TheCryptoToday

What is Elrond Network?

Elrond steps up the scalability and interoperability game and proposes 2 new major assets to the blockchain. The scope is to create a novel blockchain architecture which goes beyond state-of-the-art and is designed for practical scalability via Adaptive State Sharding and Secure Proof of Stake (SPoS). In an ecosystem that strives for interconnectivity, their solution for smart contracts offers an EVM compliant engine to ensure interoperability by design, thus ensuring that Elrond Network will be relevant in an ever growing blockchain environment.

Elrond is a complete rethinking of public blockchain architecture, especially designed to bring a major overall improvement by being scalable, efficient, and secure while maintaining a sufficiently decentralized setting. To achieve this, the team introduces a novel Adaptive State Sharding mechanism, enabling scalability as more nodes join the network by parallelizing transaction processing. On a consensus level, Elrond proposes a novel mechanism referred to as Secure Proof of Stake, introducing a random selection of the consensus group, stake plus rating as a fitness function for sybil attack prevention, and near-instant finality based on pBFT. In a bid to support decentralized applications (dApps), Elrond is modeled in such a manner that it is EVM and Ewasm compliant, supporting multiple smart contract languages and formal verification.

Product & Traction

o   Company Stage

According to the website, work on the project begun in the third quarter (Q3) of 2017 when the preliminary technical work was conducted. No other information is provided except that in 2018 the company was formed in Zug, Switzerland. All the members and advisors have LinkedIn profiles that can be easily verified. Be that as it may, it is difficult to assess the company structure of the project.

Product Readiness

Elrond’s team present focus is on delivering a fully working prototype for the early stage of the network, and to test the functionality of the consensus model and how well transactions are handled on the network. Their entire scope right now is to deliver the technical part, as in the prototype and prove that their model works, which is according to their roadmap intended to be delivered through 2018, all the way to early 2019. They scheduled the prototype release for Q2 and a fully featured Testnet for Q4 in 2018.

Update #1: 

Thus far, Elrond has achieved significant progress in developing their product, with the release of their prototype code to the public and approaching the launch of the first iteration of Elrond’s testnet. The scope of the public prototype was to prove the hypothesis that the network is capable of achieving state sharding, and to validate the model of doing cross-shard transactions, while also adding a nice touch to it with a friendly UI containing a wallet, benchmarks, and an explorer.

Update #2: 

With the latest iteration of their network that has been completely rewritten in the GO code language, the team has been able to reach 3,750+ TPS in a single shard, which is a significant improvement since their prototype. This shows that the team is committed to their roadmap, delivering constant progress even before raising funds and investors know beforehand what they are investing into. To be eligible for an early access of the testnet, you can fill the following form. V1.0 of the Testnet is up and running successfully, and Elrond’s early Blockchain also has a slick UX which will be available to the public in the next few months.

Compliance

• Update on 1st July, 2018:

The organization’s legal structure was finalized and Elrond Foundation is incorporated in Zug, Switzerland.

o   Financial Security Consideration

The ERD token does not operate in a way that guarantees token holders a share of equity on the project. Elrond grants access to the usage of its network through intrinsic utility tokens, referred to as Elronds, in short ERD. All costs for processing transactions, running smart contracts and rewards for various contributions to the network will be paid in ERD. References to fees, payments or balances are assumed to be in ERD. What’s more, masternode operators will receive interest based on the amount of tokens staked as well as for the amount of time the tokens were stored. This might be subjected to regulatory changes if the authorities will change their stance on Proof of Stake mechanism.

o   Adherence to Regulations

As of now, the team has not provided any statement or information regarding the project’s stance on the current regulations that govern the network. The team is expected to update this piece of information along with the business related subject.

Related Work

Elrond was designed upon and inspired by the ideas from Ethereum, Omniledger, Zilliqa, Algorand and ChainSpace. The project’s architecture goes beyond state of the art and can be seen as an augmentation of the existing models, improving the performance while focusing to achieve a better nash equilibrium state between security, scalability, and decentralization.

• Ethereum:

Much of Ethereum’s success can be attributed to the introduction of its decentralized applications layer through EVM, Solidity and Web3j. Whereas dApps have been one of the core features of ethereum, scalability has proved a pressing limitation. Considerable research has been put into solving this problem; however, results have been negligible up to this point. Still, few promising improvements are being proposed: Casper prepares an update that will replace the current Proof of Work (PoW) consensus with a

Proof of Stake (PoS), while Plasma based side-chains and sharding are expected to become available in the near future, alleviating Ethereum’s scalability problem at least partially.

Compared to Ethereum, Elrond eliminates both energy and computational waste from PoW algorithms by implementing a Secure Proof of Stake (SPoS) consensus while using transaction processing parallelism through sharding.

• Omniledger:

Omniledger proposes a novel scale-out distributed ledger that preserves long term security under permission-less operation. It ensures security and correctness by using a bias-resistant public-randomness protocol for choosing large, statistically representative shards that process transactions. To commit transactions atomically across shards, Omniledger introduces Atomix, an efficient cross-shard commit protocol.

The concept is a two-phase client-driven ”lock/unlock” protocol that ensures that nodes can either fully commit a transaction across shards, or obtain ”rejection proofs” to abort and unlock the state affected by partially completed transactions. Omniledger also optimizes performance via parallel intra-shard transaction processing, ledger pruning via collectively-signed state blocks, and low-latency “trust-but-verify” validation for low-value transactions. The consensus used in Omniledger is a BFT variation, named ByzCoinX, that increases performance and robustness against DoS attacks.

Compared to Omniledger, Elrond has an adaptive approach on state sharding, a faster random selection of the consensus group, and an improved security by replacing the validators’ set after every round (a few seconds), not after every epoch (1 day).

• Zilliqa:

Zilliqa is the first transaction-sharding architecture that allows the mining network to process transactions in parallel and reach a high throughput by dividing the mining network into shards. Specifically, its design allows a higher transaction rate as more nodes are joining the network. The key is to ensure that shards process different transactions, with no overlaps, and therefore no double-spending. Zilliqa uses pBFT for consensus and PoW to establish identities and prevent Sybil attacks.

Compared to Zilliqa, Elrond pushes the limits of sharding by using not only transaction sharding but also state sharding. Elrond completely eliminates the PoW mechanism and uses SPoS for consensus. Both architectures are building their own smart contract engine, but Elrond aims not only for EVM compliance, so that SC written for Ethereum will run seamlessly on their VM, but also aims to achieve interoperability between blockchains.

• Algorand:

Algorand proposes a public ledger that keeps the convenience and efficiency of centralized systems, without the inefficiencies and weaknesses of current decentralized implementations.

The leader and the set of verifiers are randomly chosen, based on their signature applied to the last block’s quantity value. The selections are immune to manipulations and unpredictable until the last moment. The consensus relies on a novel message-passing Byzantine Agreement that enables the community and the protocol to evolve without hard forks.

Compared to Algorand, Elrond doesn’t have a single blockchain, instead it increases transaction’s throughput using sharding. Elrond also improves on Algorand’s idea of random selection by reducing the selection time of the consensus group from over 12 seconds to less than a second, but assumes that the adversaries cannot adapt within a round.

• Chainspace

Chainspace is a distributed ledger platform for high integrity and transparent processing of transactions. It uses language agnostic and privacy-friendly smart contracts for extensibility. The sharded architecture affords a linearly scalable transaction processing throughput using S-BAC, a novel distributed atomic commit protocol that guarantees consistency and offers high auditability. Privacy features are implemented through modern zero knowledge techniques, while the consensus is ensured by BFT.

Compared to Chainspace, where the TPS decreases with each node added in a shard, Elrond’s approach is not influenced by the number of nodes in a shard, because the consensus group has a fixed size. A strong point for Chainspace is the approach for language agnostic smart contracts, while Elrond focuses on building an abstraction layer for EVM compliance. Both projects use different approaches for state sharding to enhance performance.

However, Elrond goes a step further by anticipating the blockchain size problem in high throughput architectures and uses an efficient pruning mechanism. Moreover, Elrond exhibits a higher resistance to sudden changes in node population and malicious shard takeover by introducing shard redundancy, a new feature for sharded blockchains.

Documentation

Regarding the documentation, the team has made significant improvements, adding information to key areas that shed a new light on the project. They have made available on the website a slide deck that details the Elrond architecture and layers of the network, presenting their take on business development and adoption, as well as a brief team and advisors presentation and roadmap description. The website has received a complete revamp, introducing new sections that further complement the existing documentation, better structuring it on different points of interest. Thus, there are four new major tabs on the website, focusing on the team and detailed roadmap, the technology, the FAQ, and the news and events.

o   Comprehensiveness:

The whitepaper is presented as a 16-page document and focuses solely on the technical aspects of the project. The documentation briefly discusses what the Elrond Network brings as novel to the blockchain infrastructure space, what the challenges of today’s blockchain networks are, as well as how Elrond proposes solutions to those problems.

The whitepaper is aimed at people with tech experience, yet it summarizes a lot of the important aspects of how the network works even for the non-technical audience. What’ more, it goes to further explain primarily the consensus and sharding mechanism, the cryptographic layer, and the competitor space is as well touched upon. The documentation also addresses the security and bootstrapping issue along with storage problem. The whitepaper is not comprehensive and lacks information on the team, token sale, legal disclaimers, or any potential business plan. There is a simple roadmap available, however further information on the team is available on the website. Information regarding token sale is not available as for now.

Update: 

The team has unveiled a new whitepaper, comprised of a 16-page document with the focus on the technical aspects. The new version of the whitepaper is more condensed, structured and proposes a broader approach to the presentation of the Elrond ecosystem. Key areas that have been improved are with regard to the Related work and Sharding paragraphs, that provides a comparative view of Elrond with other networks’ approaches. They also proposed new paragraphs that come as an extension to the already detailed paper, detailing the real problems that blockchain networks face, the blockchain performance paradigm, along with the team iteration of smart contracts and VM. It additionally offers more elaborate graphical pieces and a thorough conclusion with further considerations regarding the ongoing and future research that needs to be done.

o   Readability

The language used in the whitepaper is easy to understand and can be followed by the majority of the readers. While some key points are explained in depth, which is not a bad thing, the non-tech reader can catch up to those points through summarized information, with comparison to competitors’ projects and a well written conclusion. There are also a number of illustrations that help readers to grasp key points, and for the more technically advanced, the whitepaper contains a large number of references to more detailed studies.

o   Transparency

The whitepaper does not include any information regarding the team or any token sale details; it focuses strictly on the technical solutions and on the methodology behind the project. The website does a great job in presenting the team and advisors, but there is also a lack of token sale information. The team has stated that their main focus is on delivering the prototype and addressing the token sale details at a later date when they will have a working product to attract potential investors. The fact that they want to offer some type of product before collecting funds from investors is a big plus.

o   Technology

The whitepaper covers most of Elrond’s technological aspects, explaining the novel consensus model, the adaptive state sharding mechanism, the cryptographic layer, bootstrapping and storage issues. It further goes into details explaining how the network is improving or developing from the ground certain aspects that can be found in competitors projects. Furthermore, the whitepaper presents how security issues like Sybil attack, Rogue-key attack, and Nothing at Stake are tackled, how malicious behavior is prevented, and how privacy is achieved.

Development Roadmap

o   Concreteness

At this point in time, the roadmap only emphasizes the release of the prototype, testnet, and mainnet. The team is barely providing any details on how and what functions will be implemented on the prototype or the testnet, but they are showing progress to a series of articles that are providing information regarding the actual product development.

The roadmap has also received attention, creating a more refined version that emphasizes not only on the team’s goals, but also the important milestones that have been achieved in each respective timeframe. The team has also provided details with the actions regarding the business and network expansion plans which we would like to see more of, as these documents provide insights into the team’s overall vision for the network adoption.

The team has proposed a detailed version of the roadmap regarding the first part of 2019, which sees the Inception, Fundamentals, Launch, and Expansion of the Elrond network. The progress of the network is subcategorized into two parts; the essential ones that constitute a step forward for the Elrond project development and the features that add value in conjunction with the main protocol.

o   Feasibility

While the roadmap does not go into great details regarding the token sale aspects, the technical side of the projects seems feasible if the team manages to expand and include more blockchain-experienced people. Much depends on the team’s ability to validate the core aspects of their project.

While the respective timeframes for the different development phases haven’t seen much modification, we can see that the team stayed on track so far with the project progress, and the latest milestone being the testnet. With the information provided in the recent documentation and progress articles, we are confident they can deliver.

With their latest iteration of the roadmap, the team has emphasized the progress of the Elrond Network throughout 2019, going into great detail and creating an ambitious timeframe that sees the development of a wide array of features and use cases for the network. While we feel the team has set a very ambitious year, it only comes after a long period of development, where they have constantly delivered progress and the shift towards actual uses cases and features comes as a natural step to create a global product that can be adopted as an industry standard.

o   Maturity

The roadmap mainly focuses on the developments of 2018, and the team expects to complete the majority of tasks within this timeframe with the release of the mainnet in Q1-Q2 2019. As far as the tokensale is concerned, they will utilize a substitute ERC-20 token thus ensuring that the tokensale and listing will not be dragged for too long, and tokens will be easily available to the majority. On the website, there is a pending business paper category, which implies that the team is yet to release the full scope of the project as it has been focusing on the development part.

The roadmap has been expanded to further detail the timeframe into 2019, placing two more milestones until the mainnet release, which are the development of Elrond’s Virtual Machine (VM) with Smart Contracts and the Testnet Audit in Q1 2019. Moving forward from the mainnet, the team aims to expand Elrond’s ecosystem by creating the Elrond Hub and Elrond Society in Q3 2019.

Considering the degree of detailing that the current roadmap poses, the team shows that they are committed to deliver a feature-rich product and to target all the requirements of a powerful blockchain network. The first two stages were packed into Q1 of 2018, which saw the private and public testnet launch, the funding round, along with stress testing and security audits to ensure a smooth development of the network. The third stage will take place in Q2-Q3 with the mainnet launch, the token swap, and the integration of Elrond with a payment provider to create a payment gateway. The last phase will come into Q3-Q4 with the consolidation of the Mainnet, the development of the Ecosystem fund, and digital card integration of the network. Along these main tasks, the team will follow with a set of features to complement the network and help bootstrap the ecosystem, such as developing a private browser that will be integrated with Elrond, a desktop and mobile wallet, a privacy mechanism, API + SDK and many uses cases for the platform. The private browser will additionally act as a more organic way to onboard users onto their Blockchain, as Elrond will implement a native wallet which will use ERD tokens.

Business Model

Although the team’s focus is majorly on technical aspect of the project, they took some time to illustrate the most pressing issues of blockchain infrastructure projects with references to how competitors solve those problems compared to Elrond’s solution, thus they managed to identify a majority of projects as a possible sources of users and market share, as well as potential partners that can utilize the network through cross-chain interoperability.

Another big step in the maturity of the project is the presence of the business development and adoption, and Elrond Ecosystem sections, both offering an insight into the core layers of the project, and it provides the team’s concrete plan of action regarding the expansion of the Elrond project, from a startup to a small to a medium sized enterprise. The team has included a number of very relevant tasks into the business plan and has already been able to undertake some into reality by establishing a relevant partnership with a payment provider, thus securing a first use case for the platform.

With the further growth of the network, the team has announced another partnership with the Distributed System Research Laboratory within the academic environment and are looking to expand the project’s scope into researching the very core problems and areas of applicability of blockchain technology and additionally explore the possibility of using the Elrond platform for decentralized management of demand response program in smart energy grids.

o   Concreteness & Feasibility:

The current version of the whitepaper does not outline any proposed methods of marketing or actual product usage and adoption.

o   Clarity:

There is no information on display regarding the actual business model, on how the project is going to be used, on potential partnerships or any kind of plan to put the network to real world use. However, the team compares how different systems, centralized and decentralized, work in an environment where data storage and bootstrapping resulted in current blockchain architectures suddenly functioning at Visa level throughput, thus they seem to aim at promoting the network to a number of high end operators that need the throughput for their applications. We expect this to be further clarified with the business paper.

o   Cost Effectiveness:

With the first version of their slide deck, the team has presented details regarding the token economy, setting the hard cap to $15.2  million for 55% of the tokens, creating a valuation of $27.6 million which, compared to competitors’ valuations, is significantly lower. We believe their hard cap will not be filled in these bearish market sentiments; however the 15.2 million are required in order for Elrond to become an established company with a revenue stream.

Update: The multiple scenarios envisioned by the team and setting the latter approach with a significant reduced hard cap of $5 million USD for 40% of the tokens creating a valuation of $12.5 million USD, sets the standard for protocol and network development in regards with the massive valuation of the competitors. This shows that the team would rather over deliver and have an organic growth based on demand, rather than under deliver and risk the future development of the project and we like it.

o   Legitimacy:

Due to the nature/uncertainty of the regulations regarding blockchain technology and cryptocurrencies all around the EU space, especially with Switzerland, the Elrond team has decided to incorporate Elrond Ltd. in St. Julian’s, Malta – company number C88751.

