Elrond is a blockchain-based platform built for speed, security, and scalability. It utilizes an innovative spin on current technologies to create a network powerful enough to operate at “internet scale.”
If you’ve been part of the cryptoverse for an extended period, you’ve probably heard of the scalability trilemma.
The scalability issue: the three primary characteristics of a mature blockchain network (scalability, security, and decentralization) are impossible to achieve simultaneously using today’s technology, particularly Proof of Work (PoW), the consensus algorithm employed by Bitcoin.
For instance, Ethereum, the world’s leading blockchain network, is plagued by scaling issues largely linked to its PoW and is attempting to solve the issue by employing Proof of Stake (PoS).
Since it was coined by Ethereum co-founder Vitalik Buterin in 2015, an entire subsector of cryptocurrency projects devoted to solving the scalability trilemma has emerged.
One other project devoted to solving this trilemma, and our focus in this review, is Elrond.
What is Elrond?
Announced in 2019, Elrond describes itself as a scalable, fast, and secure blockchain platform for distributed apps, enterprise use cases, and the new internet economy.
Elrond claims to solve the scalability trilemma with a 1000x improvement in blockchain speed, scale, cost, and user experience.
That sounds great, but…
How Does That Even Work?
The name of Elrond’s game is increasing throughput, or the entire network’s transactions per second, with a scaling technique called Adaptive State Sharding. It also introduces a novel approach to consensus called Secure Proof of Stake (SPoS).
To completely understand Elrond, you’ll have to understand these two technologies, how they differ from current sharding and consensus methods, and why those differences are essential for scaling.
Now, how does Elrond work?
Adaptive state sharding
adaptive state sharding
The optimal approach to blockchain sharding needs to take into consideration the advantages of all three sharding types:
- State sharding, where the “state” or history of the entire network is split across different “shards” or sections of the network. Each shard has its history/ledger, and nodes (computers connected to the network) only need to hold the state of the shard they are in, dramatically reducing the amount of latent storage capacity they require.
- Transaction sharding, in which transactions are mapped to shards for processing based on criteria like the sender’s address, and each shard processes transactions in parallel to other shards. Here, each node keeps a record of the state of the entire network.
- Network sharding handles the way nodes are grouped into shards and can optimize communication, as sending messages to nodes in a shard can be done much faster than to the entire network.
Adaptive state sharding works as a solution to the scalability conundrum by improving communication inside shards and increasing the network’s performance and efficiency. It does this by combining all three sharding types into a solution that enables parallel processing on all levels.
Shards are smaller sections of Elrond’s network and are used for scaling. Each shard handles a portion of the state (accounts, smart contracts, blockchain) and transaction processing so that each shard can process only a fraction of the transactions in parallel with other shards.
Secure proof of stake(SPoS)
SPoS is Elrond’s approach to consensus. It eliminates PoW computational waste by combining eligibility through stake (here, a forger, similar to a miner, is more likely to create a block depending on the amount of currency they hold and how long they have kept it compared to other forgers) and rating – the basis for Proof of Stake – with random validator selection, and an optimal dimension for the consensus group.
Elrond’s BFT-like consensus protocol maintains a high-security level by randomly sampling the consensus group and randomly shuffling nodes into other shards to prevent collusion. It uses an unbiasable, unpredictable randomness source generated by the block proposer via signing the previous random source.
Elrond VM
The Elrond Virtual Machine is a dedicated smart contract execution engine built on WebAssembly (WASM). It expands the languages available to smart contract developers, including Rust, C/C++, C#, and Typescript. Developers can write smart contracts in any language they are familiar with, compile them on WASM, and easily debug its WAT human-readable format.
Metachain
A Metachain is a blockchain that runs in a unique shard. Here, the responsibilities are not processing transactions but notarising and finalizing the processed shard block headers.
Other tasks include:
- Facilitating communication between shards.
- Storing and maintaining a registry of validators.
- Triggering new epochs.
- Processing fisherman challenges.
- Slashing and rewarding.
Nodes
A node can be anything from a computer, smartphone, or server running the Elrond client and relaying messages received from its peers.
Nodes can fulfill a Validator, Observer, or Fisherman role, providing different support levels to the network and earning proportional rewards.
Validators are nodes on the Elrond network who have put up collateral (or ‘stake’) in the form of EGLD tokens to become eligible to process transactions and participate in the consensus mechanism. They are rewarded from protocol and transaction fees and stand to lose their stake if they conspire to disrupt the network.
Observers are nodes without a stake. They are passive members of the network that can act as a read-and-relay interface. Observers are either Full: keeping the entire history of the blockchain or Light: keeping only two epochs of blockchain history. Observers are not rewarded for their participation.
A Fisherman is a node that verifies the validity of blocks after they have been proposed. They challenge invalid blocks (false transactions) created by malicious actors and are rewarded in EGLD. Fishermen can be validators who are not part of the current consensus round or observers.
