Interchain Security: What It Means to ATOM

Why Interchain Security could be a game-changer for the Cosmos ecosystem


Hey DEFI TIMES community,

Interchain Security is a topic that hasn’t been discussed in the broader crypto ecosystem.

Why? Because it’s a topic, which is native to the Cosmos ecosystem. Cosmos is basically a network of blockchain. The Cosmos SDK makes it easy for anyone to build a completely new blockchain from scratch.

It’s a revolutionary technology… and the ultimate bet against chain-maximalism.

Some people would claim that Cosmos’ approach is very similar to Polkadot’s approach.

But why are both projects valued so differently?

While Polkadot is valued at a $30 billion valuation, ATOM (the native coin of Cosmos) is only sitting at an $8 billion market cap.

The answer is pretty simple: Polkadot has shared security and Cosmos doesn’t. Shared security is the fact that parachains on Cosmos have to lock in DOT in order to be secured by the Relay chain.

Shared security increases demand for the native token DOT.

Today, Cosmos does not have shared security. Every single blockchain in the Cosmos network has its own validator set. Each zone is responsible for its own security.

That’s a fundamental issue and it’s part of the reason why DOT has a better value proposition than ATOM.

But this could change soon as Cosmos is well on its way to implementing its own version of shared security…. Interchain security!


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What is Interchain Security?

Interchain Security could massively strengthen the value proposition of ATOM. To understand why we first have to explore what this essentially means.

Interchain security is a type of shared security in the Cosmos ecosystem. It aims to bring more utility to ATOM.

ATOM is the native currency of the Cosmos Hub. Right now, the Cosmos Hub is just another zone in the broader Cosmos ecosystem. While every zone has its own native currency, ATOM does not have a special status. This is likely to change because interchain security will enable ATOM to be used to secure all other zones. Right now, we can only use ATOM to secure the Cosmos Hub.

The original purpose of the Cosmos Hub was to make the Internet of Blockchains easier to use. However, today the Hub is still lacking potential use cases. By introducing Interchain Security, the Cosmos Hub will be responsible for securing the Internet of Blockchains.

That means all zones in Cosmos will depend on the security of the Cosmos Hub. All zones share the security of the Cosmos Hub.

Shared security, in essence, describes the fact that a superior network is responsible for securing a subordinate network. One of the best examples is the concept of optimistic rollups. Optimistic Rollups depend on the security of the Ethereum main chain. Every single transaction on the rollup is also stored on Ethereum.

Interchain Security is a type of shared security. The official announcement post of Cosmos describes the relationship in the following way:

Shared Security

Shared security is a family of technologies that include optimistic rollups, zk-rollups, sharding, and Interchain Security.

Interchain Security

Interchain Security is the Cosmos-specific category of Shared Security that uses IBC (Inter-Blockchain Communication).

Cross Chain Validation

Cross Chain Validation is the specific IBC-level protocol that enables Interchain Security.

What Interchain Security Means to ATOM

Interchain Security could be the last piece of the puzzle to make ATOM one of the most valuable assets in the crypto universe.

The question you have to ask yourself is: Why should people buy a particular cryptocurrency?

For example, people buy ETH because they have to cover their transaction fees (which are very high at the moment). The simple fact that Ethereum block space is scarce, ensures demand for ETH. In addition to that, EIP-1559 will turn ETH into a deflationary asset in the future. That means, people also use ETH as a store of value similar to Bitcoin. ETH’s value proposition is perfectly fine!

Previously, we couldn’t say the same stuff about ATOM! Block space on the Cosmos Hub is not scarce at the moment. Quite the opposite is true: We have plenty of block space there! And there’s very little demand for ATOM just to cover transaction fees. Also, ATOM is not a deflationary asset because it doesn’t have a burning mechanism similar to EIP-1559. In fact, ATOM is inflated every year! ATOM is being inflated based on the number of staked ATOM. This results in an annual inflation rate of anywhere between 7% and 20%.

With the introduction of interchain security, there is a lot of demand for ATOM. ATOM’s primary use case will be to secure the internet of blockchains.

People will buy ATOM not only to secure the Cosmos Hub but also to secure any other zone.

Shared security is the way to go for Cosmos… and it will give ATOM a similar value proposition as DOT!


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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.

Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.