Space in the Market & Competitive Landscape

Elrond tackles a very competitive and saturated market of blockchain infrastructure projects like EOS, Zilliqa, PChain, and Quarkchain. All these competitors try to tackle the scalability issues and provide solutions that ensure a high TPS throughput while maintaining relevant security levels. They are also going on another beaten path of the cross-chain interoperability, which is also tackled by many other projects such as Polkadot and PChain. It remains to be seen if the team will deliver a viable product that will take over the competition and integrate the network among the relevant blockchain infrastructure projects.

Competitors’ valuations:

1. Ethereum, valued $50B USD
2. EOS, valued $10B USD
3. Zilliqa, valued $650M USD
4. Hashgraph, raising $300M USD
5. Thunder, valued $100M USD
6. Kadena, raised $12M​ USD
7. Algorand, raised $4M USD

Size of the Potential Market

Elrond is looking to be a major player in a so called “big league” of blockchain development which is the high throughput, sharding, and cross-chain interoperability sector. The need for a high throughput and low cost of data storage is at an all-time high. The project that will solve these issues and provide an open and easily interoperable chain will be one that will see massive adoption; therefore there is room for multiple possibilities.

Innovation & Intellectual Property – The Technology

The stance the team takes is towards an open source product which enables faster levels of adoption and stands behind the principle of decentralization, thus they have made their code for the prototype available on their GitHub page, and they are planning to further release their code base along with the testnet. For now, the various parts and layers of the Elrond Network technology are governed by the Apache 2.0 standard.

Defining the challenges

Several challenges must be addressed properly in the process of creating an innovative public blockchain solution designed to scale:

• Full decentralization:

Eliminating the need for any trusted third party, hence removing any single point of failure;

• Robust security:

Allowing secure transactions and preventing any attacks based on known attack vectors;

• High scalability:

Enabling the network to achieve a performance at least equal to the centralized counterpart, as measured in TPS;

• Efficiency:

Performing all network services with minimal energy and computational requirements;

• Bootstrapping and storage enhancement:

Ensuring a competitive cost for data storage and synchronization;

• Cross-chain interoperability:

Enforced by design, permitting unlimited communication with external services;

Starting from the above challenges, the team has created Elrond as a complete rethinking of public blockchain infrastructure, specifically designed to be secure, efficient, scalable, and interoperable.

Elrond’s main contribution rests on two cornerstone building blocks namely:

1. A genuine State Sharding approach for effectively partitioning the blockchain and account state into multiple shards, handled in parallel by different participating validators.
2. A Secure Proof of Stake (SPoS) consensus mechanism which is an improved variation of the Proof of Stake (PoS) consensus mechanism that ensures long term security and distributed fairness, while eliminating the need for energy intensive PoW algorithms.

Use of Blockchain

• Blockchain Advantage

Blockchain technology is an essential part of Elrond’s Network project. It is the main focus of this project as it aims to expand the blockchain infrastructure with its novel solution and provide a fast, scalable, and secure cryptocurrency and a high throughput network.

o   Need for Custom Token

The Elrond platform will utilize its own native token named Elrond (ERD). It will act as a low cost, high speed cryptocurrency that can be used to process a variety of transactions. ERD’s functions will be primarily to govern the network as the Secured Proof of Stake requires nodes to hold significant amounts of EDR in order to drive the network and the consensus mechanism. The Elrond Network will also operate a masternode system which will reward EDR holders that stake their coins in order to help confirm transactions and regulate the system. Information about the total number of staked tokens required and return on staking is yet to be released.

o   Precautionary Measures

Elrond utilizes an improved Proof of Stake consensus algorithm, called Secured Proof of Stake, in which case consensus is achieved by random validators’ selection, eligibility through stake and rating, with an optimal dimension for the consensus group. They utilize a random number composed of multiple variable parameters to select the nodes in a shard group, thus preventing highly adaptive malicious attacks. After each epoch, a third of the nodes from each shard are redistributed amongst other shards to further decrease the chance of malicious actions. What’s more, each node has a rating based on the honesty of its actions. The rating influences the chance of the node being selected in the consensus group.

o   Decentralization

Elrond Network takes another step at the decentralization scale of the Proof of Stake mechanism by adding the randomness in it. As such, they ensure that nodes are redistributed uniformly and non-deterministically across other shards. Furthermore, the network ensures that the consensus group is chosen fairly based on the rating of the nodes and other parameters that also ensure randomness, and also the signature of each block comprises of at least 2/3 +1 signatures of validators group, thus ensuring democratic governance in the consensus system.

As described before, the reconfiguration of shards within epochs and the arbitrary selection of validators within rounds discourages the creation of unfair coalitions, diminishes the possibility of DDoS and bribery attacks while maintaining decentralization and a high transactions throughput.

o   Storage and (or) Mining

Elrond will operate a consensus protocol that belongs to a class of gossip-based protocols and is supported by a novel Proof of Stake mechanism.

The storage problem gets addressed by Elrond’s team in the fact that a high throughput network will lead to a distributed ledger that rapidly grows in size and increase bootstrapping costs (time + storage). The costs are addressed in the Elrond solution by utilizing pruning algorithms, which can summarize the blockchain full state in a more condensed structure. The pruning mechanism is similar to the stable checkpoints in pBFT and compresses the entire ledger state. The network also takes on to improve the Omniledger algorithm, by an adaptive approach on state sharding, a faster random selection of the consensus group and an improved security by replacing the validators’ set after every round (a few seconds) not after every epoch (1 day).

The system latency, due to nodes being reshuffled between shards, is addressed by distributing 1/3 of the eligible validators to other shards, thus ensuring a level of randomness and security, along with no temporary network liveness penalties. Elrond uses Bellare and Neven multisignature scheme, which eliminates one communication round in the signing algorithm because no proof of possession is needed. However, rest assured a high security level is still maintained.

• Adaptive State Sharding:

Elrond proposes a dynamically adaptive sharding mechanism that enables shard computation and reorganizing based on necessity and the number of active network nodes. The reassignment of nodes in the shards at the beginning of each epoch is progressive and nondeterministic, inducing no temporary liveness penalties. Adaptive state sharding comes with additional challenges compared to the static model. One of the key-points resides in how shard-splitting and shard-merging is done to prevent overall latency penalties introduced by the synchronization/communication needs when the shard number changes. Latency, in this case, is the communication overhead required by nodes, in order to retrieve the new state, once their shard address space assignment has been modified.

Elrond proposes a solution for this problem below, but first some notions have to be defined; users and nodes. Whereas users are external actors and can be identified by a unique account address, nodes are computers/devices in the Elrond network that run the blockchain protocol. Elrond solves this challenge by:

1. Dividing the account address space in shards, using a binary tree which can be built with the sole requirement of knowing the exact number of shards in a particular epoch. Using this method, the accumulated latency is reduced and the network liveness is improved in two ways; first, thanks to the designed model, the dividing of the account address space is predetermined by hierarchy.

As such, there is no split overhead, meaning that one shard breaks into two shards, each of them keeping only one half of the previous address space in addition to the associated state. Second, the latency is reduced through the state redundancy mechanism, as the merge is prepared by retaining the state in the sibling nodes.

2. Introducing a technique of balancing the nodes in each shard, to achieve overall architecture equilibrium. This technique ensures a balanced workload and reward for each node in the network.
3. Designing a built-in mechanism for automatic transaction routing in the corresponding shards, considerably reducing latency as a result.
4. In order to achieve considerable improvements with respect to bootstrapping and storage, Elrond makes use of a shard pruning mechanism. This ensures sustainability of the team’s architecture even with a throughput of tens of thousands of transactions per second (TPS).

Consensus via Secure Proof of Stake

Consensus Analysis

The first blockchain consensus algorithm based on Proof of Work (PoW), is used in Bitcoin, Ethereum and other blockchain platforms. In Proof of Work, each node is required to solve a mathematical puzzle (hard to calculate but easy to verify), and the first node that finishes the puzzle will collect the reward. Proof of Work mechanisms successfully prevent double-spending, DDoS and Sybil attacks at the cost of high energy consumption.

Proof of Stake (PoS) is a novel and more efficient consensus mechanism proposed as an alternative to the intensive energy and computational use in Proof of Work consensus mechanisms. PoS can be found in a number of new architectures like Cardano and Algorand or can be used in next version of Ethereum. In PoS, the node that proposes the next block is selected by a combination of stake (wealth), randomness and/or age. It mitigates the PoW energy problem but also puts two important issues on the table: the Nothing at Stake attack and a higher centralization risk. Proof of Meme, as envisioned in Constellation, is an algorithm based on the node’s historical participation on the network. Its behavior is stored in a matrix of weights in the blockchain and supports changes over time. What’s more, it allows new nodes to gain trust by building up reputation.

The main drawback regarding Sybil attacks is alleviated through the NetFlow algorithm. Delegated Proof of Stake (DPoS) found in Bitshares, Steemit, and EOS is a hybrid between Proof of Authority and Proof of Stake in which the few nodes responsible for deploying new blocks are elected by stakeholders. Although it has a high throughput, the model is susceptible to human related social problems such as bribing and corruption. In addition, a small number of delegates makes the system prone to DDoS attacks and centralization.

Secure Proof of Stake (SPoS)

The Elrond team introduces a Secure Proof of Stake (SPoS) consensus mechanism that expands on Algorand’s idea of a random selection mechanism, differentiating itself through the following aspects:

1. Elrond introduces an improvement which reduces the latency allowing each node in the shard to determine the members of the consensus group (block proposer and validators) at the beginning of a round. This is possible because the randomization factor r is stored in every block and is created by the block proposer using a BLS signature on the previous r.
2. The block proposer is the validator in the consensus group whose hash of the public key and randomization factor is the smallest. In contrast to Algorand’s approach, where the random committee selection can take up to 12 seconds, in Elrond the time necessary for random selection of the consensus group is considerably reduced (estimated under 100 milliseconds), excluding network latency. Indeed, there is no communication requirement for this random selection process, which enables Elrond to have a newly and randomly selected group that succeeds in committing a new block to the ledger in each round. The tradeoff for this enhancement relies on the premise that an adversary cannot adapt faster than the round’s time frame and can choose not to propose the block. A further improvement on the security of the randomness source would be the use of Verifiable Delay Functions (VDFs) in order to prevent any tampering possibilities of the randomness source until it is too late. Currently, the research in VDFs is still ongoing – there only a few working (and poorly tested) VDF implementations.
3. In addition to the stake factor generally used in PoS architectures as a sole decision input, Elrond refines its consensus mechanism by adding an additional weight factor referred to as rating. The node’s probability to be selected in the consensus group takes into consideration both stake and rating. The rating of a block proposer is recalculated at the end of each epoch, except in cases where slashing should occur, when the actual rating decrease is done instantly, adding another layer of security by promoting meritocracy.
4. A modified BLS multisignature scheme with two communication rounds is used by the consensus group for block signing.
5. Elrond considers formal verification for the critical protocol implementations (e.g. SPoS consensus mechanism) in order to validate the correctness of the team’s algorithms.

Architecture Overview

• Entities

There are two main entities in Elrond: users and nodes. Users, each holding a (finite) number of public / private (Pk/sk) key pairs (e.g. in one or multiple wallet apps), use the Elrond network to deploy signed transactions for value transfers or smart contracts’ execution. They can be identified by one of their account addresses (derived from the public key). The nodes are represented by the devices that form the Elrond network and can be passive or actively engaged in processing tasks. Eligible validators are active participants in Elrond’s network. Specifically, they are responsible for running consensus, adding blocks, maintaining the state and being rewarded for their contribution. Each eligible validator can be uniquely identified by a public key constructed through a derivation of the address that staked the necessary amount and the node id. Relations between entities in the Elrond protocol are shown in Figure 1 below:

Figure 1: Relations between Elrond entities

Furthermore, the network is divided into smaller units called shards. An eligible validator is assigned to a shard based on an algorithm that keeps the nodes evenly distributed across shards, depending on the tree level. Each shard contains a randomly selected consensus group. Any block proposer is responsible for aggregating transactions into a new block. The validators are responsible to either reject, or approve the proposed block, thereby validating it and committing it to the blockchain.

• Intrinsic token

Elrond grants access to the usage of its network through intrinsic utility tokens called Elronds, in short ERDs. All costs for processing transactions, running smart contracts and rewards for various contributions to the network will be paid in ERDs. References to fees, payments or balances are assumed to be in ERDs.

• Threat model

Elrond assumes a byzantine adversarial model, where at least   n + 1 of the eligible nodes in a shard are honest. The protocol permits the existence of adversaries that have stake or good rating, delay or send conflicting messages, compromise other nodes, have bugs or collude among themselves, but as long as  n + 1 of the eligible validators in a shard are honest/not compromised, the protocol can achieve consensus.

The protocol assumes highly adaptive adversaries, which, nevertheless, cannot adapt faster than a round’s timeframe. The computational power of an adversary is bounded, therefore the cryptographic assumptions granted by the security level of the chosen primitives hold firmly within the complexity class of problems solvable by a Turing machine in polynomial time.

The network of honest nodes is assumed to form a well-connected graph and the propagation of their messages is done in a bounded time Δ.

Attack vectors’ prevention

1. Sybil attacks:

These are mitigated through the stake locking when joining the network. This way the generation of new identities has a cost equal to the minimum stake.

2. Nothing at stake:

This is removed through the need of multiple signatures, not just from proposer, and the stake slashing. The reward per block compared to the stake locked will discourage such behavior.

3. Long range attacks:

These are mitigated by the team’s pruning mechanism, the use of a randomly selected consensus group every round (and not just a single proposer), and stake locking. On top of all these, their pBFT consensus algorithm ensures finality.

4. DDoS attacks:

The consensus group is randomly sampled every round (few seconds); the small time frame making DDoS almost impossible. Other attack vectors the team has taken into consideration are: shard takeover attack, transaction censorship, double spend, and bribery attacks, just to mention but a few.

Scalability via Adaptive State Sharding

• Why sharding?

Sharding was first used in databases and is a method for distributing data across multiple machines. This scaling technique can be used in blockchains to partition states and transaction processing, so that each node would process only a fraction of all transactions in parallel with other nodes.

As long as there is a sufficient number of nodes verifying each transaction so that the system maintains high reliability and security, then splitting a blockchain into shards will allow it to process many transactions in parallel, and thus greatly improving transaction throughput and efficiency. Sharding promises to increase the throughput as the validator network grows, a property that is referred to as horizontal scaling.

• Sharding types

A comprehensive and thorough introduction emphasizes the three main types of sharding: network sharding, transaction sharding and state sharding.

Network sharding handles the way the nodes are grouped into shards and can be used to optimize communication, as message propagation inside a shard can be done much faster than propagation to the entire network. This is the first challenge in every sharding approach and the mechanism that maps nodes to shards has to take into consideration the possible attacks from an attacker that gains control over a specific shard. Transaction sharding handles the way the transactions are mapped to the shards where they will be processed. In an account-based system, the transactions could be assigned to shards on the basis of the sender’s address.

State sharding is the most challenging approach. In contrast to the previously described sharding mechanisms, where all nodes store the entire state, in statesharded blockchains, each shard maintains only a portion of the state. Every transaction handling accounts that are in different shards would be required to exchange messages and update states in different shards. In order to increase resiliency to malicious attacks, the nodes in the shards have to be reshuffled from time to time. Be that as it may, moving nodes between shards introduces synchronization overheads, that is, the time taken for the newly added nodes to download the latest state. As such, it is imperative that only a subset of all nodes should be redistributed during each epoch, to prevent down times during the synchronization process.

• Sharding directions

Some sharding proposals attempt to only shard transactions or only shard state, which increases transactions’ throughput, either by forcing every node to store lots of state data or to be a supercomputer. Still, more recently, at least one claim has been made about successfully performing both transaction and state sharding, without compromising on storage or processing power. Nonetheless, sharding introduces some new challenges, for example, singleshard takeover attack, cross-shard communication, data availability, as well as the need for an abstraction layer that hides the shards.

However, in light of the fact that the above problems are addressed correctly, state sharding brings considerable overall improvements: transaction throughput will increase significantly due to parallel transaction processing and transaction fees will be considerably reduced. Two main criteria widely considered to be obstacles transforming into advantages and incentives for mainstream adoption of the blockchain technology.

• Elrond’s sharding approach

While dealing with the complexity of combining network, transaction and state sharding, Elrond’s approach was designed with the following goals in mind:

1. Scalability without affecting availability:

Increasing or decreasing the number of shards should affect a negligibly small vicinity of nodes without causing downtimes, or minimizing them while updating states.

