Elrond ($ERD) Fundamental Analysis
Beyond the Hype: Elrond ($ERD) Overview
Elrond isn’t claiming to reinvent blockchain or smart contract platforms. Instead, it’s focused on taking what’s good about blockchains — namely their data security and decentralization characteristics — and strengthening them to the point that blockchain becomes a highly practical and useful common good.
Any project that becomes associated with Binance catches plenty of hype — that’s only natural. Binance has ascended to crypto’s throne, and as heralds of all things worth keeping in the crypto world, associated projects are viewed as instant winners. Clearly, that means projects garner incredible amounts of attention just for being attached to Binance’s greatness. Sometimes, that overshadows the merit of the projects themselves.
However, we digress.
Elrond is the new Binance Launchpad IEO in town, but it’s been gathering attention for months. A casual stroll through Bitcointalk uncovers admins shutting down Elrond threads back in April simply because they were sick of all the chatter around the nascent project. Let’s peel back the talk, the endless Steemit blogs, countless Reddit posts, and get to the crux of the matter — what is Elrond? Only after answering that particular question can we illustrate how, in our humble opinion, the hype is definitely warranted.
In a nutshell, Elrond is a high-throughput public blockchain that is attempting to go toe to toe with Ethereum. Sure, there are other smart contract-enabled public blockchains in action and on the horizon, but Ethereum is the standard. The difference between Ethereum and Elrond is that Elrond is built to run 10,000 transactions per second out of the gate. In case you’ve forgotten, Ethereum is only able to muster up around 15 TPS (on a good day).
Cool — but aren’t there second layer scaling solutions that can bring Ethereum (and other blockchains) up to speed? The answer is yes, but that doesn’t tell the whole story. Second-layer solutions don’t have the same efficiency or security characteristics as the first layer does. That’s why second-layer solutions represent a bandaid for blockchain’s current moment in which onchain scaling by way of sharding is under development. The thing is, that compromise is only good until blockchains like Elrond come along and bring scaling in at the core layer. Ethereum proposes to do the same thing sometime around 2021 — but Elrond is ready to rock to now.
Scaling Like Visa
Forgive us for perpetuating the meme, but Visa is the gold standard for system scalability. While claims of 56K TPS are exaggerated, Visa does normally handle 1500 TPS — a number which is nothing to sneeze at. Theoretically, the VisaNet system is capable of much more than that, somewhere north of 10K, but the reality is that daily transaction volume doesn’t normally exceed the 1500 TPS mark.
There are other considerations — most notably that VisaNet is entirely centralized and only handles financial transactions, which greatly restricts the potential use cases of a highly scalable transaction system to just a single one — sending payments around.
For many public blockchain platforms, the only way to compete with a system like Visa is to centralize to the point that transaction speed rises. On top of being morally dubious, the practice undersells blockchain’s true potential.
To address the matter, Elrond is asking one fundamental question — is it possible to out-scale centralized systems while maintaining a truly decentralized censorship-resistant blockchain network? Imagine the power that flows into the public’s hands when there is widespread access to such a system. Unstoppable applications built to suit the needs, purposes, and economic hopes of a diverse array of global citizens become possible.
Elrond isn’t claiming that it’s reinventing blockchain or smart contract platforms. Instead, they’re focused on taking what’s good about blockchains so far, namely their ability to scale data security and transactional throughput — all while remaining highly decentralized — and strengthening them to the point that blockchain becomes a practical and useful common good.
VisaNet is a network that, if it were public rather than private, would be a start toward that common good. However, between decentralization, security, and scalability, Visa (along with similar systems) only possesses the latter. Elrond, on the other hand, is building a public blockchain network with the advantages of immutable security, increased efficiency, cross-chain interoperability, full decentralization, and high-throughput scaling.
Elrond started its scalability development with the aim of at least equalling the throughput of centralized counterparts. To do so, the team built and implemented a rigorously tested Adaptive State Sharding mechanism which dynamically combines network/communication, transaction/processing, and state/storage types of sharding. The benefit of a dynamic sharding mechanism is that each version of sharding possesses a strength against another’s weakness — going between all three as different contexts arise allows Elrond to benefit in changing conditions.
Since the number of active shards changes dynamically according to conditions and available resources, Elrond greatly improves network efficiency over static sharding systems. With a fully deployed Adaptive State Sharding solution in place, Elrond achieves near-linear scalability which, as they put it, “…provides the backbone for surpassing the throughput of centralized counterparts.”
