🤔 What is Elrond?
Elrond is a smart-contract blockchain that aims to solve blockchain scalability trilemma.
Scalability trilemma was first described by Vitalik Buterin, the co-founder of Ethereum. It states that it is very difficult to develop a blockchain that has all the three features:
A blockchain developer can choose a maximum of 2 of the desired qualities.
Elrond aims to solve the scalability trilemma becoming secure, decentralized and scalable.
💡 What role does eGold(EGLD) token play ?
eGold is the native cryptocurrency of Elrond blockchain. It is used for:
- Transaction fee: Users pay eGold tokens as transactions fees to include their transactions on Elrond blockchain.
- Staking: Elrond is a proof of stake blockchain. Validators have to stake eGold tokens to participate in the process of making new blocks and earn transaction fees. Their stake is slashed if they indulge in dishonest behaviour.
- Delegation: Users can delegate their tokens with validators to participate in the process of validating blocks.
📝 Origin of Elrond
Elrond was founded by Lucian Todea, Beniamin and Lucian Mincu in 2017. Elrond whitepaper was released in 2018.
In June 2019, the project conducted a private investment round raising $1.9 million from several angel investors. That same month, Elrond held an Initial Exchange Offering (IEO) that raised $3.25 million in exchange for 25% of its total token supply.
At the time, Elrond distributed its cryptocurrency as ERD coin, but, after the project launched its mainnet in July 2020, Elond changed its cryptocurrency to EGLD coin. The project then held a transitory event that enabled its investors to swap ERD for Elrond’s new EGLD cryptocurrency.
- He is fromSibiu County, Romania.
- He attended German University of Sibiu, Romania, where he studied at the Faculty of Economic Sciences and graduated with a Bachelor’s degree in Economics and Management in 2011.
- Beniamin Mincu started his career in the blockchain space in 2014 investing in early blockchain startups like Icon, Matrix and Zilliqa.
- He founded MetaChain Capital, a digital asset investment firm with his brother Lucian Mincu in September 2016. Metachain Capital invested in several successful and top blockchain projects like Binance, BAT, Tezos, Polkadot, and Zilliqa, when these were in start up phase.
- n 2017, Beniamin co-founded Elrond Network with his brother Lucian Mincu and Lucian Todea.
- Lucian Mincu studied Computer science at Industrie- und Handleskammer between 2014 and 2016.
- Mincu joined LIEBL SYSTEMS GmbH in December 2016 as a Senior IT Security Consultant and Project Management where he was in charge of infrastructure of several big institutions across the German State.
- He entered the blockchain space in 2016 as Chief technology officer and a Co-Founder at Metachain Capital.
- He currently a Co-Founder and Chief information officer at Elrond Network.
- At the age of 21, in 2001, Lucian launched his first website as a student which became known as Soft32.com, one of the most popular download platforms in the world.
- In 2002, Lucian decided to drop out from the University of Bucharest of Economic Studies where he was specializing in Finance, Insurance, Banking and Stock Exchange in order to focus on building and expanding the Soft32 platform.
- At its apex, Soft32 listed more than 150,000 apps and was visited by more than 10,000,000 users each month.
As an angel investor, he invested in several companies including:
Smartbill – the most used Romanian invoicing and accounting SaaS platform;
TypingDNA (Techstars NYC’18 Company) offering typing biometrics and 2FA solutions for securing devices and web applications;
Homefresh, the pioneer meal kit delivery service.
- He is the Co-Founder and Chief Operating Officer at Elrond.
😌 What problems does it solve ?
- Proof-of-stake vs Proof-of-work: Elrond usess a variation of proof-of-stake which has several advantages over proof-of-work:
- It is much more energy-efficient.
- Governments cannot ban validators, unlike proof-of-work in which governments can trace miners depending on excessive energy usage and seize their hardware.
- It has been observed that proof-of-stake systems get more decentralized over time(Initially Bill Gates had more than 90% of the Microsoft shares, today he has less than 5% Microsoft shares.Whereas proof-of-work systems get more centralized over time around hardware, cheap electricity, favorable jurisdictions, etc.
- Scalability: Elrond blockchain uses sharding to achieve higher throughput. This results in faster transactions and cheap gas fees.
- No trusted third party: Elrond code is opensource and network decentralized. Developers and users do not have to trust any third party for custidy of their funds.
- Efficiency gains: Projects building on Elrond do not have to run servers and hire an army of network engineers to keep their applicaton running.
🤖How does it work ?
Elrond Network consists of:
- Shards are smaller partitions of the Elrond network and are used for scaling: each shard is responsible for a portion of the state (accounts, smart contracts, blockchain) and transaction processing, so that every shard can process only a fraction of the transactions in parallel with other shards.
- At any given time, the network consists of a number of shards, with each shard containing a subset of all addresses and their associated state, including user account addresses and smart contract addresses. Each shard runs its own blockchain, but all shards are connected through the Metachain.
- Metachain: The Metachain is the blockchain that runs in a special shard, where the main responsibilities are not processing of transactions, but notarizing and finalizing the processed shard block headers, facilitating communication between shards, storing and maintaining a registry of validators, triggering new epochs, processing fisherman challenges, rewarding and slashing.
- Node: Node is a computer, smartphone or server, running the Elrond client and relaying messages received from its peers. Nodes can fulfill roles of Validators, Observers or Fisherman providing different support levels to the network and earning proportional rewards.
- Validators: 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 transaction fees and stand to lose their stake if they misbehave.
- Observers: 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.
- Fisherman: 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.
Adaptive state sharding
Sharding was first used in databases and is a method for distributing data across multiple machines.