2. Dispatching and instant traceability:

Finding out the destination shard of a transaction should be deterministic, trivial to calculate, eliminating the need for communication rounds;

3. Efficiency and adaptability:

The shards should be as balanced as possible at any given time.

Economics

o   Contribution for the Blockchain Economy

The team behind Elrond proposes a fast, secure, and highly scalable blockchain network that will be able to process a total of 10,000 transactions per second and support a large number of dApps. While there is a lot of competition in this space, all aiming for high throughput networks, an estimated 10,000 dApps will be in operation by 2020 and the blockchain industry will only move forward to mass adoption. Elrond’s proposition can add considerable value to the blockchain infrastructure space, by utilizing novel protocols and consensus mechanisms, and pushing the limits of Proof of Stake and Sharding. This, coupled with the fact that one of Elrond’s focus is on the cross-chain interoperability, puts the project in a better position to become a leading force in blockchain development.

o   Intrinsic Value of the Token

Elrond operates on a node-based system in which the EDR token plays a vital role in maintaining the network integrity and the shards fully operational. Utilizing gossip and adaptive state sharding, the Elrond Network is enhanced by the Secured Proof of Stake (SPoS) mechanism. It achieves consensus with the creation of new blocks, with enough information stored in the nodes, without burdening the whole chain with data, thus ensuring a secure and uniform transition to the next state of the chain and recording the transactions.

• Token Sale

Firstly, the team is focusing on delivering an actual product, which is a prototype that they can use to leverage the competitors space by attracting investors to the project. The prototype should be released around the end of June or early July, along with a business paper and details about the sale.

o   Minimum / Maximum Amount to Raise

The proposed hard cap of $15.2 million USD for 55% of the tokens places the project on a significant lower valuation of $27.6 million USD as compared to the ones of the competitors, offering an edge, that if capitalized can drive a lot of attention towards the project. We feel that selling 55% of the tokens to the public further proves not only that the team is confident in their product and are in it for the long-run, but also stands by their stance towards achieving true decentralization, as the majority of the supply will be in the investors’ hands. Considering we are in a bear market, we don’t think the hard cap will be raised anytime soon, and that halving the hard cap would be beneficial for the company and investors.

The team’s approach towards funding of the development process has been aligned with their vision of development and has envisioned multiple scenarios of gathering funds. Each scenario was linked to the overall market conditions, thus the team has set the hard cap for the first one to $15.2 million USD for 55% of the tokens for which they have estimated to be enough to sustain development for seven years.

Given the current conditions of the market, the team has reduced its hard cap to $5 million USD for 40% of the tokens, and coupled with a strategy to leverage the developer community, they have estimated that the funds will sustain the development for 4 years. In light of the latter, the team has demonstrated that they are connected to the current market situation and understand the implication of securing funds through an ICO, while focusing on their community first.

In addition, the team members have exclusively used funds from their own pocket in order to develop the company up until a few months ago when they raised money during the seed round.

o   Fund Allocation

Elrond has increased the total allocated funds towards R&D up to 62% which we feel is a step in the right direction. The rest of the funds will be split as follows:

• Operational – 17%
• Marketing/PR – 11.7%
• Business Development – 5.5%
• Legal & Audit – 3.9%

With this distribution, the team estimates that the total costs expected for 2019 sum up to $1.4 million USD, distributed among relevant fields that ensure the success of Elrond Network.

o   Tokens Sold-Kept-Ratio

The token allocation has been divided between investors, developers, community and the team as follows:

• Private Seed Round consisting 15% of the total token supply with a bonus of 30% will have a release schedule of 10% at TGE followed by three equal tranches of 30% in 3,6 and 9 months after TGE.
• Public ICO consisting of 25% of the total token supply with no bonus and no lock-up.
• Staking only tokens consisting of 5% of the total token supply, allocated for potential validators or used for staking by the Elrond team (only unsold ones), which will have be released 100% at TGE, but are restricted only to staking for 1 year starting the TGE, so that they cannot be sold.
• Future round of sale consisting of 5% of the total token supply, which will be sold to strategic investors and partners that want to be onboard the Elrond network. This sale cannot occur any earlier than 1 year after the TGE.
• Advisors consisting of 3% of the total token supply that will have a lock-up of 1 year after TGE, after that being 100% available.
• Team tokens consisting of 19% of the total token supply, with a release schedule of 10% 6 months after TGE followed by another 10% 1 year after TGE, in the second year 30% in two equal tranches, and 50% in the third year, also in two equal tranches.
• Company reserve consisting of 15% of total token supply, with a release mechanism of 33% at TGE that are restricted to staking only for 1 year after the TGE and the rest of 67% of tokens in 3 equal tranches over 3 years starting 1 year after TGE.
• Reward tokens for the private browser use-case consisting of 7 percent of the total token supply, tokens that will be used to incentivize users to join and use the private browser that the team has created as a use-case for the Elrond platform. The tokens are released 33 percent at TGE, 33 percent 3 months after TGE, and another 34 percent 6 months after TGE.
• Grants/Accelerator Pool consisting of 4 percent of the total token supply, distributed to developers, companies and startups that want to build tools, services or dApps on top of the Elrond ecosystem. The tokens are released in 3 tranches of 33-34 percent with the same vesting mechanism as the reward tokens for the private browser.
• Community reward fund consisting of 2 percent of the total token supply, with a release schedule similar to the Grants/Accelerator pool and Reward tokens for the private browser.
• Hype Factor

Elrond’s marketing campaign has not even started, but their hype level is already building with their Telegram group reaching 9,000 members due to the project being mentioned by a small number of social media influencers and ICO websites. This is partially due to the fact that the team is focused on delivering a prototype before the actual marketing occurs. Elrond has a large base of people already talking about the project and their interest in taking part at the token sale. On the assumption the prototype is delivered properly and it manages to show significant progress, we expect the project to explode in terms of interest from the community. Furthermore, the team members boast having worked for large blockchain companies such as NEM and Ethereum, which will further spark many investors’ interest.

Since a few months ago, the project has not made much progress in regards to marketing and community development. The Telegram group still hovers at around 9,000 members, and the project is not hyped by many inner-circles in the cryptocurrency nor niche communities. Be that as it may, several other YouTubers and influencers have mentioned Elrond in positive light. It is our hope that the moment the marketing efforts kick in, the project will gain more attention and community management efforts will gain more traction.

The team has recently debuted their marketing and community program, with the launch of their community platform where they have a mechanism to reward users on the basis of engagement. In this light, they took a fresh start on their Telegram channel cleaning it of inactive and bot accounts, keeping a total of 7,000 members and the team aims to further expand their marketing efforts with the community and developer program to gain more traction within the space.

Company & Team

The Elrond team is composed of 3 founding members and 8 members, being inclusive of 3 advisors who are on the board as to date. The team aims to recruit more team members and expand their position in the development, marketing and business area.  There is a good mix of technical, commercial, legal, and marketing expertise, however the team will benefit from more marketing efforts.

To keep up with the rapid pace of the network development, the Elrond team has expanded to a total of 17 team members, adding new software engineers, developers and researchers, along with a mix of marketing and UI/UX designers, thus improving the overall skillset available. Currently, the team is starting to focus on the marketing side of the project, as Elrond is approaching the token-sale and product release phases.

o   Founders:

Beniamin Mincu is the founder and CEO of Elrond. He boasts early experience with cryptocurrencies, being an early investor in Bitcoin and a business core team member of the NEM project where he joined them in 2014 leading the business, marketing, and community efforts. After departing the NEM project, he got involved in helping projects like Zilliqa, Polkadot, Icon, and Matrix to develop their business efforts. He is as well the CEO and Founder of the ICO Market Data, a platform for assessing ICO, and Metachain Capital which invested in one of the top projects in the market (ICON, Zilliqa, Wanchain, Polkadot, Matrix, and PChain).

o   Advisory Board:

The advisory board comprises of three advisors who have vast experience in relevant fields.

• Alex Iskold

Alex Iskold is a serial entrepreneur and investor, with a good software engineering experience. He invested in over 90 startups, and founded a number of companies.

• Patrick Storchenegger:

Patrick Storchenegger is a Swiss attorney who is part of the Ethereum Foundation. He has many years of experience in international tax law, corporate law, commercial law, and capital market law.

• Andrei Pitis

Andrei Pitis is the VP of Engineering and Head of Bucharest Office at Fitbit. He is as well the Founder and CEO at Vector Watch. Furthermore, he is an Angel Investor with several tech leadership positions.

Overall, the advisory board comprises of members with relevant experience and should help Elrond seize partnerships and accelerate business development.

Update #1:

Elrond has welcomed 4 new advisors to their team, who will help the founding team take the company to the next level. The following advisors have been added to the team:

• Alex Tabarrok:

Alex is the co-founder of Marginal Revolution University: An Online Platform for Learning Economics. He is the author of numerous academic papers in the fields of law and economics, criminology, regulatory policy, voting theory and other areas in political economy. His academic background and impressive skillsets are a great addition to the current team.

• Fabio C. Canesin: 

Fabio is the Co-founder of City of Zion, a global, independent group of open source developers, designers and translators formed to support the NEO core and ecosystem. Fabio is also the Co-founder of NEX, a platform for complex decentralized cryptographic trade and payment service creation. This is someone who can truly bring hype to a project and Elrond’s successful efforts to establish such partnership brings a lot more credibility and trust for the team.

• Ethan Fast:

Ethan Fast is one of the Co-Founders of City of Zion and Neon Exchange. He is additionally the creator of NEO’s most used wallet, the Neon Wallet. He is an entrepreneur and research scientist with a background in Human Computer Interaction, AI, and blockchain.

• Raul Jordan:

Raul Jordan is an Ethereum core developer. He is Co-Leading Prysmatic Labs, the first Sharding Implementation for the Ethereum Protocol. Raul is a partner at zk Capital, a research-focused blockchain investment fund. In addition, he is also the co-founder of Kynplex, the first ever network in the life sciences that brings together hubs of scientific innovation online.

This is a great update from the team and it’s only an indication that they have not stagnated when hype was picking up for Elrond. Instead they did the opposite and leveraged that exposure to bring on board very relevant people with an abundance of skillsets. Such a strategic move is bound to not only help Elrond Network gather more exposure from investors and cryptocurrency communities, but in the longer run it shall add to the team’s ability to establish partnerships and expand their reach.

Update #2: 

The team has further fortified their efforts to gather the best minds in the space in order to help with the development of the project. Their latest Advisor, Sunny Aggarwal, joined the board of advisors for Elrond, bringing his experience as a core developer for Tendermint/Cosmos projects, and as one of the Co-Founders of the research group – Blockchain at Berkeley.

Update #3: 

As the team sticks to constantly delivering progress to the Elrond Network, they have been engaging frequently with their advisors and this has helped bootstrap the project. Consequently, they have put the partnership with Sunny Aggarwal on hold as he is focusing on the development of the Tendermint/Cosmos environment and can’t offer at the time being his expertise for the Elrond Network.

Blockchain & Development Talent

The Elrond team has several notable people with development talent, who have several years of expertise in a number of fields related directly with software development. Sebastian Marian is a core developer with more than 15 years of experience in programming and developing applications with languages raging from C, C++, and Visual C++ to HTML, Java Script, SQL, ABAP, and SAP.

Due to the dynamicity of the industry, the team has adapted and shaped their size and roles to better suit the development and growth of the project. With the team growth to 18 members, several positions have been reshaped for a more structured approach on development, thus team members such as Felix Crisan, Radu Chis, and Adrian Dobrita have taken the leadership roles of Head of Research, Head of Technology, and Head of Engineering respectively. They boast impressive skill sets related to software development and research, including publishing research papers, several scientific papers, and prestigious journals.

Business Talent

While the team is mostly tech-focused, they have a few members that stand out in business and marketing experience, such as Lucian Todea, who is a serial entrepreneur with active investments in blockchain space and boasts more than 15 years of tech business experience. He is the Founder, CEO and Angel investor to a series of fast growing tech startups. From the entire team, Beniamin Mincu has the most extensive blockchain business related experience. He has invested and driven a wide range of positions for blockchain projects which are relatively successful. He is as well the CEO and Founder of Metachain Capital, which is a successful investment fund that has a large number of stellar projects in their portfolio.

Legal Counsel

Elrond’s advisory board is not complete without Patrick Storchenegger. Patrick Storchenegger is part of the Ethereum Foundation legal team in Switzerland, and he additionally advises quite a number of international concerns, being inclusive of those engaged in trading, re-insurance, transportation, and blockchain technology. Patrick will make sure that the legal aspects are taken care of and the project stays legally compliant.

Superstar(s)

• Beniamin Mincu, the organization’s Founder and Chief Executive Officer

Beniamin is an entrepreneur and early blockchain investor with more than 4 years of experience with blockchain startups. He was previously part of the NEM core team, where he led the business, marketing and community efforts for 15 years, helping bootstrap the NEM blockchain from an idea to a global product. He has also invested and supported some 30 blockchain projects, being inclusive of, among others, Icon, Matrix, and Zilliqa. He is as well the CEO of Metachain Capital. Notably, he is an MBA dropout.

Verdict/Conclusion

At the moment, we feel that it is too early to determine whether the team will be able to produce an outstanding project. Be that as it may, the lead team is a promising one, and based on their network and previous relevant experience, there is a relatively high probability that they will be able to give their competitors something to ponder over. We believe Elrond’s team needs to move fast in order to seize a place in the competitive field they are running in. Lastly, it is important that the team deploys its marketing and business strategy as soon as possible, and should not wait too long before attracting interesting parties into their community.

The team has self-funded the research and development for more than a year, and now they are preparing to finalize their raise through an upcoming ICO. The core team has been in the cryptocurrency space long enough to learn the ins and outs (icomarketdata.com creators), and on top of that, they have an impressive technical expertise. Elrond Network’s main mission is to offer a blockchain that is both decentralized and secure without sacrificing one or the other. We have seen their testnet in action, and thus far, they are on the road to success. Moreover, we foresee Elrond gaining some massive traction in the following weeks, and if they continue focusing on the community and deliver milestones in time, Elrond can become the next best blockchain.

We will keep a close eye on this project, and are curious how it will progress in regard to its development and hype.

Tierion is one enchanting blockchain project that is taking on an area unique from others. They are working on data verification but on a massive scale.

More notably, the team has taken the idea of notarization and the safekeeping of documents, and has shifted it to the protection of digital data. Their endeavor entails making the process of this verification simple and most importantly, cheap.

Be that as it may, can such a grand vision be realistically achieved?

In this review of the Tierion project we will give you everything that you need to know about the project. We will take a look at their technology, development (product and traction), the project’s team members, economics, and market. We will additionally analyze the potential for the TNT token to secure more adoption in the long term.

Project Summary

• Project Name: Tierion
• Token ticker: TNT
• Website: https://tierion.com/
• Whitepaper: https://tokensale.tierion.com/whitepaper
• ​ERC20 token: Yes

Introduction

Businesses safeguard and notarize crucial documents such as property titles and contracts to ensure anyone can prove their veracity. Surprisingly, there isn’t a universal equivalent for safeguarding digital data. Much of the world’s important information is stored digitally and is susceptible to modification by system administrators or hackers. When data is sent over the Internet, the recipient often can’t verify when the data was created or if it has been modified from its original state. Problems with data integrity and digital record-keeping are particularly severe in regulated industries such as healthcare, insurance, and financial services where data corruption or tampering has significant legal and reputational consequences.

Tierion is building a universal platform for data verification. Tierion works by creating a proof that links data to a transaction on a blockchain. This is called anchoring. Anyone with this proof can verify the data’s integrity and timestamp without relying on a trusted authority.

Tierion launched in 2015 and has become the most widely used platform for anchoring data to the blockchain. Tierion’s key innovation was making it simple to anchor a virtually unlimited amount of data to a single blockchain transaction. Tierion’s launch also marked the introduction of the Chainpoint protocol, the first standard proof format for anchoring data to a blockchain.

Several open source projects and multiple vendors have adopted the Chainpoint protocol. In July 2016, Chainpoint 2.0 was published. It featured several improvements, including the use of JSON-LD and anchoring into multiple blockchains. Tierion formed the Chainpoint W3C Community in September 2016. Chainpoint is the first technology of its kind to receive public support from a major Internet standards organization.

The team mentioned that to continue their mission as regards securing the world’s data, they are launching the Tierion Network. Chainpoint has been upgraded to version 3.0 and now runs as a service on the Tierion Network. Together, they provide a universal platform for data verification that operates at massive scale.