The EGLD Token
The EGLD (“Electronic Gold”) token is Elrond’s native currency. It powers Elrond’s network by serving as a medium of exchange between users and developers – who pay transaction fees to use the network, and validators – who take those fees as payment for the services they provide.
The Elrond network provides a platform to deploy smart contracts, decentralized applications (or dApps), and even entire blockchain protocols. However, the EGLD coin is the unit of value that enables these activities. EGLD governs the network through staking and validator rewards and as payment for transactions and smart contracts.
The Elrond Team
Elrond was co-founded in late 2017 by Beniamin and Lucian Mincu, alongside Lucian Todea.
Before Elrond, the brothers co-founded MetaChain Capital, a digital asset investment fund, and ICO Market Data, which aggregates information around initial coin offerings. Todea is the Founder/CEO of Soft32, a software review and download site, and a partner of mobilPay, a mobile payments application.
As of June 2021, the Elrond team comprises 27 developers, designers, and engineers from Intel, Microsoft, ITNT, and Soft32. It also contains seven advisors from popular companies like Google, NASA, (and) Ethereum, and experts from George Mason University (GMU) and the University of Illinois (UI). Among these advisors is the founding duo of City of Zion and NEX, Fabio Canesin and Ethan Fast.
Elrond isn’t the only network trying to solve the scalability trilemma. Similar projects with a take on the future of secure, scalable cryptocurrencies include more popular projects like Ethereum and Algorand.
Here’s how Elrond compares.
Elrond vs. Algorand
The first and most notable difference between Algorand and Elrond is sharding – or its absence. The Algorand blockchain does not implement any sharding technology and is based on the pure Proof of Stake (PPoS) consensus algorithm.
In Algorand, transactions are approved and verified by randomly selected node committees. This is aided by a custom-made verification feature called Verifiable Random Function (VRF). VRF ensures that the process of committee selection is transparent but private by functioning similar to a lottery – randomly choosing ‘leaders’ to propose a block and committee members to vote on that block.
To inform each selected validator of the other validators, they’ll be performing consensus with; consensus messages have to be propagated to the entire network – leading to slower consensus.
Consequently, the selection of validators in Algorand can take up to 12 seconds. On the other hand, in Elrond, a given shard will achieve selection and consensus in ~4 seconds. Although Algorand’s throughput peaks at 926 TPS, these differences mean that it’s still nowhere near Elrond’s current peak of 263,000 TPS.
As we established earlier, Elrond’s throughput will increase linearly to the number of shards on the network. In Algorand, this throughput can only decrease as nodes increase – without sharding technology, nodes will soon reach storage and communication limits.
Elrond vs. Ethereum 2.0 (Serenity)
Ethereum’s 2.0 upgrade, a.k.a Serenity, is currently in Phase 1 testing and aims to improve throughput by implementing a PoS consensus algorithm and sharding technology.
The key differences between these two networks are in transactions per second (TPS), sharding implementation, scaling capabilities, and security.
Serenity will run a predetermined set of 1024 shards when launched, which raises concerns (explained below) about security if nodes leave the system.
Shards have a minimum number of nodes per shard. This ensures they are safe from attacks by malicious actors. If nodes leave the Ethereum 2.0 network, this will force some shards to go beneath the minimum number of nodes to maintain the 1024 shard count.
In contrast, Elrond’s adaptive state sharding allows shards to merge or split to maintain the optimum number of nodes in a shard. As a result, the network scales down on shard count as shards leave – or creates more shards as more nodes join.
Another difference to note is in transaction speed. Ethereum currently runs at a transaction speed of 20 TPS, but with the implementation of the Serenity upgrade, it will conduct up to 10,000 transactions per second.
At launch, the Elrond mainnet ran at 15,000 TPS. Its scalability has been proven in a public testnet with 50 shards that run at 263,000 TPS – 10 times more than the international payment system, Visa, which can process up to 25,000 transactions each second, and a 10,000x improvement from Ethereum 1.0’s 20TPS.
Elrond has achieved its promise of a 1000x increase in throughput. Despite this, its team believes that as the Elrond network grows it will continue to improve throughput—as more shards are created, allowing for more significant parallel processing.
EGLD supply and sustainability
The Elrond token is limited in supply, starting at 20million EGLD. Although new tokens are minted to reward network validators, the maximum coin supply can never exceed 31,415,926 EGLD. This number is expected to decrease as more transactions are processed.
Bitcoins PoW consensus mechanism raises environmental concerns because of the large amounts of computational power and terawatts of electricity involved in validating transactions. In contrast, Elrond ensures scalability while remaining sustainable through SPoS and adaptive state sharding.
Processing a transaction on the Elrond network, even when operating at maximum capacity, only requires 88 mili-Wh, 624 million times more efficient than Bitcoin’s 550kWh per transaction.