Moreover, sharding allows for the parallel processing of transactions. As long as there is a sufficient number of nodes verifying each transaction, ensuring high reliability and security, then splitting a blockchain into shards will allow it to process far more transactions by means of parallelization, and thus greatly improving transaction throughput and efficiency.
Elrond Network divides its blockchain timeline into epochs and rounds which have a fix duration. As each new round begins a new consensus group is randomly selected for committing one block. The Elrond network does this by shuffling nodes between shards at the end of each epoch.
Shuffled nodes will be placed in the new shards in a waiting list, meaning that they must spend this epoch performing resynchronization with the new shard. Only after spending an entire epoch in the waiting list of the new shard is the node allowed to become an eligible validator and join the shard in full.
Secure proof of stake
At the beginning of each round, SPoS selects validators for consensus using a randomness source that is calculated from the previous block and signed by the consensus leader (block proposer) of the current round. The resulting signature will be the randomness source for the next round, and due to its reliance on the preceding block, it cannot be known more than one round in advance.
In each round, a new consensus group is selected to propose a block. But only one validator in the group will be the block proposer. The block proposer is the validator in the consensus group who’s hash of the public key and randomization factor is the smallest. The block proposer will produce the block for the round, and the rest of the consensus group will validate and sign it. The time necessary for random selection of the consensus group is relatively short (around 100 ms). This efficiency is a consequence of the fact that consensus selection is deterministic once the randomness source is known, thus there is no communication requirement.
There may be a security advantage to keeping round time relatively short. SPoS is built on the premise that a malevolent actor cannot adapt faster than the timeframe allowed by a round in order to influence the block that will be proposed.
Like other PoS methods, SPoS selects validator nodes for consensus based on the number of native tokens staked (in this case, EGLD) by their operators. Additionally, each validator has an individual rating score that is taken into account. A validator’s stake alone may only influence, but not completely determine the selection for consensus. Rating expresses the past behavior of the specific validator and is taken into account during consensus selection: validators with a higher rating are more likely to be selected. The rating of a validator is recalculated at the end of each epoch, with a few specific exceptions when the rating is adjusted immediately. This rating mechanism aims to disincentivize validator apathy and encourage operators to keep their nodes running efficiently.
The Elrond Virtual Machine is a dedicated smart contract execution engine built on WASM.
It expands the family of languages available to smart contract developers to include Rust, C/C++, C#, Typescript.
Elrond team launched Maiar wallet to make it easy for users to interact with Elrond ecosystem.
🏛️ Governance model
Elrond Network (the company that built the protocol) manages protocol improvements and upgrades.
Network participants and validators and can still contribute to any changes or proposals since the codebase is open source.
Elrond eventually plans to transition to an on-chain governance model, whereby EGLD holders can vote on improvement proposals and determine the network’s future direction.
🤑 How much money does the project have for future development ?
- The project raised:
- $1.9 million in private round in Jun 2019.
- $3,25 million during Initial Exchange Offering (IEO) in Jul 2019.
- The project holds around 30% of eGold supply that can be used to fund future development.
- 10% of validator rewards and 10% of the fees collected goes to Protocol Treasury.
- Sustainable model: Most crypto projects raise huge amounts of money one time, at the start of the project during initial coin offering. They do not have any recurring source of income to fund their treasury. Elrondl team has long-term vision and a way to fund it.
- Network effects: The value of network will grow exponentially as the number of users and applications built on it grows.
😨 Risks and challenges
- Not EVM compatible:
- Developers cannot migrate their apps from other EVM compatible blockchains to Elrond.
- Developers cannot use popular blockchain coding language like Solidity to develop apps on Elrond.
- Competition: There are many layer 1 smartcontract blockchains that have much stronger community and userbase.
Initial token distribution
Elrond initially issued tokens under the ERD ticker on both the Ethereum and Binance DEX blockchains. A total of 20 billion ERD were initially distributed on Jul. 4, 2019, which is now equal to 20 million EGLD. The initial ERD distribution was as follows:
- 19% was allocated to private investors, vesting over 18 months
- 25% was allocated to IEO investors, with 100% of the tokens released at the date of the IEO on Jul. 4, 2019
- 7% was allocated to Ecosystem rewards, vesting over 12 months
- 8.5% to a Marketing Growth Pool, vesting over 12 months
- 2% to a Community Fund, all vesting over 12 months
- 2.5% was allocated to advisors and locked for one year after the IEO
- 19% was allocated to the Founders and Core members, vesting over 42 months
- 17% was allocated to a Reserve Treasury, vesting over 30 months
Mainnet Launch & New Monetary Policy After its mainnet launch in Jul. 2020, Elrond changed its economic policy, reducing the supply of its native token by 1000x to 20 million. As part of the transition and token swap, ERD holders were able to exchange ERD for the Elrond’s new native token, dubbed EGLD, at a rate of 1000:1.
The tokens were distributed as follows:
Elrond’s economic policy gives eGLD a theoretical max supply of 31,415,926 tokens
Token’s price increases due to demand pressure.
Demand pressure on eGold will come from:
- Transaction fees: Users will acquire and pay eGold tokens to include their transactions in Elrond blockchain.
- Staking and delegation: Users will also acquire eGold tokens to participate in the process of block validation.
- Speculators: They will acquire eGold tokens for future price appreciation.
Similar layer 1 projects like Etherium have a much larger marketcap as compared to Elrond
🧐 Indicators to watch out for
- User base is growing:
- Number of eGold tokens staked are growing:
- Number of addresses are growing:
- Daily transaction volume is growing:
- YouTube channel is growing:
- Twitter following is growing:
Elrond seems to be a great project. But only the time will tell whether it will suceed and how many layer 1 blockchain can eb there.
😊 Do further research
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