Microsoft is joining Tierion in running a core part of the network infrastructure. Anyone can join the Tierion Network by running a node. Each node improves the network’s scalability and reliability. Along with this new distributed architecture, a token is being introduced. The Tierion Network Token (TNT) provides an economic incentive to secure the network infrastructure, and additionally serves as a method of settlement between parties to access network resources.

Each Node serves as a mini-Tierion. Node operators can provide users with services using conventional payment and delivery models.

History

Using the Bitcoin blockchain to notarize documents was popularized by Manuel Aráoz with the creation of Proof of Existence in 2012. This system, and others like it, publishes a hash of a document in a Bitcoin transaction. Hashes allow computers to compare arbitrarily complex data and determine if they are identical. By comparing the hash of a document with the hash published in the blockchain, it is possible to prove the document existed before the timestamp of the block containing that Bitcoin transaction.

• Why use Bitcoin?

Bitcoin’s security model is enforced by the entire network instead of a trusted central authority. Once a transaction is confirmed, it becomes part of an immutable ledger that is distributed across a global network of nodes. It is practically impossible for a malicious agent to alter data on the blockchain.

• Shortcomings

These early systems had several shortcomings and as such never achieved significant commercial adoption:

• Not Scalable:

One document hash was published per Bitcoin transaction. Bitcoin’s current network throughput is approximately three transactions per second. This is far too low to support the world’s applications.

• Cost:

In June 2015, the cost of anchoring data into Bitcoin was approximately $0.03 USD. In June of 2017, that cost had increased by over 100 times to $3.40 USD.

• Inaccurate:

Bitcoin’s block time accuracy is ± 2 hours. This means the timestamp of the block could be an hour before a transaction was published. Time travel violates the laws of physics.

These limitations made it impractical and cost prohibitive to anchor large volumes of data in the Bitcoin blockchain.

Tierion overcame these obstacles and made it simple to link a virtually unlimited amount of data to a single transaction on the blockchain. For the first time, developers had an easy-to-use and affordable service for anchoring data at scale. Chainpoint provided a standard proof format and open source tools for the creation and verification of Chainpoint proofs.

What is Tierion?

Complete verification of data and documents is without doubt quite a challenging affair. While there are standard procedures for doing this, these are sometimes dated and have not kept up with the pace at which technology moves. Tierion is trying to make use of immutable blockchain technology to verify this data.

Figure1: An Overview of the Tierion Protocol. Image via Angel.co

Other companies have tried to do something similar by anchoring data to blockchains, but every one of them ran into the challenge of scalability and were as such unable to get past this hurdle. These early attempts used the Bitcoin blockchain and published just one document hash alongside each Bitcoin transaction. The problem is Bitcoin doesn’t have nearly enough network throughput to accommodate all the document hashes that needed to be recorded.

What’s more, using the Bitcoin network and blockchain became prohibitively expensive, with the cost of each document rising to more than $3 USD as of 2017. As if all this wasn’t enough, the delayed block time from Bitcoin meant the timestamp on the documents weren’t accurate. Tierion’s team has found a way to get past all of these hurdles.

Tierion Market & Use Cases

There are various industries that will be able to benefit massively from a blockchain solution that is capable of verifying and securing data. Healthcare, financial services and insurance are just a few of the industries that spend tens of millions of dollars to authenticate and securely store data every year. Tierion could both simplify the process and make it far less expensive. And by transferring all this data to the blockchain, it becomes immutable as well.

Tierion was on the right path long before it’s ICO in the summer of 2017. In the short two years of its existence to that point it had already formed a collaboration with Microsoft on data integrity. In addition to that, it has as well done Internet of Things data work with Phillips, as well as credential verification and auditing work with other companies.

A number of the use cases:

• Audit Trail for a Business Process:

It keeps an immutable history of business processes.

• IoT Data Integrity and Provenance:

Guarantee the integrity and timestamp of data collected from Internet of Things (IoT) devices.

• Document Timestamping:

Add a blockchain timestamp proof to digital documents and data.

• Blockchain Verifiable credentials:

Issue blockchain verifiable credentials from education credits to awards

• Data Integrity for Accounting Records:

Prove the existence and accuracy of accounting records.

• Regulatory Compliance:

Prove to regulators that your data and documents haven’t been altered.

In truth, when you consider the scope of data integrity, data verification, auditing and credential verification, the range of what Tierion can be used for become nearly limitless. Various companies and industries will be able to use it for notarization, for verifying credentials, to provide proof of process, and to timestamp transactions.

Moreover, there are a number of different industries that could make use of the Tierion protocol. They can provide cryptographic proof of order, integrity and timestamp of numerous business processes. These include the likes of supply chains, financial transactions, insurance claims, medical records and KYC (Know Your Customer) procedures.

Opportunities

• Partnership with Microsoft and Philips proofs that Tierion is a legitimate company.
• Tierion’s services are used by over a thousand companies, an indication that Tierion is proven to provide valuable services to its customers.
• Tierion has been around for 2 years with a working product that is in the third iteration, which makes this ICO a lot less risky than those with shorter track record.
• Tierion won the 2015 Consensus Makathon, which shows the competency of the team.
• Blockchain is integral to the services provided by Tierion, so it makes more sense to raise money from ICO.
• Factomis yet another solution that tackles the same problems that Tierion is trying to solve. But according to CEO of Tierion, Factom can only manage 47 transactions per second while Tierion’s capacity is virtually unlimited.

How Tierion Works – The Technology

Tierion uses the Chainpoint technology to create what the team has termed as the “proof engine”. Through this use of Chainpoint, the Tierion team says it can use blockchain technology to verify data. That includes everything from medical records to financial trades and legal contracts. Their ultimate goal is to simplify the process while making trust less expensive.

Tierion works by anchoring data to a transaction on the blockchain using the proof engine. This gives room for anyone, at any time to verify the integrity and timestamp of the data simply by looking it up on the trustless blockchain. This removes the need for third party trusted sources such as notaries. At the moment Tierion provides this ability for both the Bitcoin and Ethereum blockchains.

Figure 2: The Chainpoint proof generation process

Chainpoint is the open standard that can be used by any developer for linking data with a blockchain to create a timestamp and proof. Chainpoint comprises of several developer tools, and has been used by hundreds of companies to create applications that utilize data linking. Chainpoint is also the foundation of the Tierion Network.

Perhaps the most exciting part of the Tierion Network is its Proof application that is expected to launch in early 2019. The Proof application runs on Chainpoint, which will allow it to scale to millions of daily proofs. A proof is where a business verifies the integrity of data and timestamp without using a third party trusted source. Businesses will be able to get started in just a few mouse clicks, and data verification will be quick, simple and inexpensive.

For each industry specific use case, Tierion delivers three core capabilities, as discussed below:

1. Trust anchor:

In cryptographic systems, a trust anchor is an authoritative entity for which trust is assumed and not derived. The Bitcoin blockchain is particularly well suited to serve as a trust anchor as no authority controls the Bitcoin blockchain. Once a transaction is confirmed, it becomes part of an immutable ledger that is distributed across a global network of nodes. Erasing or modifying this data is virtually impossible. Tierion provides a scalable means to use multiple blockchains as a trust anchor.

2. Data integrity:

Data Integrity is the assurance of the accuracy and consistency of data. Organizations with sensitive data need to prove it hasn’t been corrupted or manipulated by insider threats or external hackers. Tierion provides a global mechanism for verifying data integrity.

3. Timestamp:

Public blockchains make poor timestamp authorities because of their low time accuracy. For instance, Bitcoin’s block time accuracy is approximately ±2 hours. Trusted timestamps are accurate, yet require users to trust the time provided by an authority. Anchors to a public blockchain provide a low accuracy but trustless timestamp. Chainpoint solves this dilemma by including multiple trusted timestamps and multiple trust anchors in each proof. This allows Chainpoint proofs to simultaneously possess accurate and trustless time attestations.

The Tierion Network

Developers get started using the current version of Tierion by visiting the website and signing up for a free account. This gives them access to tools for collecting data, creating and verifying Chainpoint proofs, and integrating data with more than 500 popular software applications.

With this next step, Tierion is evolving into a distributed network that offers services that utilize the blockchain as a trust anchor.

Figure 3: Current Tierion vs. New Tierion Network

Chainpoint is the first service on the Tierion Network and serves as the technical foundation for future services. Chainpoint provides a global utility for anchoring data to the blockchain and a universal platform for data verification.

Future additions to the Tierion Network may include services for securing and sharing verifiable data, document notary and archival, and attestations related to blockchain verifiable identities.

The Tierion Network Token (TNT) serves two primary functions, namely:

1. A method of settlement between parties to access network resources
2. An incentive for network participants to operate and secure the network.

Anyone is able to join the Tierion Network and earn TNT. End users will not require a token to use the network. See the “Tierion Network Token” section of this document for more details.

Chainpoint Service

The Chainpoint Service is a global utility for creating and verifying Chainpoint proofs that runs on the Tierion Network. This section provides a detailed technical overview of Chainpoint 3.0. It is organized into four sub-sections:

• Benefits:

This sub-section will shed light on the benefits of the new Chainpoint 3.0 service.

• Chainpoint Proofs:

This sub-section provides an overview of the elements of a Chainpoint proof.

• Proof Generation Process:

This sub-section will look into how Chainpoint proofs are created.

• Chainpoint Infrastructure:

This sub-section gives a description of Chainpoint’s global network infrastructure.

Benefits

Chainpoint’s new distributed architecture provides several significant advantages, as discussed below:

• Scalability:

Chainpoint uses a highly scalable architecture that is designed to generate millions of proofs per second.

• Accuracy:

Chainpoint includes time data from Network Time Protocol (NTP) servers and the National Institute of Standards and Technology (NIST) with anchors to the Bitcoin and Ethereum blockchains, allowing Chainpoint proofs to simultaneously possess accurate and trustless time attestations.

• Responsive:

Chainpoint responds immediately when a hash is submitted. Proofs are automatically upgraded as they are anchored to the Bitcoin and Ethereum blockchains.

• Trust:

Chainpoint periodically anchors into the decentralized Bitcoin and Ethereum blockchains. This allows the Chainpoint proofs to inherit the security properties of multiple blockchains.

• Cost Effectiveness:

Chainpoint’s scalability makes it cost-effective for the world to anchor data to a secure public blockchain. This is particularly relevant as Bitcoin transaction fees have increased more than 100 times in the past two years and are likely to continue to rise.

• Global Calendar:

Chainpoint servers work in consensus to generate a global, publicly auditable blockchain referred to as the Chainpoint Calendar. This makes it easier to verify Chainpoint proofs and audit the network.

Chainpoint Proofs

Each Chainpoint proof contains a set of operations that cryptographically link a hash to multiple blockchains. These links are known as anchors. Chainpoint proofs are verified by replaying the operations and checking each anchor for an expected value.

The new proof format has the flexibility to support the inclusion of external data, multiple hash types, and branches. Chainpoint proofs can be verified with any Chainpoint compatible verification tool.

Figure 4: Conceptual depiction of the structure of a Chainpoint 3.0 proof.

 

Sample Chainpoint Proof

{

                  “@context” : “https://w3id.org/chainpoint/v3” ,

                  “type” : “Chainpoint” ,

                  “hash” : “52da1abc1608bf37a204f3d9664541fad88dbd91014cd3e5f0542b98c00b787c” ,

                  “hash_id” : “8853b190-6061-11e7-9322-45354847e629” ,

                  “hash_submitted_at” : “2017-07-04T02:36:07Z” ,

                  “branches” : [

                                    {

                                    “label” : “cal_anchor_branch” ,

                                    “ops” : [

                                                      {

                                                      “l” : “8853b190-6061-11e7-9322-45354847e629”

                                                      },

                                                      {

                                                      “op” : “sha-256”

                                                      },

                                                      {

                                                      “l” :

                                                      “1499135760:889036cac6f4d9dbfc13693da2a558f65fc2468d26ef3f3934b8d5e19e86d7616793e4d24de

                                                      bccdf2674d175f66724cdcf5198406c1967d83a35b9a00d3f12cb”

                                                      },

                                                      {

                                                      “op” : “sha-256”

                                                      },

                                                      {

                                                      “l” : “1407:1499135771727:1:a.chainpoint.org:cal:1407”

                                                      },

                                                      {

                                                      “r” : “e61eebbe297ed276d20005dcd146805c1846a4b709066c40a176903f84464ace”

                                                      },

                                                      {

                                                      “op” : “sha-256”

                                                      },

                                                      {

                                                                        “anchors” : [

                                                                                          {

                                                                                          “type” : “cal” ,

                                                                                          “anchor_id” : “1407” ,

                                                                                          “uris” : [

                                                                                                            “http://a.chainpoint.org/calendar/1407/hash”,

                                                                                                            ]

                                                                                          }

                                                                        ]

                                                      }

                                    ]

                                    }

                  ]

}

Chainpoint Proof Overview

This section provides an overview of the Chainpoint proof elements in Figure 4.

• hash

The hash element of a Chainpoint proof represents some data that you want to prove is anchored to the blockchain.

A hash is a cryptographic digest of any data. Hash functions always produce the same hash given identical input. Hash functions output a fixed length string regardless of the size or type of input.

Input	Size	Hash (SHA256)
text string	10 bytes		ef7797e13d3a75526946a3bcf00daec9fc9c9c4d51ddc7cc5df888f74dd434d1
image	400MB		5161bc058e63d8db009b21decba2fc455f8e4cfe8536e9aa110ee7dd914ca68a
database	56GB		3d22b7e4a3ed8883d9395f6e5064cbeb7d27d696228026acb58091678484005e

Hashes allow computers to compare data. If hashes match, the source data must be identical. Hash functions cannot be reversed to discover anything about the input. This makes hashes useful for proving the existence and integrity of data while keeping the source confidential.

• hash_id & NTP timestamp

Chainpoint uses Network Time Protocol (NTP) to keep time synchronized with a worldwide network of atomic clocks. Chainpoint generates a unique identifier for each hash it receives.

This hash_id is an RFC 4122 Version 1 UUID which contains a high precision timestamp that reflects the NTP time. A hash_id is included in the cryptographic operations, thus the exact time Chainpoint received the hash is embedded in each proof.

• branches

Chainpoint proofs are organized into a tree. The hash serves as the root. Each branch contains a list of operations which terminates in an anchor; a claim that a value is published in an external system. Figure 4 contains three branches, calendar, ethereum, and bitcoin.

• operations (ops)

Operations are performed in sequence to verify a proof. Operations include left concatenate, right concatenate, and a set of hashing functions. Chainpoint can be extended to include additional operations.

The hash field of a Chainpoint proof is used as the starting value when performing operations. The result of each operation is used as the input for the next operation. Consider the following example which begins with an empty string (instead of a hash) as the starting value:

{

“l” : “chain”

},

{

“r” : “point”

},

{

“op” : “sha-256”

},

The above sample translates to: SHA256 (‘chain’ | ‘point’) resulting in c8c60e9c3c1e693e0b4ac9cd2da89c67df1b83d4a5a27be7baa841c11cfc7b09

Operations replay the calculations made when a hash goes through the proof generation process. A proof can be verified by executing the operations and checking each anchor for an expected hash value.

• NIST Randomness Beacon

In the movies, kidnappers provide “proof of life” by taking a photo of the victim holding a current newspaper. This proves the photo was taken after the newspaper was printed. The project’s team collaborated with the National Institute of Standards and Technology (NIST) to create an analogous technique to prove a Chainpoint proof was created after the hash_id is generated.

The NIST Randomness Beacon project, led by Dr. Rene Peralta, continues work started by Haber and Stornetta at AT&T Bell Labs in the 90’s. Each minute, the Randomness Beacon publishes a value created by a network of random number generators. Beacon values are generated by specialized hardware that ‘uses quantum effects to generate a sequence of truly random values, guaranteed to be unpredictable, even if an attacker has access to the random source.

Figure 5: A space-time diagram illustrating a locality-loophole-free Bell test

NIST Beacon data is included in every Chainpoint 3.0 proof. Since the random values are unknowable before they are published, we can assert that each Chainpoint proof:

• Should have a NIST timestamp earlier or equal to when a hash was received
• The NIST time should generally be within one minute of when a hash was received

This is the first time publicly verifiable data is being used to improve the accuracy of a blockchain timestamp proof.

• Calendar Anchor

The Chainpoint Calendar is similar to a hash calendar; it is a blockchain that is created and maintained by the participants of the Chainpoint Network. Each Chainpoint proof is anchored to this global calendar within seconds of hash submission. Once anchored to the global calendar, Chainpoint generates a partial proof, eliminating the need to wait for Bitcoin and Ethereum transactions to confirm.

{

“anchors” : [{

“type” : “cal” ,

“anchor_id” : “1027” ,

“uris” : [ “http://a.chainpoint.org/calendar/1027/hash” ]

}]

}

The Calendar also contains data for verifying Chainpoint proofs. Calendar data is mirrored by a distributed network of Chainpoint Nodes.