Okay, but without PoW, how does one mine on the Elrond network?
You don’t.
Any user who submits a transaction (simple token transfers or calls to smart contracts) to the Elrond network must pay a fee in EGLD tokens. These fees serve as rewards for validators.
Stakes serve as collateral for the ‘good behavior’ of validators: they stand to lose their stake (currently set at 2,500 EGLD) if they attempt to abuse their influence on the network.
Suppose a validator consistently misbehaves or performs malicious actions. In that case, it will be fined accordingly and lose EGLD, an action known as stake slashing, and will also have its validator status removed. This form of punishment is reserved for severe offenses.
Validator nodes have individual rating scores that express their overall reliability and responsiveness. Rating will increase for ‘well-behaved’ nodes: every time a validator takes part in a successful consensus, its rating increases.
The opposite is also true: a validator that is offline during consensus or that fails to contribute to blocks being produced will be deemed unreliable and experience a drop in its rating.
EGLD Trading history
According to data from Cointelegraph Markets and TradingView, since reaching a low of $115 on March 25, the price of EGLD has aggregated more than 110% to a new all-time high of $245.80 on April 12, as a range of favorable statements led to increases in its trading volume.
EGLDs price has been affected by real-world adoption, like on April 7, when Elrond broadcast that the Lucian Blaga University of Sibiu aims to implement crypto payment methods for its 11,000 students, enabling those interested in paying their admission fees using EGLD.
Another significant development, namely a partnership with Shopping.io, was shared on April 10. It revealed that shoppers could earn rewards from some of the largest retailers in the United States by shopping with EGLD.
Recently, Polkamon also helped bring attention to Elrond when it stated that it would be integrating with the Elrond platform in Q3 to “enhance the user experience with additional speed & convenience.”
How to Buy EGLD?
Okay, so now you know all about Elrond, you might be curious to check it out. Here are a few of the best marketplaces to buy EGLD.
Coinbase is a leading crypto exchange platform and an excellent place to start if you’re new to crypto exchange. It’s designed to be as straightforward as possible, a convenience reflected in its prices. For a more detailed description, see our Coinbase review.
Binance is one of the most well-known cryptocurrency exchanges in the world. When you purchase EGLD from here, you benefit from the lower exchange fees than competing exchanges. Its increased liquidity means you can buy and sell tokens quickly to take advantage of market-moving news. Read our Binance review.
Gemini: known for their far-above-average customer support, Gemini has separated itself from exchanges that struggle to keep up with customer support needs with their fast and beginner-friendly services. Unlike most exchanges, Gemini allows you to begin trading as soon as you deposit via bank transfer. Read our Gemini review.
For a comprehensive list and a marketplace comparison, see our guide on the best cryptocurrency exchanges.
Where can you store your EGLD?
Here are some of the best wallets for EGLD. For more all-around wallets that support EGLD, you can look at our guide for choosing a crypto wallet in 2021.
Elrond Web Wallet is the official wallet of the Elrond community. It’s simple, secure, and easy to create, and allows users to store, send, receive, and otherwise transact with EGLD tokens.
Maiar is an official EGLD digital wallet powered by the Elrond blockchain network. Creating this wallet is super simple, as you do not need a password, private keys, or recovery passphrases. The end-to-end encrypted wallet supports EGLD, Ethereum (ETH), Binance (BNB), ERD ERC20, ERD BEP2, and plans to support BTC in the future.
Trust Wallet is Binance’s official wallet and is trusted by over 5 million users worldwide. The mobile wallet has now expanded its support to EGLD tokens, meaning all existing and new users of Trust wallet can now hold Elrond tokens in their wallets.
Final Thoughts: Elrond Crypto and Scaling
With its adaptive state sharding and Secure Proof of Stake protocols, Elrond brings an exciting approach to blockchain scalability, featuring unprecedented transaction speeds and throughput numbers.
As an ‘innovative public blockchain designed to scale,’ Elrond seems to have achieved its goal of preserving security and speed while achieving scalability and sustainability.
Progress so far:
Between 2018 and January 2021, Elrond has developed two prototypes and completed both a private and a public testnet. In August 2019, Elrond released the details about its economics for network stakers and validators.
Later that year, the team opted to trade in Elrond’s initial VM for a WASM-based environment. The Elrond mainnet launched in July 2020, and the Maiar application in January 2021.
What to expect next
Elrond intends to implement an on-chain governance mechanism that will allow network participants to vote on essential protocol changes and impact the protocol’s future direction at some point in Q1 2021 and release its DeFi2.0 sometime soon.
If you’d like to, you can get in touch with the Elrond team at contact@elrond.com and careers@elrond.com.
The post Elrond Review: What is Elrond and How Does the EGLD Token Work? appeared first on CoinCentral.
