ethereum democratizes access to staking rewards through the open market. This can be done by issuing liquid collateralized derivatives through custodial intermediaries (such as exchanges such as Kraken) or non-custodial services such as Lido.

However, the strong network effects of liquid collateral derivatives have led to a massive accumulation of collateralized volume by entities such as Lido, which holds 31.7% of Beacon Chain deposits. Whether staking becomes more widely distributed after the merger remains to be seen.

Still, due to Ethereum’s lack of on-chain governance, the immediate impact of entities such as Lido and LDO holders governing the protocol is limited.

Instead of token holders voting on changes to the network, Ethereum is governed off-chain through rough consensus. This means that all stakeholders of the network, such as core and application developers, users, and ETH holders, must be involved in order for major upgrades to take place. This spreads governance power over a wider group, increasing the trusted neutrality of Ethereum by limiting the possibility of plutocratic rule emerging.

Cosmos Hub

There are currently 189.99 million ATOMs, worth about $1.48 billion, staked on the Cosmos Hub. This means it would cost ~$489.39 million and ~$993.68 million to reach the ⅓ and ⅔ thresholds required to stop or reorganize the chain.

The Cosmos Hub has 175 active validators, which is the maximum cap set by governance. The network does employ Delegated Proof of Stake (DPOS), where token holders can delegate their stake to one of these validators for the rewards of network security.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

Validators’ stake in Cosmos – Source: Mintscan

Despite capped validator sets and the use of DPOS, staking appears to be widely distributed among more entities than Ethereum. On the Cosmos Hub, the top 7 and 23 entities control ⅓ and ⅔ of the stake, while on Ethereum the numbers are lower at 2 and 16, respectively.

Although staking is more decentralized, there is a greater risk of concentration of power in the hands of Cosmos Hub validators due to the use of token-based on-chain governance. This increases the ability of large holders to exercise their will on-chain by forcing proposals that may not be approved by all stakeholders within the ecosystem, thereby threatening the trusted neutrality of the Cosmos Hub.

Key Points:

As we have seen, Ethereum L1 is more secure than Cosmos Hub and has a larger and more open validator set. Still, the presence of on-chain governance gives token holders and validators more power than Ethereum, despite the Cosmos Hub having a wider distribution of staking.

Are they competitors?

As we can see, both Ethereum and Cosmos are moving towards a similar vision. While Ethereum offers a higher level of security and a more reliable neutral settlement layer, the Cosmos chain is more flexible, interoperable, and optimized for individual use cases.

While the largest ecosystem can only have one winner, with billions of users and trillions of dollars still to be added to Web3, it appears that Ethereum and Cosmos will ultimately be complementary, serving different use cases rather than direct competitors.

Comparing ETH and Cosmos Who can be the king of modular blockchains?

At the end of the day – like any system – it comes down to tradeoffs.

Which would you choose?

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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