• Ethereum Anchor

The anchor hash is published in an Ethereum transaction in the data field. The ETH address is included in the Chainpoint proof.

{

“anchors” : [{

“type” : “eth” ,

“anchor_id” : “d3e7ec84c3dbe86f7d9a8ea68ae4ded6c0b012be519f433a07f15bd612fb47a9” ,

“uris” : [ “http://a.chainpoint.org/calendar/1048/data” ]

}]

}

• Bitcoin Anchor

The anchoring hash is included in OP_RETURN of a Bitcoin transaction. As a consequence, this value is included in the raw transaction body, allowing the transaction ID and the Merkle path from that transaction to the Bitcoin block’s Merkle root to be calculated.

Chainpoint waits for six confirmations after publishing an anchoring transaction, determines the Merkle path from the transaction id to the block’s Merkle root, and appends this data to the Chainpoint proof. This ensures proofs can be verified if OP_RETURN is pruned, or if a verifier has dataset that only contains block header data.

{

“anchors” : [{

“type” : “btc” ,

“anchor_id” : “434702” ,

“uris” : [ “http://a.chainpoint.org/calendar/1056/data” ]

}]

}

Chainpoint Proof Elements

The table below shows a complete list of Chainpoint 3.0 proof elements.

Name	Description
@context string, required	the JSON-LD context for the proof
type string, required	the JSON-LD type definition
hash string, required	hash value between 40 and 128 hex characters. Must be even length.
hash_id string, required	a Version 1 UUID with embedded timestamp. Random number used as MAC input. Timestamp represents server time (UTC) of hash submission.
hash_submitted_at string, required	Human readable ISO 8601 timestamp extracted from time embedded in the hash_id
branches – an array of branch objects. Branches can be nested without limit and MUST be traversed only after executing ‘ops’. (required only at root)
label string, optional	text string representing the branch name
ops array, optional	an array of operations objects. Operations are performed in sequence to arrive at an intermediate hash prior to entering a nested branch.
branches array, optional	nested array of branch objects. Each branch contains ops; labels and additional nested branches are optional.
ops – an array of operation objects (required under every ‘branches’ object)
l string, optional	left concatenate a value. If the value is a hexadecimal string, it will be read as a hexadecimal byte array, otherwise the string will be converted to its byte value assuming UTF-8 encoding.
r string, optional	right concatenate a value. If the value is a hexadecimal string, it will be read as a hexadecimal byte array, otherwise the string will be converted to its byte value assuming UTF-8 encoding.
op string, optional	an operation to perform on the current value combined with a previous ‘l’ or ‘r’ operation. Current operations: ‘sha-224’, ‘sha-256’, ‘sha-384’, ‘sha-512’, ‘sha3-224’, ‘sha3-256’, ‘sha3-384’, ‘sha3-512’, or the special purpose ‘sha-256-x2’ which applies ‘sha-256’ twice.
anchors – an array of anchor objects (required under every ‘ops’ object).
type string, required	one of ‘cal’ (Calendar), ‘btc’ (Bitcoin), or ‘eth’ (Ethereum) anchor types
anchor_id string, required	an identifier used to look up embedded anchor data. e.g. a Bitcoin transaction or block ID.
uris array, optional	an array of special purpose string URI’s, each of which can be used to look up and retrieve the exact hash resource required to validate this anchor. The URI MUST return only a Hexadecimal hash value as a string. The URI MUST also contain the ‘anchor_id’ value to lookup the URI resource. This strict requirement is to allow automated clients to retrieve and validate intermediate hashes when verifying a proof. The body value returned by the URI MUST be of even length and match the regex [a-fA-F0-9].

JSON-LD & Binary Formats

Chainpoint proofs are commonly used in their JSON-LD format, as seen in the many examples used throughout this document. The JSON-LD format makes proofs human readable and easy to integrate into other JSON-LD documents.

Chainpoint proofs can be converted to a binary format. The binary format uses MessagePack and zlib to substantially reduce the proof size. For example, a 5,098 byte JSON formatted proof is reduced by 72% to 1,442 bytes when converted to binary format.

Information on the Chainpoint binary format can be found at https://github.com/chainpoint/chainpoint-binary/.

Chainpoint Proof Generation

The following description approximates how each element interacts throughout the proof generation process.

Figure 6: Chainpoint proof generation process

Hash Submission

Submit a hash to a Chainpoint service. Each submission may contain 1 – 1,000 hashes. Hashes can be hex strings between 40 and 128 characters. This allows submission of common hash types such as SHA-1, SHA-256, and SHA-512. SHA-256 is encouraged. Chainpoint immediately returns a RFC 4122 Version 1 UUID with an embedded NTP timestamp that uniquely identifies each hash.

Hash Processing

The submitted hash is combined with the UUID to create a new hash. This mixing of data acts as a cryptographic nonce and ensures that Chainpoint processes unique hashes even when duplicate hashes are submitted.

Next, the hash is combined with the NIST Beacon data to create another new hash. This makes it possible to prove that the hash was submitted after the NIST Beacon values were published.

Hashes are then sent to an aggregation service.

Aggregation

Chainpoint periodically aggregates hashes into number of parallel Merkle trees. This hierarchical aggregation allows for handling of massive numbers of hashes. The Merkle root from each tree is periodically sent to the Chainpoint Calendar. A Merkle inclusion proof is generated for each hash and stored. These partial proofs are continually appended with new data throughout the proof generation process.

Calendar Consensus

The Calendar is a blockchain that is kept in consensus between multiple Chainpoint Servers. This ensures that a single global calendar blockchain can be used to verify Chainpoint proofs. Calendar data is organized into blocks. These blocks are stored as records in a distributed cluster of CockroachDB databases. Writes to the calendar are enforced by a leader election using a cluster of Consul servers.

Calendar Blocks

The Chainpoint Calendar periodically aggregates Merkle roots into a new Merkle tree. A new set of Merkle inclusion proofs is generated and appended to the existing partial proofs. The root of this Merkle tree is written to a calendar block.

Anchor Blocks

Calendar blocks are periodically anchored to the Bitcoin and Ethereum blockchain. This is done by publishing a transaction that commits an anchor block hash to a transaction on the blockchain.

Confirmation Blocks

Chainpoint monitors the blockchain. In the event each anchoring transaction receives a sufficient number of confirmations, a confirmation block is added to the Calendar. Each confirmation block contains the data needed to finalize each Chainpoint proof.

Proof Completion

After a confirmation block is written, Chainpoint appends partial proofs with the final data.

Worth noting is the fact that complete Chainpoint proofs are now available for retrieval.

Chainpoint Service Infrastructure

The Chainpoint Service is designed to run as a global network that operates at massive scale. The network involves the interaction of several classes of participants.

• Core:

Core is a network of partners that run the full Chainpoint Service stack, maintain the global calendar, and anchor data to the blockchain.

• Nodes:

Nodes provide additional scaling, mirror the global calendar, and audit Core. Each node that joins the network improves scalability and reliability. Anyone can become part of this distributed network by downloading the software and running a Node.

Chainpoint Clients

Clients can connect to a Node, or directly to Chainpoint Core via an API.

Figure 7: Chainpoint Service architecture diagram

Chainpoint Service Design Goals

• Scalable:

Chainpoint is designed for virtually unlimited scale. In contrast to other blockchain based systems, throughput increases as nodes are added to the network.

• Reliable:

Chainpoint is designed to have zero downtime and consistently return proofs in a predictable timeframe. Chainpoint Core is distributed across independent data centers and geographic regions to ensure availability and redundancy. Chainpoint Nodes form a decentralized network to create and verify Chainpoint proofs.

• Secure:

Anchoring allows Chainpoint to inherit the security properties of multiple blockchains. Modifying the Bitcoin or Ethereum blockchain would cost an attacker millions of dollars and becomes increasingly difficult over time.

• Economic Efficiency:

Chainpoint is designed to be inexpensive or free for most network participants. Increases in network throughput scale independently of blockchain transaction costs.

• Open:

Anyone can join the network by running a Chainpoint Node. Nodes mirror a copy of the calendar data and can independently verify the full chain.

• Chainpoint Core

Chainpoint Core is a network of partners that run the full Chainpoint Service stack to create and verify proofs, read and write to the global calendar, and perform anchoring operations. Each Core Member operates one or more clusters of servers. Each cluster is called a service cluster.

Figure 8: Chainpoint Core Member diagram

Core Members have the resources to run scalable systems with high availability and near zero downtime. The first three service clusters will be available at Chainpoint.org. Microsoft is first organization to join Core and will be hosting a service cluster.

Global Calendar

The Chainpoint Calendar is a blockchain that is created by Core and audited by Nodes. The calendar provides several benefits including:

• Reduced Costs:

One Core Partner anchors for everyone on the Chainpoint Network. A single transaction can be used to anchor millions of proofs. This makes Chainpoint inexpensive or free for most network participants.

• Faster Response:

The full proof generation process can sometimes exceed an hour due to variations in the time it takes to mine Bitcoin blocks. Each Chainpoint proof is anchored to the calendar within seconds of hash submission. Chainpoint then returns a partial proof that is automatically updated throughout the proof generation process. This eliminates the need to wait for Bitcoin and Ethereum transactions to confirm.

• Proof Verification:

The calendar provides a single source of data for verifying Chainpoint proofs. Anyone with the calendar data can fully verify every Chainpoint proof without having to run a Bitcoin or Ethereum node. You don’t have to worry about servers going offline and parts of your proof becoming impossible to verify. Those with advanced security requirements can cross check the calendar data with their own Bitcoin or Ethereum nodes.

• Auditability:

A global calendar makes it possible for anyone to audit Core and independently verify the validity and integrity of the chain. Each block is signed with a provider specific public key, and the chain is periodically anchored to Bitcoin and Ethereum.

Chainpoint Nodes

Each additional Node increases the total capacity of the network to create and verify proofs. Nodes are able to receive and process hashes, pass hashes up to Core, receive partial proofs from Core, and generate final proofs. Additionally, Nodes mirror a copy of the calendar and continually audit the chain.

• Node Operators

Anyone can join the Chainpoint Network by running a Chainpoint Node.

• Proof Generation

Each Node provides an HTTP API that is a subset of the Core API. Hashes submitted through this API are aggregated into their own Merkle tree at regular intervals. The Merkle root of that tree is submitted to Core. Each hash sent to Core may be used to generate thousands of proofs per Node. As such, each Node significantly increases the network’s capacity to generate proofs.

• Verification

Nodes store a local mirror of the global calendar in real time. This allows Nodes to provide the same proof verification API as Core. Every Chainpoint Node can fully verify every Chainpoint proof.

• Real-time Calendar Audit

Nodes mirror the calendar data in real-time. Nodes validate that each block in the chain is internally consistent, and signed with the public key of the Core Partner. Periodically, Nodes verify that the entire chain is valid all the way back to the genesis block and report these results to the network.

Economics

When Tierion was first released in June 2015, the cost of anchoring data into the Bitcoin blockchain was approximately $0.03 USD. By June of 2017, the cost of Tierion had increased by more than 100 times to $3.40 USD. Ethereum transaction fees are following a similar pattern.

Figure 9: Bitcoin and Ethereum transaction fees in $USD.

Rising transaction fees have made it too expensive for individual developers and most businesses to anchor data. Based on current market prices, anchoring one transaction every ten minutes to the Bitcoin and Ethereum blockchains costs $181,332 per year. These costs are projected to continue to rise.

The Tierion Network makes anchoring data economically viable for all. The Chainpoint Service scales to anchor a virtually unlimited amount of data with a minimal footprint on the blockchain.

Team & Investors

When taking a look at the viability of a project, it is really important to dig into the background of the core team members. The Tierion team seems to be quite an impressive mix of business and engineering experience. Tierion was co-founded by Wayne Vaughn, the organization’s Chief Executive Officer (CEO) and Jason Bukowksi, who is the Lead Developer.

Vaughn started his career in the mid-90s with a digital marketing agency and was responsible for creating one of the first SaaS marketing automation platforms. He is as well on the Advisory Board of Blockchain Capital.

Figure 10: The main team members of Tierion

Bukowski has been primarily involved in developing highly scalable software. He developed one of the very first real-time web analytics platforms and now serves as the Lead Developer for Chainpoint. The two are joined by VP of Engineering, Glenn Rempe, who is the principle architect of Tierion, as well as VP of Business Development Pierre Wolff and Head of Marketing Adam Evers.

There are as well a number of high profile companies in the blockchain space that have invested in Tierion. These are inclusive of the likes of blockchain capital, the Digital Currency Group, and Fenbushi Capital. The Digital Currency Group was founded by Barry Silbert and they are the owners of Coindesk, the largest media business in the crypto space.

Tierion Community

For a project that began in 2015 I wouldn’t call the Tierion community either large or strong. Probably that’s because Tierion never focused on building a community as they are more interested in selling their solution to other businesses. In any case, the Tierion blog hasn’t been updated in over a month, and on Twitter, where there are 17k followers of Tierion, there are gaps of 7-10 days between tweets.

The Tierion Reddit boasts just over 2,500 readers. The largest active group is on Telegram, where the team is also mist active, and there are currently 4,319 members of the Telegram group.

The TNT Token

The Tierion Network Token (TNT) incentivizes network participants to operate and secure the network infrastructure. Chainpoint is the first service available on the Tierion Network. The team plans for future services that will be built on top of Chainpoint and will announce these services in the future.

 

Tierion conducted its ICO in July 2017, with a hard cap of $25 million USD. That was a pretty ambitious figure at the time, but it took just 1 day to meet the $25 million USD hard cap, with 350 million of the total supply of 1 billion TNT tokens sold for $0.0710 USD each. An additional 350 million were kept as future incentives to the ecosystem, 290 million were retained by Tierion, and 10 million were used to cover the cost of the token sale.

Anyone can earn TNT tokens by running a node. These node operators receive TNT as a reward for securing the network and improving its scale and reliability. TNT tokens will additionally be used to access network services such as Chainpoint and the upcoming Proof.

TNT tokens rallied immediately following the ICO, with the price nearly reaching $0.23 USD by late August 2017. The price then dropped all the way to $0.047 USD by October and November, which was surely disappointing for the ICO investors. They got a second chance, however, when TNT rocketed higher in December along with the broader cryptocurrency markets.

The token hit its all-time high of $0.445170 USD on January 8, 2018 and has since headed steadily lower until the beginning of February 2019, where it trades at just $0.014759 and is ranked #303 by market cap on Coinmarketcap.com.

If you aren’t interested in running a node but still want to hold some TNT tokens you can buy them on several exchanges. Binance is by far the largest, and controls nearly all the trading volume in TNT. There is also a very small trading volume on Huobi Global, and the token is listed on quite a number of other exchanges, but there is no trading volume to speak of at these smaller exchanges.

TNT is an ERC-20 compatible token, so any wallet that supports ERC-20 tokens can be used for storing TNT, i.e., MyEtherWallet, MyCrypto, Mist and MetaMask.

Core Members

Core Members incur significant costs to operate server clusters. TNT provides a method to recoup these costs. Core Partners earn TNT for anchoring data into the Bitcoin and Ethereum blockchains. Periodically, Core’s consensus algorithm elects a leader that can create an anchor block, which requires them to spend BTC or ETH to publish a transaction. The Core Member that creates the anchor block receives a block reward, as well as the tokens paid to Core for that anchor block.

Nodes

Nodes earn TNT by mirroring a copy of the calendar and publishing an API endpoint for proof creation and verification. Nodes are periodically audited to prove they have a current copy of the calendar that can be used to verify a Chainpoint proof. Nodes that pass the audit have a chance to win the reward for that period.

Periodically, nodes spend TNT to send data to Core for anchoring. Each node has a local mechanism for constructing Merkle trees and generating proofs. By sending a Merkle root upstream, each node can create thousands of Chainpoint proofs using a single anchoring transaction.

Nodes may charge for generating and verifying proofs. Node operators can additionally build services and charge at a price that is independent of the value of TNT.

A fixed supply of TNT will be created during a token sale using the ERC20 standard. The token sale and the organization’s partner commitments guarantee that for the first year, users will be able to send limited amounts of data to Core at zero cost.

Tierion Product & Traction

To get a sense of just how much work is being done on a project it immensely helps to take a look into their GitHub. Notably, this is generally a rough reflection of how much code is being pushed and committed by the developers.

In the case of Tierion, there are two GitHub pages of interest. These are the Tierion project and that of Chainpoint. Taking a deeper look at the code commits, it is quite clear that the Chainpoint one has had the most activity of the two. Below are the commits of the most active Chainpoint repositories.

Figure 11: Code Commits over past 12 months for most active repos

While this is a good sign that the project is still working on their protocols, there is way less activity than in other projects that we have seen in the space. For example, the project currently ranks at 297th in code tracking sites.