In May, Elrond released their Zero to One testnet. Despite using a Static State Sharding mechanism, its results have been anything but static. With only five active shards, Elrond hit 11,966 TPS — which is all the more impressive when you consider that the network has done so on minimal hardware (t2.medium machines) and across 126 geographically distributed AWS nodes.
Current testnet specs are:
Secure Proof of Stake
With dire assessments over Bitcoin’s use of electricity getting worse all the time, the need for a generalized transition to less energy-intensive blockchain networks is greater than ever. However, even a proof of stake system doesn’t guarantee minimal energy requirements.
In line with Elrond’s design goals, energy consumption is a top-tier concern for several reasons.
- Energy efficiency makes the network accessible to a greater amount of people, meaning a more robust, secure, and decentralized network.
- Energy efficiency is better for an environment in which we find ourselves on the brink of irreversible human activity-induced climate change.
- Energy efficiency implies that the network maximizes the use of available resources — meaning it is an economically sustainable model for all of the complex components involved.
To achieve maximum efficiency, Elrond is running with an improved (or expanded, as they call it in the whitepaper) version of Algorand’s random selection mechanism. Using random selection during the consensus process means a random staker is chosen to add the next block, and another group of random stakers verify that block’s contents. By creating consensus in this way, computational resources required to add blocks amount to zilch — can’t get much more efficient than that.
While it may not appear that there’s much room for improvement over this model, the Elrond team has reduced the time required to select the consensus group from 12 seconds to under a single second. These may seem like marginal gains, but such improvements reap great benefits once the tech is deployed in the field.
Also notable is Elrond’s time to finality based on the use of a pBFT algorithm. Whereas PoW blockchains are unable to offer finality (meaning that a blockchain’s final state is immutable), Elrond transactions are almost instantly final. For security concerns which are easy to imagine, possessing blockchain finality is crucial — and ensuring that such finality is achieved at almost the same time that the transaction occurs is indispensable.
Interoperability & Censorship Resistance
The Achilles heel of most technologies up to now has been their inability to play nice with each other. Standardization protocols have been slow in forming, and as such, there are architecturally interesting technologies out there that are hampered by the fact that they can’t communicate with the world outside of themselves.
Imagine, for instance, the myriad blockchains which possess their own quirks, advantages, and drawbacks. They’re siloed and can’t speak with each other or take what’s good about the other and integrate it into a new web of blockchains. So, instead, all of these blockchains are simply mired in their own downsides.
The future of blockchain — and the internet, for that matter — rests with interoperability, and Elrond knows that. If the point of decentralization is the defeat of third parties and the sovereignty of users, then building systems without interoperable characteristics is a fail. At first, Elrond is building out bridges that allow its network to run Ethereum smart contracts seamlessly at first, and those of other important blockchains later on.
This is all part and parcel of Elrond’s philosophically-centered ideals about censorship resistance. In their problem statement, the team expands on this notion, writing:
Now, the Elrond team doesn’t think they are solely responsible for creating the new layer of the internet which resists centralization and puts power in people’s hands. But, by creating a network with those concepts as axioms, they’re certainly enabling others to step in and build on what it has started. A permissionless network that can out-scale the best of centralized systems is a very powerful tool indeed.
Use Cases
Talking use cases is sometimes a slippery slope because, in the case of a public blockchain network like Elrond, the sky is the limit in terms of what can be built on its network. Having said that, there are a few powerful, if not standard, use cases which the team is already exploring.
- Decentralized Exchanges — DEXs are an obvious fit for blockchains with high throughput. Binance Chain’s DEX can run 2,000 TPS, and Binance boss CZ has stated it can scale up if future demand calls for it. Elrond is already peaking at over 10,000 TPS in testnet alone, which means that expanding interest in digital asset exchange will benefit high-TPS networks very soon. Nash DEX (formerly known as NEX) is one such exchange that’s recognized the impending benefits of high throughput networks, and that realization has led it to form a partnership with Elrond. Nash cofounder Fabio Canesin also sits on Elrond’s board of advisors.
- Unstoppable Applications — Want to create a censorship-resistant gaming application that can run without tangible limits? How about financial applications that can benefit everyone from a rural subsistence farmer to an inner-city part-time worker? Elrond has you covered — even if you build it out on Ethereum and want to run it through Elrond’s high TPS network.
