If you check for the word “Cosmos” in your dictionary, it will be discovered that it is synonymous with ‘Universe’.
Although in crypto wordbooks, its definition is quite different but still conveys the same message.
So what is Cosmos??
Cosmos is a proof of stake consensual mechanism digital assets that helps in promoting interoperability in the blockchain.
The major goal of the cosmos is to develop an easy path in which a network of blockchains communicates with each other in a decentralised manner.
Cosmos create its digital tokens( ATOM)for the public, to improve and maintain the network, in return Atom is distributed as a reward.
Cosmos is a network of many unconnected blockchains, called zones.
Cosmos Hub – the first zone to be launched on Cosmos is a multi-asset proof-of-stake cryptocurrency that serves as a ‘wifi’ for new independent blockchains.
Cosmos hub keeps up with the record of the state of each independent blockchain ( also known as zones)tethered to it.in other words, the cosmos hub helps to connect various blockchains (zones).
Hence is referred to as the Internet of Blockchains
The Cosmos network also known as the internet of blockchains is governed by the proof of state consensus mechanisms, therefore it relies on the public for security maintenance via the process called staking.
Cosmos staking is a procedure that involves locking up Cosmos hub token also known as ‘ATOM’ to secure the blockchain.
Cosmos has a simple governance protocol that allows the network to transform and upgrade.
Investors can’t only earn passively but also have the privilege to vote on new projects by holding the cosmos token ‘ATOM’.
Four Key Things to Know before staking Cosmos Tokens
Below is the list of four key things to know before staking cosmos tokens.
1)Cosmos staking reward
Cosmos holders can earn passive income by involving in the cosmos blockchain via delegating.
Delegating is the process of handing over your cosmos token to a group of people(validators) to participate in validating transactions on the cosmos network
Cosmos still offers one of the best returns also known as annual per yield.
Delegating the cosmos token ‘ATOM’ can earn you an APY of about 9.81%.
Depending on the validators, staking rewards are allocated to delegators based on how much they contribute to the network every day, monthly or sometimes yearly.
There are over 200 validators currently in the cosmos hub
2)Where cosmos staking rewards are produce? – A brief explanation of Cosmos inflation rate.
The cosmos staking reward which is distributed to stakers is gotten from cosmos transactions fees.
And the newly created Cosmos tokens are gotten through inflation from the total supply of ATOM.
ATOM is hyperinflationary- This is to reward those who stake their token(s) thus providing security to the network and punishes those who fail to contribute to the network security (ATOM Holders) via depreciation per ATOM- inflation.
To see how it works let’s look at an introductory illustration.
For simplicity assume there are only 2 Validators, “ Validator 1″ and “ Validator 2″ and there’s a current total force of 100 cosmos tokens in cosmos hub zones.
Assuming a total amount of 30 cosmos tokens ‘ATOM’ are staked with Validator 1 and Validator 2, with the validator for each staking 15 cosmos and the delegators also staking 15 cosmos tokens. 60%of the total supply/force is staked whilst 40% isn’t staked.
So, if the total force is 100 and inflation is set at 20 per cent also there will be 20 Cosmos tokens to be produced over time to be used for rewards and added to the total force.
So total force now becomes 120 and the 20 ATOM are distributed based on how each party contributed to the network.
Don’t forget the investors who did not participate in staking have 40% of the networks.
However the total force/ supply has changed, they will be punished for not participating by a decrease in the number of tokens they possess.
They will now have 33.3% of the current cosmos total supply.
However, the network did not remove from their tokens it fails to add their portion of the token produced/minted to their current balance.
These unadded tokens will be distributed to Validator 1 and Validator 2.
This also explains the reason “Annual per yield” reduces when more stakers come into the network.
Slashing is a protocol designed in Cosmos blockchain to punish validator(s) misconduct.
In the Cosmos hub blockchain, you can get your staked tokens slashed majorly as a result of double signing or downtime
Downtime happens when a validator goes offline for a given period thereby being unable to sign/validate transactions on a blockchain.
In the cosmos, validators are at risk of having staked token slash if they are offline for 13 hrs, forfeiting more than 5% of the last 1000 blocks.