Needless to say, there could be other reasons for the relatively low levels of activity. Perhaps the protocols are already well developed and are just being maintained. The Tierion team is also busy working on other projects like the Proof application.

This application is due to be launched sometime in the next few months so it will be interesting to see exactly what the technology entails and whether it can really entice enterprise and business clients.

Roadmap

The original version of Tierion has a nearly two year track record and has been used by thousands of organizations. The application will continue to operate. Current customers will be able to migrate to a new version of Tierion.

The Tierion Network and Chainpoint Service have been operating in private beta with the organization’s partners. An open beta is planned to launch in August, which marks the two year anniversary of Tierion’s launch. Microsoft’s infrastructure is planned to come online shortly thereafter.

Concerns

• The hard cap of $25 million is relatively high in today’s market environment.
• Right now, one of Tierion’s key advantages is the low cost compared to other solutions with costs correlated with transaction fees on public Blockchain (for example, Bitcoin). With the Bitcoin scaling debate finally getting over, it is anticipated that Bitcoin transaction fees will decline, at least in the short-term after the upgrade. This may make Tierion’s solutions less attractive.

Conclusion

With several years under its belt and key partnerships with several global technology companies, it looks like Tierion is positioned well for the future. Tierion was the first company to make it possible to anchor data to the blockchain in a scalable fashion, which should lead to applications across a wide variety of industries.

While the community behind Tierion doesn’t seem too active and remains small, it isn’t a large community that the company is after. Rather it has focused on partnering with companies who can use the technology, and plans on growth by that route.

While some people might be concerned about the drop in price for the TNT token, it is worth noting that the entire cryptocurrency ecosystem has been in a year-long bear market. Once the bear market dissipates and the Tierion ecosystem grows larger, we should see a commensurate rise in the price of TNT.

Overall, it looks like a solid project that has been able to deliver and is ready to move into the future as a supporting blockchain across nearly every industry.

For Short-term Holding:

Good. Taking into keen consideration Tierion’s partners and advisors, it shouldn’t be difficult for the ICO to reach hard cap quickly. From the Telegram channel, it looks like the presale is already over-subscribed. Fenbushi Capital has as well announced that it will participate in the token sale.

It is ambiguous when the tokens will be distributed, but according to this blog post, it shouldn’t be too long.

For Long-term Holding:

Good. As mentioned above, Tierion is a growing startup with a 2-year track record. The close partnerships with Microsoft and Philips would improve significantly the odds that Tierion will be successful.

Abstract

Just like how the 56Kbps dialup Internet in the 90s cannot possibly support 4K video streaming, the insufficient scalability of today’s blockchain is the key factor limiting its use cases. Current blockchains have low throughput because each operation needs to be processed by the vast majority of nodes to reach on-chain consensus, which is precisely “how to build a super slow distribution system”. Ironically, the on-chain consensus scheme also leads to poor privacy as any node can see the full transaction history of one another. While new consensus algorithms keep getting proposed and developed, it is hard to free on-chain consensus from its fundamental limitations.

Off-chain scaling techniques allow mutually distrustful parties to execute a contract locally among themselves instead of on the global blockchain. Parties involved in the transaction maintain a multi-signature fraud-proof off-chain replicated state machine, and only resort to on-chain consensus when absolutely necessary (for instance, in the event two parties disagree on a state). Off-chain scaling is the only way to support fully scale-out decentralized applications (”dApps”) with better privacy and no compromise on the trust and decentralization guarantees. It is the inflection point for blockchain mass adoption, and will be the engine behind all scalable dApps (decentralized applications).

Celer Network is an Internet-scale, trust-free, and privacy-preserving platform where everyone can quickly build, operate, and use highly scalable dApps. It is not a standalone blockchain but a networked system running on top of existing and future blockchains. It provides unprecedented performance and flexibility through innovation in off-chain scaling techniques and incentive-aligned cryptoeconomics.

Celer Network embraces a layered architecture with clean abstractions that enable rapid evolution of each individual component, including a generalized state channel and sidechain suite that supports fast and generic off-chain state transitions; a provably optimal value transfer routing mechanism that achieves an order of magnitude higher throughput compared to state-of-the-art solutions; a powerful development framework and runtime for off-chain applications; and a new cryptoeconomic model that provides network effect, stable liquidity, and high availability for the off-chain ecosystem.

Introduction

A good number of modern economic activities elementally entail the flow and exchange of information and value. Over the past two centuries, the transfer of information has evolved from discrete events through pigeon networks to continuous flows through the speed-of-light Internet. Be that as it may, the value transfer portion is far from light speed and is still very much discrete events controlled by segregated financial silos. This mismatch creates a devastating bottleneck in economic evolution: no matter how fast information flows, the expensive and slow value transaction is limiting the productive exchange of the two.

Essentially, a revolutionary abstraction of trust among distrustful parties that results in an incentive-aligned distributed consensus, blockchain technology offers the foundation to dismantle segregated financial silos and dramatically expand the scope and freedom of global value flows. In practice, nonetheless, blockchain is deviating further away from the speed-of-light vision due to its low processing power compared to traditional value transfer tools. Scalability is a fundamental challenge that is hindering mass adoption of blockchain technology.

The CELER network team envisions a future with decentralized ecosystems where people, computers, mobile and Internet-of-Things (”IOT”) devices are able to carry out secure, private, and trust-free information-value exchange on a massive scale. To realize the latter, blockchains should match the scale of the Internet and support hundreds of millions or billions of transactions per second. However, given the processing speed of existing blockchains (i.e., a few or tens of transactions per second), is it really possible to bring the scale of the Internet to blockchains? The answer is yes but only with off-chain scaling.

While on-chain consensus is the foundation of blockchain technology, its limitations are also obvious. In a sense, consensus is the opposite of scalability. For any distributed system, if all nodes need to reach consensus on every single transaction, its performance will be no better (in fact, much worse due to communication overhead) than a centralized system with a single node that processes every transaction, which means the system is eventually bottlenecked by the processing power of the slowest node.

On-chain consensus also has severe implications on privacy, because all transactions are permanently public. A few on-chain consensus improvements have been proposed including sharding and various Proof-of-X mechanisms. They make the blockchain relatively faster with different tradeoffs in performance, decentralization, security, and finality, but cannot change the fundamental limitations of on-chain consensus.

To enable Internet-scale blockchain systems with better privacy and no compromise on trust or decentralization, we have to look beyond on-chain consensus improvements.

The core principle to design a scalable distributed system is to make operations on different nodes mostly independent. This simple insight shows that the only way to fully scale out decentralized applications is to bring most of the transactions off-chain, avoid on-chain consensus as much as possible and use as a last resort. Related techniques include state channel, sidechain, and off-chain computing Oracle. Despite its high potentials, off-chain scaling technology is still in its infancy with quite a number of technical and economic challenges remaining unresolved.

To enable off-chain scaling for prime-time use, the project’s team proposes Celer Network1, a coherent architecture that brings Internet scale to existing and future blockchains. Celer Network consists of a carefully designed off-chain technology stack that achieves high scalability and flexibility with strong security and privacy guarantees, and a game-theoretical cryptoeconomic model that balances any new tradeoffs.

Simply put, the Celer Network project is intended to enable developers to quickly build and operate highly scalable decentralized applications. They join a long list of companies that are trying to achieve similar ends. Celer Network is also quite well known as they are completing their ICO on the Binance Exchange Launchpad.

However, should the project be considered given the number of competing solutions?

In this Celer Network review we will give you everything you need to know about the project including its technology, roadmap and team members. We will as well analyze the long term potential of the CELR tokens.

Celer Technology Stack

As a comprehensive full-stack platform that can be built upon existing or future blockchains, Celer Network encompasses a cleanly layered architecture that decouples sophisticated off-chain platform into hierarchical modules. This architecture greatly simplifies the system design, development, and maintenance, so that each individual component is able to easily evolve and adapt to changes.

A well-designed layered architecture should have open interfaces that enable and encourage different implementations on each layer as long as they support the same cross-layer interfaces. Each layer only needs to focus on achieving its own functionality.

Inspired by the successful layered design of the Internet, Celer Network adopts an off-chain technology stack that can be built on different blockchains, named cStack, which compromises of the following layers in bottom-up order:

• cChannel: generalized state channel and sidechain suite.
• cRoute: provably optimal value transfer routing.
• cOS: development framework and runtime for off-chain enabled applications.

Celer architecture provides innovative solutions on all layers. Below we highlight the technical challenges and features of cChannel, cRoute, and cOS.

• cChannel

This is the bottom layer of Celer Network that interacts with different underlying blockchains and provides the upper layer with a common abstraction of up-to-date states and bounded-time finality. cChannel uses state channel and sidechain techniques, which are both cornerstones of off-chain scaling platforms.

A state channel allows mutually distrustful parties to execute a program off-chain and quickly settle on the latest agreed states, with their security and finality guaranteed by on-chain bond contracts. It was initially introduced by Lightning Network to support high-throughput off-chain Bitcoin micropayments. Since the introduction of Lightning Network, there have been several research works that addressed various problems in the context of payment channel networks, such as routing, time lock optimization, and privacy. Nonetheless, off-chain network is still in its early stage, facing a few major challenges in terms of modularity, flexibility, and cost efficiency.

cChannel meets current challenges by offering a set of new features.

• Generic off-chain state transition:

Off-chain transactions can be arbitrary state transitions with dependency DAG. This allows Celer Network to support complex high-performance off-chain dApps such as gaming, online auction, insurance, prediction market and decentralized exchanges.

• Flexible and efficient value transfer:

Multiple state channel and sidechain constructions with different tradeoffs on efficiency and finality are provided to support fast value transfer with generic condition dependency, minimal on-chain interactions, and minimal fund lockup.

• Pure off-chain contract:

Any contract that is not directly associated with on-chain deposits does not need any on-chain operation or initialization unless a dispute is triggered. Every pure o↵-chain contract or object has a uniquely identifiable off-chain address, and only needs to be deployed on blockchains when necessary with an on-chain address assigned by the built-in off-chain address translator.

• cRoute:

Celer Network is a platform for highly scalable dApps, designed to support high-throughput value transfer. Off-chain value transfer is a key requirement of many off-chain applications. While Celer Network is capable of supporting dApps beyond payment solutions, it additionally brings about groundbreaking improvements to off-chain payment routing as it directly determines how much and how fast value can be transferred within the ecosystem.

All of the existing off-chain payment routing proposals boil down to conventional “shortest path routing” algorithms, which may achieve poor performance in an off-chain payment network due to the fundamental differences in the link model. The link capacity of a computer network is stateless and stable (i.e., not affected by past transmissions). Nevertheless, the link capacity of an off-chain payment network is stateful (i.e., determined by on-chain deposits and past payments), which leads to a highly dynamic network where the topology and link states are constantly changing. This makes conventional shortest path routing algorithms hard to converge, and thus yields low throughput, long delays, and even outages.

To counter this fundamental challenge, Celer Network’s payment routing module, cRoute, introduces Distributed Balanced Routing (DBR), which routes payment traffic using distributed congestion gradients. Highlighted below are a few unique properties of DBR.

• Provably optimal throughput:

The Celer Network team has proved that for any global payment arrival rate, if there exists a routing algorithm that can support the rate, then DBR can achieve that. Their evaluation shows that DBR achieves 15x higher throughput and 20x higher channel utilization ratio2 compared to state-of-art solutions.

• Transparent channel balancing:

“Keeping the channels balanced” has been the team’s goal since the proposal of Lightning Network. However, existing attempts in channel balancing comprise heuristics that require heavy on-chain or off-chain coordination with poor guarantees. DBR embeds the channel balancing process along with routing and constantly balances the network without requiring any additional coordination.

• Fully decentralized:

The DBR algorithm is a fully decentralized algorithm where each node only needs to “talk” to its neighbors in the state channel network topology. DBR’s protocol also lowers messaging cost.

• Failure resilience:

The DBR algorithm is highly robust against failures: it can quickly detect and adapt to unresponsive nodes, supporting the maximum possible throughput over the remaining available nodes.

• Privacy preserving:

The DBR algorithm can be seamlessly integrated with onion routing to preserve anonymity for sources/destinations. Due to its multi-path nature, the DBR algorithm naturally preserves the privacy regarding the amount of transferred value, without using any additional privacy-preserving techniques (e.g., ZKSNARK).

• cOS:

An on-chain dApp is simply a frontend connecting to the blockchain. Off-chain dApps, though with great potentials for high scalability, are not as easy to build and use as the traditional on-chain dApps. Celer Network introduces cOS which is a development framework and runtime for everyone to easily develop, operate, and interact with scalable off-chain dApps without being bogged down by the additional complexities introduced by off-chain scaling. Celer Network allows developers to concentrate on the application logic and create the best user experience, with the cOS dealing with the heavy lifting including the following tasks:

• Figure out the dependency between arbitrary off-chain and on-chain states.
• Handle the tracking, storage, and dispute of off-chain states.
• Tolerate intermediate node failures transparently.
• Support multiple concurrent off-chain dApps.
• Compile a unified implementation to different on-chain and off-chain modules.

Celer Cryptoeconomics

Celer Network’s cryptoeconomic mechanism, cEconomy, is designed based on a fundamental principle: a good cryptoeconomic (token) model should provide additional values and enable new game-theoretical dynamics that are otherwise impossible. While gaining scalability, an off-chain platform is also making tradeoffs on network liquidity and state availability, and it will never take off without a cryptoeconomic model that can enable new dynamics to balance out these tradeoffs.

New tradeoffs:

An off-chain platform gains scalability by making the following tradeoffs.

• Scalability vs. Liquidity:

Off-chain value transfer requires deposits to be locked on-chain as network liquidity. This is especially challenging for potential off-chain service providers, because a significant amount of liquidity is needed to provide effective off-chain services for global blockchain users, either as outgoing deposits in state channels or fraud penalty bond in sidechains. Be that as it may, holders of a large number of crypto assets (whales) may not have the business interest or technical capability to run an off-chain service infrastructure, while people who have the technical capability of running a reliable and scalable off-chain service often do not have enough capital for channel deposits or fraud-proof bonds. Such a mismatch creates a huge hurdle for the mass adoption and technical evolution of off-chain operating networks.

• Scalability vs. Availability:

While off-chain scaling does not make any compromise on the trust-free property of the blockchain, it does sacrifice the availability guarantee. Each state channel or off-chain contract is associated with a dispute timeout, and the involved party will be at risk when staying off-line longer than the timeout, or when the local states are lost.

Therefore, we need an incentive-compatible mechanism to provide sufficient liquidity for entities which are capable of running a reliable and scalable off-chain service infrastructure, and to guarantee that the off-chain states are always available for possible on-chain dispute.

New Cryptoeconomics:

To complete the off-chain scaling solution, Celer introduces a suite of cryptoeconomic mechanisms, referred to as cEconomy, that brings indispensable value and provides network effect, stable liquidity, and high availability through the Celer Network’s protocol token (“CELR ”) and three tightly coupled components, as discussed below:

• Proof of Liquidity Commitment(PoLC) Mining:

The team’s first goal entails balancing out the scalability-liquidity tradeoff by lowering the liquidity barrier for technically capable parties to become off-chain service providers and as such contriving an efficient and competitive market for good and reliable off-chain services.

The gist of the idea is to capacitate service providers to tap into large amounts of liquidity whenever they need to. The first part to realize this idea is to provision an abundant and stable liquidity pool that can smooth out short-term liquidity supply fluctuation.

To that end, the team proposes the Proof of Liquidity Commitment (PoLC) virtual mining process.

From a high level, the PoLC mining process is to incentivize Network Liquidity Backers (NLB) to lock in their liquidity (which can be in the form of digital assets, including but not limited to cryptocurrencies and CELR) in Celer Network for a long time by rewarding them with CELR tokens and therefore establishing a stable and abundant liquidity pool.

More specifically, the mining process involves NLBs to commit (lock) their idle liquidity (for example, ETH) to a “dumb box”, called Collateral Commitment Contract (CCC), for a particular period of time. During this period of time when the digital assets are locked, the NLB’s assets can only be used in the liquidity backing process and nothing else. More formally, the PoLC mining process can be defined as the following:

• Definition 1 (PoLC Power):

In the event NLB i locks Si amount of local cryptocurrency in a blockchain (e.g. ETH) for Ti time, its PoLC power, Mi, is computed as:

Mi = Si ⇥ Ti.

• Definition 2 (PoLC Incentive Mechanism):

For a limited period of time, Celer Network intends to provide incentives in the form of CELR to NLBs who lock their CCC (Collateral Commitment Contract) as a show of support for the system. Incentives will be distributed proportional to each NLB’s PoLC power. Let Ri denote the incentives of i, one has:

where R is the total reward for the current block.