- Payments — Clearly, the most basic and native use case for the Elrond network is payments. Way back in 2018, Elrond formed a strategic partnership with Netopia, Romania’s biggest payment processor with a $400 million annual turnover in 2018. Commercial applications looking for a big boost in TPS and security while simultaneously lowering their fees substantially will like the look of Elrond’s offerings.
Competitors
There’s no denying it — the public blockchain field is a heavily competitive and seemingly saturated one. The list of competitors goes on and on, including, but not limited to, Ethereum, Zilliqa, Binance Chain, Cardano, EOS, MultiVAC, Hashgraph, Quarkchain, Harmony, NEO, Kadena, Dfinity, and Algorand. Those are some big names, and several of them are already incumbents (Ethereum and Binance Chain to name two).
To differentiate themselves from the pack, Elrond published the following chart:
While TPS isn’t everything, it’s worth mentioning that although Bitcoin and Ethereum do have slow transaction speed right now, they’re both about to benefit from major upgrades and developments like the Lightning Network and Casper + sharding. When those upgrades fall into place, will Elrond stand out enough from the pack?
It just might. We wouldn’t bank on TPS speed as the deciding factor when sorting out the benefits of each blockchain. Instead, interoperability might play a bigger role. By making it easy for others to use Elrond without having to fully commit to it, the network may garner compounding network effects and gain a real foothold in the blockchain space.
Roadmap
Elrond has made a big splash by coming to market with a raft of accomplishments. Having already released several successful testnet versions, the team has also started open sourcing their software while simultaneously updating their technical documents to reflect advancements in the technology.
The rest of 2019 looks to be a packed year in terms of milestones, and given the team’s accomplishments to date, they seem prepared to deliver on them.
Their Q4 mainnet release will be a crucial one — many other competitors have also scheduled Q4 2019 for mainnet releases, with the most notable being Dfinity. Getting to market on time to stay relevant will be decisive. Considering that the team has either been ahead of or on schedule throughout their brief history, however, means that it’s looking good from here.
Tokenomics
Elrond’s native tokens are called ELronds (ERD) and are used for:
- Payments on the Elrond network
- Staking during consensus
Nothing revolutionary there — but again, no need to reinvent the wheel. For the token sale, Elrond boasts modest funding goals which make it an attractive investment. As expected throughout some circles, Elrond made the cut as Binace’s next Launchpad IEO. The small hard cap combined with a Binance connection go quite a ways in making this token likely to hit the ground running.
Team
The Elrond team is made up of a quality mix of experienced entrepreneurs and highly decorated developers. Their team includes PhDs, ex-Intel, Google, NEM, and aspiring academics specializing in relevant fields like machine learning. We like the mix of business, academia, and tech that’s present on the Elrond squad — an interdisciplinary approach often bears sweet fruit because the echo chamber effect is diluted.
Our Take
Stated plainly — Elrond has a lot going for it. The team is solid and went through the unconventional process of actually building a product before looking for funding of any kind. That bodes well when considering the team’s dedication to accomplishing what they’ve set out to do — deliver an interoperable public blockchain that provides the world with a scalable alternative to centralized networks.
Our concerns are limited to the saturation of the field in which they’re emerging. TPS speeds are no longer the marketing catch-all that they used to be — and neither is interoperability. Facebook’s Libra project has well and truly changed the crypto game forever. Elrond’s approach of talking up its full scalability might have been a better look in 2017–2018. In today’s market, parsing the project’s image and language down until it’s just understandable, relatable, and appealing to the most amount of people would align much better with their intentions of striking a chord with the public in the first place.
Permissionless blockchains are for the people — but somehow, we always end up talking about enterprise adoption and targeting those users most strongly. Why not bring the masses into it? That’s what Facebook’s Libra is doing, and it’s a brilliant, though obvious, approach that the rest of crypto can learn from.
From a tokenomics perspective, the microscopic raise Elrond is going for relative to the valuations of their competitors makes for an attractive investment that will surely lure plenty of interest and exchange volume — especially with a debut on Binance. Quality projects like Elrond don’t come around often enough, and when they do, the crowdsale price tag is often much higher. For that reason, this is a project we’re bookmarking and will keep a keen eye on for the future.