The punishment could be either slashing off 0.01% of the total amount of tokens staked by the validator or the validator(s) will not be rewarded for a minimum of 10 minutes.
However, in some cases, validator(s) can be expelled from the blockchain completely.
Double signing: this is a situation in which two messages are signed for a block by a validating entity as a result of misconfiguration.
This behaviour often occurs when highly available machines operate at the same time to avoid downtime.
The aftermath of double signing can be detrimental for delegator(s) who have their funds staked via a validator that is found guilty.
A minimum of 5% can be slashed off from the total amount of tokens being staked by the validator. In future, the validator can be deprived of staking reward or complete loss of existing funds.
The first slash penalty on the Cosmos blockchain happen on 26th June, all tokens staked by the validator got slashed by 5% due to misconfiguration resulting in double signing.
This shows that slashing is real and should serve as a lesson to delegator(s) who are considering staking with a third-party company to carefully research reliable service providers, to mitigate the risk of losing their funds.
4) The twenty-one days unbounding period
The 21 days unbounding period is the time your staked cosmos tokens ‘ATOM’ do not yield interest anymore but can still be subjected to slashing if found guilty of any illicit activity.
In the Cosmos hub network validators cant withdraw their staked token immediately after staking tenure is due, Atom is dormant for 21 days.
This is to avoid the situation whereby the validator(s) withdraw his staked token after attacking the network.
If you’re not a validator, you don’t need to worry about the ‘twenty-one days unbounding period’.
Almost popular exchanges like Binance, coinbase that offers Cosmos staking services provides an opportunity to make use of the staked coin while still earning staking rewards to prevent inflation.
How to stake Cosmos with Cosmostation
Cosmostation has proven itself as the best in three main perspectives within its wallets and other products.
These aspects are state-of-the-art security, enhancing the Cosmos blockchain and putting delegators before anything otherwise.
To safeguard their products and platforms’ security.
Cosmostation uses numerous sentinel nodes, which produce a nearly impenetrable configuration.
Hence, prevents attacks on the validator node and makes it possible to cover data coming in and out of the node at all times.
SIGN UP AND GET YOUR WALLET CREATED FOR YOU
To get involved with staking, one needs a wallet safely to keep the desired staked token.
Cosmostation utilizes web wallets, which can be downloaded from their official website, Google Play or Apple store.
In the future cosmostation is looking at implementing a Hardware security wallet.
Immediately, after you are done installing the App, open it and click on ‘create’.
You will be provided with a variety of tokens you can stake with cosmostation, select cosmos.
Next, click on ‘show mnemonic’, these phrases will serve as a backup to retrieve your cosmos assets in a situation your wallet is misplaced.
Ensure the phrases are kept in a secure location, preferably offline.
Then click on “Create wallet”, After which your web wallet will be designed for you.
TRANSFER YOUR ATOM TO JUST DESIGNED WALLET
The amount of ATOM to be staked can send to the wallet by copying the address to the receipt address of another wallet or exchange to transfer.
If you get every step right, your ATOM should be seen on your cosmostation dashboard within a couple of seconds.
START STAKING YOUR ATOM WITH COSMOSTATION.
It’s time to start staking! first, you will need to click on the ‘delegate’ button and select the validator of your choice( I will explain how to get the best validator later in this post)
You should be able to see the commission rate, the total amount currently staked with the validator and calculated rewards after you’ve selected a validator.
The next step is to click on ‘Delegates’ to continue, select the amount to be staked, click on “Next”, gas fee” and staking details will be sent, click “Confirm”
The full Transactions details will appear if they are valid, click on the “Confirm” button once more. That is the end of the process, you can now start waiting for the payday to claim your staking reward.
HOW TO CHOOSE A VALIDATOR
Based on my experience, I will like to choose my validator based on the validator commission rate.
If the commission rate is high ( 20% upward), this set a belief that they don’t want to get slashed, since this will affect their return as well.
But a validator commission of about 1% or even lower may not be the ideal place to delegate your hard earn tokens as they are most likely playing with people’s funds.
There is less capital to improve their setup and there is a high chance they become insensitive to tokens entrusted to them since they have fewer funds to worry about.