Note that locking liquidity in CCC does not carry any inherent counterparty risk as it simply shows a liquidity commitment to Celer Network. In addition, note that early unlocking of CCC is not allowed. One may try to create a “spoofed liquidation” with an appearance of one’s CCC getting liquefied due to “hacking” of a faked OSP. To avert this spoofing, the newly mined CELR is not available for withdrawal and usage until CCC unlocks. Any early liquidation will cause the already mined CCC to be forfeited and redistributed to other miners. The construct of a common denominator of liquidity in PoLC is also an important question. For the initial launch of the platform, the team intends to use the native currency of the target blockchain and later use more heterogeneous crypto assets through external price oracles.

With these mechanisms in place, the PoLC mining process ensures that the PoLC power in the system will grow as the system and utility of the CELR grows, forming a positive loop.

At this point, one may wonder why CELR is so valuable that it can serve as such an incentive. Well, this is explained in the following sections describing Liquidity Backing Auction and State Guardian Networks.

• Liquidity Backing Auction (LiBA):

The second part for solving the liquidity puzzle is to forge a way for off-chain service providers to access to liquidity pool globally, which is realized through the Liquidity Backing Auction (LiBA). LiBA capacitates off-chain service providers to solicit liquidity through “crowd lending”. In essence, an off-chain service provider starts a LiBA on Celer Network to “borrow” a certain amount of liquidity for a certain amount of time.

An interested liquidity backer is in a position to submit a bid that contains the interest rate to be offered, the amount of liquidity and the amount of CELR that they are willing to stake for the stipulated period of time. The amount of liquidity can be submitted via a CCC (Collateral Commitment Contract). That is, CCC has the functionality to serve as a liquidity backing asset. The borrowed liquidity will be used as a fraud-proof bond or outgoing channel deposit.

LiBA is a generalized multi-attribute Vickrey-Clarke-Groves (sealed-bid secondscore) auction. To initiate an auction process, an OSP (Open Settlement Protocol) creates a standard LiBA contract through the Celer Network’s central LiBA registry with information regarding the total amount of requested liquidity (q), duration of the request (d) and the highest interest rate (rmax) that it can accept. NLBs who watch the registry will notice this new LiBA contract and can start the bidding process. Celer Network requires all crypto assets to be locked in CCC for the bidding process.

Notably, CCC can be “lock-free” and simply used as a backing asset without the functionality of PoLC mining. CCC acts as a container for crypto assets and provides a unified verifiable value of heterogeneous crypto assets. What’s more, the use of CCC makes it easier for NLBs to participate in LiBA without moving crypto assets around every time they bid and, as such, simplifies the backing process and improves security. NLB i submits the bid in the form of a tuple bi = (ri, ti, ci), where ri is interest rate, ti is the total amount of CELR it is willing to lock up during the contract time and ci is the aggregate currency value contained in the set of CCCs bonded with this bid. The moment the bid is submitted, the corresponding CCCs are temporarily frozen. After sealed bidding, the LiBA contract uses reverse second-score auction to determine winning bids with the following three steps.

• (Scoring Rule):

For each bid bi = (ri, ti, ci) in the bid set β = {b1, b2, …, bn} with fi = , its score si is calculated as follows:

where fmax = max{f1, f2, …, fn} and rmax = max{r1, r2, …, rn}. w1 and w2 are weights for the two components and are initially to ensure we take into account an interest rate with higher weight and then take into account the amount of staked CELR.

• (Winner Determination):

To determine who has the chance of becoming the network liquidity backer, the LiBA contract sorts the bids in B in descending order by their scores. The sorted bid set is denoted by:  where,

Winners are the first K bids in β*, where

• (Second-Score CELR Staking/Consumption).

After winners are determined, their CCCs will be locked in the LiBA contract for time d (the duration of the request), their interest requests are accepted and interests are prepaid by the OSP initiating the liquidity request. Nevertheless, it is important to note that not all of their committed CELR are locked, or rather consumed in this contract. Each winner only needs to lock up or consume enough CELR so its score matches the score of the first loser in this auction. Whether the token will be locked or consumed is contingent upon the stage of the platform. In the first 5 years, new tokens will be generated through PoLC mining and LiBA only requires token staking. In the event the PoLC mining concludes, LiBA will start to consume tokens and the consumed tokens will be injected into the system as continuous PoLC mining rewards. Note that under the second-score CELR staking/consumption mechanism, the participants are projected to submit bids matching their true valuation (truthfulness) of the good (in this case, the opportunity to back the network liquidity). Below is an example extracted from Celer Network’s whitepaper:

Assume that an OSP initiated a LiBA with the following parameters (600 ETH, 30 days, 1%) and there are three potential bidders (let’s say A, B, and C) for this LiBA. The three bidders’ bids are b_A = (1%, 800 CELR, 400 ETH); b_B= (0.5%, 800 CELR, 200 ETH); b_C = (1%, 100 CELR, 400 ETH). According to the scoring rule, we have s_B > s_A > s_C. Since A and B can fill the entire request, they are selected as winners. It should be noted that even though A and C have the same interest rate (1%) and provide the same amount of liquidity (400 ETH), bidder A is selected as a winner while bidder C loses; this is due to the fact that their committed CELR tokens, as a symbol of their contributions to this platform, are significantly different. Finally, according to the second-score staking rule, A and B lock (or consume) their CELR tokens to match the score of C for 30 days.

After the auction process finishes, the OSP who initiated the liquidity request pays the interests to the wining liquidity backers by depositing into the LiBA contract.

Upon receiving the payment of interests, the LiBA contract then gives the interests to the corresponding liquidity backers and issues 1:1 backed cETHs (using ETH as an example) that match the liquidity request amount. Although cETH is essentially an IOU, it brings no risk to the user as these IOUs are 100% insured by the network liquidity backers in the LiBA contract.

In normal cases, the LiBA contract is resolved before the timeout when the OSP sends back all the cETH tokens. Basically, before the timeout, the OSP will settle all paid cETHs to EUs with real ETHs by withdrawing from upstream channels collectively.

In the case where the OSP may get hacked, Celer Network’s trust model can vary. The simplest trust model without any protocol-level overhead is reputation-driven, where NLBs choose a reputable OSP without any history of default. In this simple model, NLBs are exposed to the risk of losing funds and assets as their CCCs are insurances for the EUs if the OSP defaults. Be that as it may, it is arguable that even in this simple trust model, operating a highly reliable and reputable OSP is possible; it is very unlikely that all backings will be lost. There are additional security features which may be added around LiBA to further alleviate the potential risk. For instance, newly issued cETHs are only allowed to be deposited to a whitelist of state channel contracts; cETHs are only allowed to be used incrementally with an upper bound spending speed. There are as well an abundance of things an OSP can do to maintain a secure infrastructure such as compartmentalized multi-node deployment, formal verification of security access rule of network infrastructure and more.

In addition, the team enables an advanced security model in which case a randomly selected quorum of NLB will need to co-sign an OSP’s operations (e.g. payment). These NLBs will only allow an outgoing transfer if and only if they see an incoming transaction with a matching amount. These NLBs are also tethered to the incoming payments of OSP. On the assumption an OSP fails to make the repayment eventually, NLBs will have the first-priority right to claim the incoming funds to OSP from other channels. However, it is worth noting that this operation model will inevitably tradeoff some efficiency of the network. Consequently, the team believes that the ultimate balance in the trust model should be defined by the market demand. They open both trust model for the market to organically evolve. The team envisions that the trust-free model will be more favorable in the early days of network launch and then it will become more trust-based.

Regardless of the LiBA’s trust model, the team highlights that the LiBA process ensures that end users never take any security risk as the required liquidity is 100% “insured” by the LiBA contract. The team strives to make sure that the benevolent end users do not need to worry about the security of their received fund and LiBA achieves that. PoLC and LiBA together incentivize an abundant liquidity pool, lower the barrier of becoming an off-chain service provider, reduce centralization risk, and accelerate network adoption.

Simply put, LiBA enables off-chain service providers to solicit liquidity through “crowd lending” with negotiated interest rates. Lenders are ranked according to their “happiness scores” that are determined by the interest rate, the amount of provisioned liquidity and the amount of staked CELR. Notably, lenders who stake more CELR (as an indicator for their past contributions to the ecosystems) have higher chances of being selected to provide liquidity to off-chain service providers.

• State Guardian Network (SGN):

Another usage of the CELR token entails providing off-chain data availability with a novel insurance model and simple interactions, which balances out the scalability-availability tradeoffs as earlier mentioned.

From the surface, the availability problem seems to be an easy one to solve. One possible answer to that question might be: assuming the team buildz some monitoring services in the future and people will pay for these monitoring services when they are offline. It feels like a reasonable solution at first look, but we drive this train of thought just a little bit forward, we will immediately see track-wrecking flaws.

Let’s start with this question: are these monitoring services trust-based? If the answer is yes, then it creates another centralized choking point, single point of failure and is just not secure. Malicious counterparty can easily bribe these monitoring services to hurt benevolent end users.

Is the team able to construct a monitoring service that is trust-free? For instance, they may punish the monitoring service providers if they fail to defend the states for the users.

However, when delving into this idea, we immediately see some caveats that render this approach impractical. How much penalty should monitoring service providers pay?

Ignoring the frictions, the total penalty bond for monitoring service providers ought to be equal to the largest potential loss incurred to the party that went online.

This effectively doubles the liquidity requirement for an off-chain network because whenever someone goes online, in addition to the existing locked liquidity in channels or fraud-proof bond in sidechains, monitoring service providers also need to lock up a similar amount of liquidity as penalty deposits.

Worse, the monitoring service providers need to retain different assets for a variety of monitoring tasks and things can get really complicated on the off chance the involved states are complex and multiple assets classes are in play. Sometimes, there is not even a straightforward translation from state to the underlying value, given all the complex state dependency for generalized state channels.

Even with plentiful liquidity, the “insurance” model here is really rigid: it is basically saying that you get X% back at once if the monitoring service providers fail to defend your states. If you choose a large value of X, it can become really expensive due to the additional liquidity locking, but if you choose a small value of X, it can become really insecure.

On top of these disadvantages, it is unclear the manner by which the price of state monitoring services should be determined as market information is still segregated with low efficiency. This low efficiency and the per-party bond on heterogeneous assets will further bring about complicated on-chain and o↵-chain interactions with monitoring services and smash the usability of any off-chain platform. There are more issues, but the above mentioned are already bad enough.

To solve these issues, the Celer Network team proposes State Guardian Network (SGN). State Guardian Network refers to a special compact side chain to guard off-chain states when users are online. Holders of the CELR token are in a position stake their CELR into SGN and become state guardians. Before a user goes online, they can submit their state to SGN with a stipulated fee and ask the guardians to guard their state for a particular period of time. A number of guardians are then randomly selected to be responsible for this state based on state hash and the “responsibility score”. The detailed rules for selecting the guardians are as follows:

• (State Guarding Request):

A state guarding request is a tuple η_i = (s_i, l_i, d_i) where s_i is the state that should be guarded, li is the amount of service fee paid to guardians and di is the duration for which this state should be guarded.

• (Responsibility Score):

The responsibility score of a state guarding request η_i is calculated as:

A user’s Responsibility Score is essentially the income flow generated by this user to the SGN.

• (Number of guardian stakes):

Given a set of outstanding state guarding request R = {η₁, · · · , η_m}, the number of CELR at stake for each request η_i  R is

where K the total number of CELR stakes that guardians stake in the SGN. In other words, the amount of responsible CELR staked is proportional to the ratio between this requests responsibility score to the sum of all outstanding states responsibility scores.

• (Assignment of guardian stakes):

Given a state guarding request η₁, let h_i be the hash value for the corresponding state s_i (e.g., Keccak256 hash). Each CELR stake k is associated with an ID p_k (which is also a hash value). Let l(g₁, g₂) be the distance between two hash values g1 and g2 (for instance, the distance measure used in Chord DHT). Then CELR stakes are sorted in ascending order by their distance to the hash value h_i. Suppose that

The first η_i CELR stakes that have the smallest distance are selected, and the corresponding stake owner will become the state guardian for this request.

(State Guarding Service Fee Distribution):

For each state guarding request η_i = (s_i, l_i, d_i), the attached service fee l_i is distributed to state guardians according to the following rule. For each state guardian j, let zj be the amount of his/her staked CELR that were selected for this state guarding request. Then the service fee that guardian j gets from state guarding request η_i is:

Note that each staked CELR has the same probability of being selected for a state guarding request. As a result, from the view of an SG, the more CELR staked in SGN, the more of such SG’s stakes will be selected in expectation (i.e., the value of zj will be larger), thus the amount of service fees that he will receive will increase. That affords CELR significant value as a membership to the SGN.

(Security and Collusion Resistance):

Each guardian is assigned a dispute slot based on the settlement timeout. If the guardian fails to dispute its slot when it ought to, subsequent guardians can report the event and get the failed guardian’s CELR stake. As a result, as long as at least one of the selected guardians are not corrupted and fulfills the job, an end user’s state is always safe and available for dispute.

The SGN mechanism also brings in the following additional values:

• It does not require significant liquidity lock-up for guardians.

Guardians are only staking their CELR which can be used to guard arbitrary states regardless of the type/amount of the underlying value/tokens.

• It provides a unified interface for arbitrary state monitoring.

Regardless of whether the state is related to ETH, any ERC20 tokens or complicated states, the users would just attach a fee and send it to SGN. SGN does not care about the underlying states and involved value, and simply allocates the amount of CELR proportional to the fee paid to be responsible for the state.

• It enables simple interactions.

Users of Celer Network do not need to contact individual guardians and they only need to submit states to this sidechain.

• Most importantly, it enables an entirely new and flexible state guarding economic dynamics.

Rather than forcing the rigid and opaque “get X% back” model, SGN brings users a novel mechanism to “get my money back in X period of time” and an efficient pricing mechanism for that fluid insurance model. On the assumption that all guardians at stake fail to dispute for a user, the user will get the CELR stakes from these guardians as compensation. In steady state, CELR tokens that are staked in the SGN represent an incoming flow (e.g., earning x Dai/second).

Ignoring the cost of state monitoring and other frictions, on the off chance a user submits the state to SGN, she can choose explicitly how much CELR is “covering” for her state by choosing fees paid per second (i.e., the responsibility score).

In summary, SGN is a special compact sidechain that guards the states when users are online so that the users’ states are always available for dispute. Guardians need to stake their CELR into SGN to earn guarding opportunities and service fees from the users.

The CELR Token

The upcoming Initial Coin Offering (ICO) on Launchpad will be selling the CELR token, which is the native token for the Celer Network. There is a total supply of 10 billion CELR and nearly 6% of the tokens will be available in the ICO, with pricing at $0.0067 for each token.

There is a hard cap of $1,500 USD per account, and the tokens can only be purchased with Binance’s BNB tokens. While the ICO is planned for March 19 through March 24, it is likely that it will sell out within hours of the previous Fetch and BitTorrent ICOs on Launchpad are any guide.

You can see the breakdown of the distribution of funds from the ICO. The Binance Launchpad sale is only a small percentage of the funds and there were two previous fund raising rounds that took place which saw the distribution of a sizable portion of the coin supply.

Token distribution split for Celer ICO. Image via Binance Launchpad

There was a seed sale of tokens for 11.5% of the CELR and a private sale for a further 15.5%. In terms of the vesting period, they are 10 months for the former and 3 months for the latter. Hence, you are unlikely to see much selling pressure at least for the first three months of the project.

There are various uses being planned for the CELR token, from adding value for users to providing network security and stability. Of course it will be used as a platform currency, but it is also planned to have the following additional uses:

• Proof of Liquidity Commitment (PoLC):

This is a mining process that is designed to maintain liquidity. It is a staking system in which users have to lock up CELR for a period of time and are rewarded with additional CELR tokens.

• Liquidity Backing Auction (LiBA):

This will allow off-chain providers to request liquidity, and lenders will be able to stake tokens to offer them as loans. The lenders will be ranked in the system based on the number of staked tokens, the liquidity already provisioned, and the interest rate being offered.

• State Guardian Network (SGN):

Any user will be in a position to submit their state before going offline to have it protected for a set period of time at a stipulated fee. Holders of CELR tokens will be in a position to stake them to earn service fees for providing state protection.

As is the case with a majority blockchain networks, the CELR tokens should gain in value as more users join the network and use the tokens. An increasing number of applications will as well help support increased value, as will transaction speeds and ease of use. And the above mentioned incentive features will also help to increase demand for the CELR token, thus increasing its value.

Celer ICO Strengths and Opportunities

Celer has placed a particular emphasis on tech development and keeping their community informed on the relevance of the various innovations deployed by the network. To demonstrate the full-stack MVP, the team released a video of their first cApp built on the Celer Network, known as cGomoku.

