Addressing the Value of Cosmos. Wondering what the expected value…
By: Jack Chan
Tags: Cloud Computing, Cosmos Network, Proof Of Stake, Cryptocurrency, Blockchain

Addressing the Value of Cosmos

Aug 2021 update: Due to the valuation changes since May 2019, I’ve made the calculation changes below. The predictions remained intact. Previously titled as “Questioning the Value of Cosmos”.

And I quoted as of May 2019:

“The Cosmos blockchain has the expected value of running 40,000 TPS and beyond”

Here’s why…

Comparing Cosmos to a real world system

You have to pretty much compare what Cosmos’ interconnected blockchain can be used for in today’s real world for applications hosted on the Cloud. This is really difficult and unfair to compare with, but it’s a comparison that I’m very familiar with.

Courtesy of Flickr

Foreword

Think of Cosmos Validators as a set of computers tied together with some sort of agreed upon relationships or protocol (e.g. TCP/IP, Practical Byzantine Fault Tolerance, etc.) and that it can serve the higher network layers, to serve users a specific purpose. For what purpose? Well, it’s merely passing on messages as “transactions,” changing a state like increasing and decreasing ownership of ATOMs in wallets, recording other blockchain transactions, etc. So, it’s like a global database, and dumbing this down further, it’s like an accounting ledger system that tracks changes of states in everyone’s accounts. The closest I can think of in comparison with today’s Cloud offerings is AWS’s Simple Storage System (or S3 for short). Storing files of ledgers that records transactional changes, simple as that. But it has database-like features, to perform Create, Read, Update and Delete (or CRUD) operations so that you can read what the latest state looks like (e.g. how much ATOM is left in a Cosmos wallet). Technically there’s no Delete in the blockchain immutability construct, but that’s beyond the point of this article.

Let’s start with transaction costs

So, how much does it cost to run a transaction?

As of May 2019, each block proposer is rewarded about 3.69 ATOMs, and each block is proposed every 6.855 seconds (see StakingRewards.com for ATOM).

Courtesy of StakingRewards.com

Since then, activity in Cosmos has increased, and the block rewards have averaged around 7.25s with block rewards naturally trending up to 4.46 ATOMs due to the more latent block times to match the targeted inflation (or dilution) of 7%

Courtesy of StakingRewards.com

And the price of ATOMs per CoinMarketCap.com (it fluctuates a lot!) averages at $4.13 USD in May 2019, and has now floating around $20 USD.

How much do transactions cost in the public Cloud today?

Now, let’s compare with AWS S3 pricing. Imagine you’re recording a company’s accounting practices, and you will be Creating (or POST-ing) new batches of files into S3, and later asking to Read a LIST of transactions from time to time, and retrieving it as needed. There’s also Reading (or GET-ing) the ledger to figure out what’s in the ledger.

Courtesy of aws.amazon.com (May 2019)

Prices hasn’t changed since May 2019!

Courtesy of aws.amazon.com (Aug 2021)

I’d imagine there’s no more than an average of 1 POST/PUT to record a new transaction and an average of 5 requests to GET the file over its lifetime, and approximately 4 LIST-ings an entire block’s transactions for audits and searching the file locations in an S3 bucket. That’ll be $0.005 x 1 POST + $0.0004 x 5 GETs (and the ledger file is really small, I’ll approximate this to 1MB). There’s also data transfer, or bandwidth, costs that are really small but it adds up, ranging from $0.05 to $0.09 per GB depending on volume. Every 1,000 transactions could be 1GB in total, so it’s another $0.05. This means every 1,000 transactions equals to $0.057.

… every 1,000 transactions on AWS costs $0.057

Besides transaction costs, there’s also the cost of storage which is more interesting. Cosmos validators can set these parameters and has left them at a default max transaction bytes of 1MB, with max number of transactions at 5,000 within the mempool (block). Assuming we’re at capacity, we’ll take 1MB for every transaction then which equates to adding about 10GB data per day (i.e. adds 300GB every month). Cost of storage is cheap (and getting cheaper) at about $0.02 USD per GB per month. So cost to store the transactions accumulate at $6 USD more every month to one’s invoice for Cloud storage.