What is Cosmos?
Cosmos is a decentralized network of independent parallel blockchains designed to let people build custom, secure, scalable and interoperable blockchain applications quickly. Each chain is secured by the Tendermint consensus, a BFT consensus algorithm. The protocol’s goal is to create an “Internet of Blockchains", which is "a network of blockchains where each participant is able to communicate with each other in a decentralized way".
This goal is achieved through three core open-source elements: Tendermint, the Cosmos SDK and the Inter-Blockchain Communication protocol. Each new independent blockchain created within Cosmos is called a “zone” and is tethered to the Cosmos Hub. The Hub is the first of many interconnected blockchains built on the network and acts as an intermediary. Validators and delegators in the Hub can vote on proposals that are then able to change the parameters of the system, coordinate the upgrades, and vote on the different governance policies of the Cosmos Hub.
The Cosmos SDK was developed by Jae Kwon and Ethan Buchman in 2014. Tendermint was also created at the same time. The Interchain Foundation (ICF), a Swiss non-profit that funds open-source blockchain projects, is the organization that supports Cosmos’ development.
What is ATOM?
ATOM is the native asset of the Cosmos Hub and performs various functions. ATOM owners can stake their tokens to ensure network security, in which case their locked tokens would be slashed in response to malicious behaviour. Cosmos utilizes a gas system similar to Ethereum and ATOMs are also used to pay transaction fees. Finally, ATOMs are required to participate in on-chain governance. Please note that Wealthsimple Crypto clients holding ATOMs in their account cannot currently stake their tokens or participate in on-chain governance.
The IFC ran multiple private investment rounds and a public fundraiser event that ended in April 2017, raising over 17 million USD through token sales. Out of the initial supply, 5% of the ATOM went to its initial donors, 10% went to the IFC, 10% went to Tendermint, and the remaining 75% to be distributed to public and private investors. There is no maximum supply of ATOM. Instead, new tokens are created based on the number of ATOMs being staked.
How does ATOM compare to Bitcoin?
ATOM differs from Bitcoin in a few key ways.
First, ATOM powers the underlying proof-of-stake process for Cosmos, a blockchain entirely separate from the Bitcoin blockchain. Since Cosmos uses proof-of-stake instead of the proof-of-work method of Bitcoin, ATOM tokens are staked as part of the validation mechanism, in contrast to BTC which are mined as a result of the proof-of-work algorithm.
The second major difference between ATOM and Bitcoin is their age. The Cosmos Hub and its Tendermint PoS network launched in March 2019, compared to Bitcoin’s 12 or so years. Despite this difference in age, however, Cosmos has undergone multiple chain upgrades that have improved its interoperability and performance.
However, it should be noted that although ATOM is different from Bitcoin, it is far from independent from it. Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that ATOM will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) It is not clear, but unlikely, that a significant drop in ATOM’s value would have a material impact on Bitcoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Cosmos, including an opinion that ATOM is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of ATOM prior to making it available on Wealthsimple Crypto and has concluded that ATOM is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated ATOM based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of ATOM, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Cosmos;
- The supply, demand, maturity, utility and liquidity of ATOM;
- Material technical risks associated with ATOM, including any code defects, security breaches and other threats concerning ATOM and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with ATOM, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of ATOM.
Like all other crypto assets, there are some general risks to investing in ATOM. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure.
Further, the IFC, Tendermint, and the Cosmos community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of ATOM have no recourse to Cosmos or Wealthsimple if ATOM declines in value for any reason.
Wealthsimple Crypto clients holding ATOMs in their account cannot currently stake their tokens, earn staking rewards or participate in on-chain governance.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading ATOM. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.