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What is Elrond? A Comprehensive Review of the Scalable Value Transfer Protocol for the Digital Economy

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.

  1. 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.
  2. Designing a built-in mechanism for automatic transaction routing in the corresponding shards, considerably reducing latency as a result.
  3. 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.

  1. 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.

  1. 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.

  1. 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.

  1. Dispatching and instant traceability:

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

  1. 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.

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