With the release of the MVP demo, the team has demonstrated its commitment to developing the Celer Network by showcasing the viability of their innovative architecture at this early stage. As the first cApp built with the cOS operating system, the demo of cGomoku both highlights the functionality of the development framework and the network itself.

The team draw directly on their experience researching and building innovative technological solutions for developing the architecture of the Celer Network. Mo Dong developed formal network verification algorithms at his previous company, Veriflow. Junda Liu, Qingkai Liang and Xiaozhou Li have ample experience developing high-performance distributed systems and network infrastructure for applications at the enterprise level.

The team boasts a history of transforming theoretical knowledge into functional applications and with that, foster a high level of confidence in their ability to deliver on their ambitious vision.

Celer ICO Weaknesses and Threats

Off-chain scaling solutions are in no short supply, but their market capitalizations illustrate that some have fallen out of favor with the investing community to a degree. Lightning Network, Raiden and Trinity all take aim at providing off-chain payment scaling. Beyond pure payments, solutions like Plasma and Loom Network provide a pathway for the development of computation intensive applications.

The Celer Network has several aspects that distinguish it from other off-chain scaling solutions: x15 faster transactions than Lightning Network or Raiden; a developer suite and token system designed to incentivize adoption; and blockchain agnostic compatibility.

Yet the adoption of Celer is not just about developer suite functionality and token economics.

Community building and marketing strategies to drive mainstream adoption are crucial for the success of the Celer Network. Up until this point, the team has made clear their focus remains on product development. Yet as we know, the road to onboarding developers, contributors and users is not as straightforward as producing even the most technically viable solution for off-chain scaling.

For Celer to take a lead role as a scaling solution, serious attention must be paid toward building an ecosystem of users. While the team members are highly-qualified tech experts and even have experience with startups, marketing Celer to the wider community will require additional expertise and resources. A more balanced team with personnel specifically dedicated to building partnerships and spreading awareness would further strengthen the project as it progresses.

Team & Partners

The Celer Network and its team are based in California in the United States. It is a small team, comprised of the four founders (all of whom are PhDs) and 8 additional team members, most of whom are blockchain developers.

Some of the Celer Network team members

The Lead Team:                                                                                               

• Mo Dong:

Dr. Mo Dong received his Ph.D. from UIUC. His research focuses on learning based networking protocol design, distributed systems, formal verification and Game Theory. Dr. Dong led project revolutionizing Internet TCP and improved cross-continental data transfer speed by 10X to 100X with non-regret learning algorithms. His work was published in top conferences, won Internet2 Innovative Application Award and being adopted by major Internet content and service providers. Dr. Dong was a founding engineer and product manager at Veriflow, a startup that specializes in network formal verification. The formal verification algorithms he developed are protecting networking security for fortune 50 companies. Dr. Dong is also experienced in applying Algorithmic Game Theory, especially auction theory, to computer system protocol designs. He has been teaching full-stack smart contract courses. He produces technical blogs and videos on blockchain with more than 7000 subscribers.

• Junda Liu:

Dr. Junda Liu received his Ph.D. from UC Berkeley, advised by Prof. Scott Shenker. He was the first to propose and develop DAG based routing to achieve nanosecond network recovery (1000x improvement over state-of-art). Dr. Liu joined Google in 2011 to apply his pioneer research to Google’s global infrastructure. As the tech lead, he developed a dynamic datacenter topology capable of 1000 terabit/s bisection bandwidth and interconnecting more than 1 million nodes.

In 2014, Dr. Liu became a founding member of Project Fi (Google’s innovative mobile service). He was the tech lead for seamless carrier switching, and oversaw Fi from a concept to a $100M+/year business within 2 years. He was also the Android Tech Lead for carrier services, which run on more than 1.5B devices. Dr. Liu holds 6 US patents and published numerous papers in top conferences. He received BS and MS from Tsinghua University.

• Xiaozhou Li

Dr. Xiaozhou Li received his Ph.D. from Princeton University and is broadly interested in distributed systems, networking, storage, and data management research. He publishes at top venues including SOSP, NSDI, FAST, SIGMOD, EuroSys, CoNEXT, and won the NSDI’18 best paper award for building a distributed coordination service with multi-billion QPS throughput and ten microseconds latency. Xiaozhou specializes in developing scalable algorithms and protocols that achieve high performance at low cost, some of which have become core components of widely deployed systems such as Google TensorFlow machine learning platform and Intel DPDK packet processing framework. Xiaozhou worked at Barefoot Networks, a startup company designing the world’s fastest and most programmable networks, where he led several groundbreaking projects, drove technical engagement with key customers, and filed six U.S. patents.

• Qingkai Liang

Dr. Qingkai Liang received his Ph.D. degree from MIT in the field of distributed systems, specializing in optimal network control algorithms in adversarial environments. He first-authored more than 15 top-tier papers and invented 5 high-performance and highly-robust adversarial resistant routing algorithms that have been successfully applied in the industry such as in Raytheon BBN Technologies and Bell Labs. He was the recipient of Best Paper Nominee at IEEE MASCOTS 2017 and Best-in-Session Presentation Award at IEEE INFOCOM 2016 and 2018.

There are as well some pretty well known investors and VC firms that have taken part in the earlier stages of the Celer Network. These include the likes of Pantera capital, Arrington XRP Capital and FBG Capital among many others.

Finally, they have also entered a number of commercial agreements with other blockchain based projects. For example, they are piloting cross-shard off-chain transactions with Quarkchain, testing Qtum’s new x86 virtual machine and working with Chainlink to combine real world information with layer-2 scalability.

Product, Traction & Roadmap

The Celer network has been working on their technology for some time now. For instance, they released their whitepaper back in June of 2018. Hence, we can get an idea of how much work has been done by looking into Celer Network’s GitHub repositories.

The Celer network has a public GitHub repository where you can view the recent activity. However, because this is still a relatively new project, the bulk of their development work is taking place in their private repositories. However, they have shared this data in this Binance Research report.

Commits of three most active private repos. Source: Binance Research

As you can see from the above, there has been an enormous amount of code commits in these repositories over the past 12 months. This shows that the developers have been quite active getting their product ready before they moved on to their crowd sales.

The Celer team will slowly start pushing these private commits to their public repos in batches. In other words, the release is done as a single code drop on each occasion instead of regular daily commits that would take place in a traditional GitHub.

Despite this though, the extent of the development is quite impressive for a project that has yet to complete an ICO and is more than I have seen for other projects at this stage. This all makes sense when viewed in conjunction with the extensive development roadmap that they have laid out.

So, what can we expect to see from the project over the coming year?

Below is a breakdown of what we can expect to see for the upcoming quarters for the Celer Network:

Celer Network Roadmap for 2019

As we are toward the end of the first quarter of the year, it will be interesting to see how much of the development goals they meet from above. This could give a good indication of whether they can realistically meet their milestones in the quarters that follow.

Market, Opportunities and Challenges

Celer appears to have some competitive advantages over other similar projects that could help lift it to prominence. Chief among these is its demonstrated speed, with the network performing 15x faster than rivals thanks to its generalized state channel and channel balancing solutions. In addition to being faster, there have been reports of inefficiencies from the Lightning Network and other similar projects showing Celer may be more advanced than competitors.

The four founders are a benefit to the project, with strong backgrounds in network infrastructures, distributed systems, and performance networking. They also have years of experience with some of the largest tech companies and research labs.

Celer has avoided the obsolescence problem by becoming blockchain agnostic. Because it can work with any blockchain there is no chance of it becoming obsolete due to the blockchain it supports losing support. And not least of all the staking mechanism used by Celer Network ensures the token will remain valuable.

On the other side of the spectrum there are some concerns and challenges faced by Celer. One is the lack of marketing the project has seen so far, although that may be changing as the team now includes two Marketing & Operations members. Along the same lines there is very little social presence for the project, with less than 10,000 Twitter followers and just 39 followers of the Celer Network sub-Reddit.

Let’s not forget the competition the project faces from more established payment networks such as Raiden, Funfair and the Lightning and Loom Network.

Conclusion

Celer Network is ready to launch the third ICO on the new and popular Binance Launchpad platform, and while the competition of off-chain scaling solutions is stiff, the popularity of ICOs on Launchpad almost guarantees this ICO will sell out quickly.

With that in mind, similar projects have had poor post-ICO performance (Raiden at 0.45x ICO price and Trinity at 0.05x ICO price). The fact that we are deep in a bear market could help limit downside however.

In looking at the proven speed of the network (15x faster than rivals) and the projected scalability it appears Celer Network could be a ground-breaking technological development, but it remains unproven. The Celer Network is also a fairly new project, having gotten its start in June 2018.

The team has deep knowledge and expertise, and this could give them an edge in delivering a unique off-chain scaling solution.

That said, this solution could be some time in coming, so those looking to participate in the March 19 ICO on Launchpad may need to show a good deal of patience in waiting for a working product.

Use Cases, Technology and User Experience

What is the use case of the token?

According to the Libra Whitepaper Facebook has two major objectives for the Libra cryptocurrency. The first goal is to provide financial services for those people who do not yet have a bank account. These people mostly live in developing countries and are part of low income sociodemographic classes. The second objective of Facebook is to provide an easy and digital solution for remittances. Remittances can be described as money that is sent from one country to another; mostly this money is sent by people working abroad who are supporting their family in the home country.

It is interesting to note that for the purpose of remittances Facebook in the first place will be competing with services like Transferwise and Western Union. Despite the fact that Facebook is conceptualizing Libra as a cryptocurrency it is first and foremost competing with Fintech startups and established financial service companies.

Eventually many people would assume that Libra will be used for all kinds of purposes that regular money is used in both the developing and the developed world. This would include friends that share expenses and want to settle their balances in a quick and easy manner or people working in the gig economy and getting paid for it. In this regard Libra is a competitor to platforms such as PayPal and Payoneer. Furthermore it is also competing with fintech startups such as Revolut that offer instant transfers among their customers.

While Libra has potential benefits in countries with inflationary currencies such as Venezuela, it’s value to the Western world where efficient payment systems already exist is limited. The past decade has brought a number of online payment mechanisms to the internet and many of them are working seamlessly. Besides that there also exists a high number of convenient physical payment methods, such as Apple and Google pay or credit and debit cards with touch functionality.

With regard to the western world it is worth pointing out the significant price fluctuations between major currencies such as USD and EUR. There have been periods in the past five years where the exchange rate of USD to EUR fluctuated by more than 10% within one quarter. In such an event people in the US or Europe may lose purchasing power if Libra loses 5% towards the USD or Euro within a period of three months. 5% is a significant amount of money for someone who holds a balance of 1k USD. At the same time users will not get any interest paid while they are subject to the exchange risk.

For the reasons mentioned above it is questionable to which extent Libra will get adopted in the Western world. In developing countries and countries affected by economic misery the situation looks very different. People would have all the reasons to adopt a currency like Libra. However, Venezuela and other countries in similar conditions will most likely ban Libra since it would cause the country to lose its monetary sovereignty. If Libra would get adopted in Venezuela the country could no longer control its own monetary policy. Libra is a cryptocurrency that is not permissionless. Therefore we can expect a high number of countries to regulate and possibly even ban Libra forcing Facebook to implement the ban.

What does the technology behind look like?

The Libra blockchain will use a Byzantine fault tolerant consensus mechanism. The technical whitepaper assumes that Libra will initially be able to process 1,000 payment transactions per second and will have a 10-second finality time.

The Libra protocol will support the Move programming language which enables smart contract functionality. Based on this feature we can assume that Libra will not only compete with cryptocurrencies that are associated with payments such as Bitcoin, Bitcoin Cash and Nano, but also with cryptocurrencies that aim to be programmable money such as Ethereum and Eos.

The Libra blockchain will limit the validators initially to the founding members of the Libra Association and is therefore not permissionless.

How is the User Experience?

Facebook is planning to integrate wallets for Libra in its messaging services WhatsApp and Facebook Messenger. By integrating the wallets directly into these apps Facebook wants to maximize the number of early adopters and decrease the barriers for using Libra. It can be expected that the wallets will be easy to use for end users that are so far unfamiliar with cryptocurrencies.

However, several points remain unclear. It remains open how the process for account recovery will look like if a phone gets stolen or falls down and no longer can be used. At this point Facebook will face a difficult trade off between security and ease of use. In case it will be easy to migrate the wallet to a new phone once a user loses access to the old phone there will be severe security vulnerabilities such as the possibility to suffer from a sim swap attack. In case Facebook will require a sophisticated account recovery process it risks creating friction with the  non technical mainstream users it is targeting. It is one thing to lose access to the messages that people have sent, but it is much more frustrating to lose access to money you have owned. It will be interesting to see how Facebook will solve these issues and provide a smooth user experience for the mainstream who is unlike early adopters of cryptocurrencies not familiar with advanced security procedures.

Token Economics

The Libra cryptocurrency will be backed by reserves which will be held in a basket of global currencies such as the US Dollar, the Yen and the Euro in combination with a bunch of other smaller currencies. These reserves will allow Libra to maintain price stability in relation to the basket of underlying currencies. It essentially will become a stablecoin replicating the performance of the basket of underlying currencies. This means that Libra will become a substitute to the established stablecoins such as Tether or Dai. However, Libra will not replicate a single currency but a basket of currencies.

Since Libra is a stable coin the whitepaper highlights a different mechanism to generate revenue. Facebook has a massive user base across it’s services WhatsApp, Instagram and Facebook itself. Eventually Facebook wants a big part of this user base to use its stable coin. Let’s quickly make an example for understanding how Libra will generate profits. Imagine a scenario where 1 bn people hold a balance in Libra of on average 100$. That’s a 100 bn $ combined. The Libra association will then invest this money in low risk securities that pay an interest. Libra will then generate income from the interest; assume they generate 2%. That represents 2 bn $ per year. However they will not redistribute the profits to the user base. Instead they will keep it in the foundation to pay for operating costs and repay dividends to members of the foundation. This revenue model is very similar how banks generate profit based on cash deposits of their customers.

Progress History, Achievements and Road Map

Facebook so far has published and opensoucred the codebase for the Libra blockchain at its initial stage. Furthermore Facebook has presented the founding members of the Libra Association which reads itself as the who is who of the American tech industry. Among the participants of the Association are PayPal, Mastercard, Visa, Stripe, Uber, ebay, MercadoPago, Vodafone, Coinbase, Andreessen Horowitz and USV. The strategic alliances that Facebook was able to form are impressive and span across all verticals of the American tech sector. Facebook is expecting to release Libra to end users in the first half of 2020.

Community Strength

Facebook is the world’s largest social network and besides the Facebook platform itself it also controls Facebook Messenger, WhatsApp and Instagram. Facebook has more than two billion users which is basically more than any other platform. In comparison, there are around 800,000 active addresses on Bitcoin, the world’s largest cryptocurrency. This implies that Facebook has more than a thousand times more users than Bitcoin. The dimensions of the social network do not compare to any blockchain network. As many market observers believe blockchain technology is still in its infancy. However, there is no evidence suggesting yet how many of its users Facebook can convert to use Libra. If you would assume that 10% of Facebook’s user would also engage in the Libra network within one year after its launch then this would estimate the user base to 200 million people.

Conclusion

In the short run the announcement of Libra had a positive impact on the price of Bitcoin. Bitcoin is more than ever considered as digital gold and has its own distinctive feature that distinguishes the cryptocurrency from Libra and its fellow blockchain platforms. However, several altcoins that serve a similar purpose as Libra appear to have suffered recently from the announcement of Libra. In general the launch of Libra is still far ahead and the exact implications on the market are not yet clear at this stage.

Libra will not be censorship resistant and permissionless as Andreas Anonopoulos, a famous cryptocurrency commentator, pointed out. This means that governments will have the ability to block accounts, freeze funds and ban transactions. It also means that not anyone will be able to set up a node and participate in the consensus for Libra; at least not in the beginning. For these reasons several industry observers do not consider Libra as a blockchain platform.

While Facebook's Libra doesn't compete against any open, public, permissionless, borderless, neutral, censorship-resistant blockchains, it *will* compete against both retail banks and central banks. This is going to be fun to watch.

— Andreas ☮ 🌈 ⚛ ⚖ 🌐 📡 📖 📹 🔑 🛩 (@aantonop) June 18, 2019

The fact that a large company like Facebook puts its weight behind a cryptocurrency gives credibility and brings attention to the nascent technology. Furthermore, it forces developers of decentralized applications to improve on UI and UX since they will need to compete with giants like Facebook which is a master in this art. Therefore we can conclude that the launch of Libra represents a major milestone with regard to the acceptance and adoption of blockchain technology.

(15 votes, average: 1.20 out of 5)
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