Harmony ($ONE) Fundamental Analysis

Harmony ($ONE) Overview

Scaling refers to the ability of a blockchain network to provide enough transactional throughput to properly host decentralized applications (DApps), digital currency payments/transactions, gaming, and other network-intensive use cases.

Decentralized networks provide unrivaled security when compared to their centralized counterparts. However, if those networks are unable to scale, developers working to build the Web 3.0 won’t do so on blockchains. How to ensure their participation in our nascent industry? How to get them on our side to build the decentralized economy?

The answer, according to Harmony (ONE), is to scale. While that answer isn’t particular to Harmony, their solution and capability are impossible to ignore. Bitcoin and Ethereum are able to handle around ~8 TPS and ~15 TPS respectively. VisaNet, in contrast, can run up ~20K TPS and routinely does up to ~2K TPS on a normal day. Clearly, neither Bitcoin nor Ethereum is going to handle Visa-scale payment systems anytime soon.

The thing is — scaling isn’t just about handling payments. It’s also about building, hosting, and exchanging both fungible assets (such as in-game credits, loyalty points, etc.) and non-fungible ones (such as collectibles & real estate). In a world in which (we hope) everything will be tokenized, the decentralized economy will hinge on networks that can bring digital asset marketplaces up to speed. Harmony aims to do just that.

Harmony brings together several key blockchain innovations while adding some of their own — all with a stellar cast of team members who are beyond capable of delivering what may be one of the year’s most promising projects. To add to the hype, Harmony is the first project to launch on both Binance’s traditional exchange and its DEX. It’s also the second project (the first being Matic Network) to fundraise on Binance’s IEO Launchpad using their lottery system.

Matic’s launch was a resounding success to the tune of 400%+ gains — and so far, Harmony’s lottery is vastly more oversubscribed than was Matic’s. Moon talk aside, Harmony has real deliverables that are well worth taking a serious look at, so without further ado, let’s dive into the project’s details.

Open Consensus for 10 Billion People

Harmony’s main claim to fame is their blockchain’s ultra-high throughput capability. Unlike Matic, Celer, and Lightning Network, Harmony is not a second layer scaling solution. It’s a standalone blockchain with a tailor-made sharding solution at its core for unstoppable onchain scaling.

In building a decentralized network, a so-called impossible triangle problem exists. Decentralization, security, and scaling are three qualities that would make for a perfect network, yet no project has been able to achieve a network that maintains a balance of all three. Fast blockchain networks like Hyperledger and EOS sacrifice decentralization (by centralizing nodes) to
achieve higher throughput, while relatively decentralized networks such as Bitcoin and Ethereum sacrifice scalability for network security/decentralization.

The Harmony team believes they’ve solved the impossible triangle conundrum once and for all by building a blockchain network based on sharding that gets better, faster, and stronger as it becomes more decentralized. As described in Harmony’s whitepaper, “The scalability solution that both preserves security and decentralization is sharding, which creates multiple groups (i.e., shards) of validators and lets them process transactions concurrently. As a result, the total transaction throughput increases linearly as the number of shards grows.”

If sharding were the only missing link in the blockchain performance equation, then Zilliqa would have already taken the prize for the greatest innovator. Harmony’s whitepaper goes on to point out that Zilliqa, despite making significant technological gains with their approach to sharding, still falls critically short in two ways. In the first place, Zilliqa falls victim to what is known as a single-shard attack because of its reliance on PoW consensus. In the second place, it’s doesn’t effectively divide the storage of blockchain data, meaning that users with less computing resources can’t participate in the network (limiting decentralization).

This is where Harmony makes its primary intervention — by introducing a sharding solution in concert with an FBFT (Fast Byzantine Fault Tolerance) consensus mechanism, proof of stake (PoS) with low entry requirements for maximizing decentralization, and distributed randomness generation (DRG) for quickly and randomly selecting nodes. Owing to these characteristics, Harmony does have a lot in common with Algorand from a technological standpoint, but Algorand’s niche is payments/pure digital currency, so the two don’t share much operational overlap.

Sharding Matters

In effect, sharding makes it possible to have many lightweight chains processing transactions concurrently. Each shard is responsible for a certain packet of transactions. By breaking up the workload across many shards (as opposed to keeping the workload concentrated as Bitcoin does), the network can handle a bigger load (more transactions) and increase performance dramatically. Sharding is the key development upon which Vitalik Buterin is staking the future of Ethereum (called ETH 2.0), and it’s also the reason Quarkchain gained early fame for its high TPS ability.

What Harmony does differently is it not only shards network communication and transaction validation, but it also shards the blockchain state. Blockchain state tends to be a heavy piece of infrastructure, but in sharding it across the network, the Harmony blockchain becomes highly adaptable, fluid, and fully scalable without any apparent limitations.

Staking and ONE Token

As the first in a long line of impending sharding-based PoS blockchains, Harmony is blazing a new trail when it comes to staking rewards. They’ve got a few precursor models to look up to such as Cosmos, Tezos, and ETH 2.0 — but none of those models incentivize decentralization to the extent that Harmony does/wants to.

Harmony’s proof-of-stake blockchain contains over 400 validators per shard. Validators do two things in the Harmony system:

  1. Validate new blocks
  2. Vote to reach consensus using FBFT algorithm (2/3 quorum needed)

To vote, validators need to have voting shares bonded to them. Each voting share equals one vote, but those shares expire/become unattached to voters at the end of 7 epochs (1 epoch = ~1 day). Under this system, a minimum of about 400 voting shares are bonded in every shard before becoming available again when the epoch period ends. Entering the system as a new validator means coming in as shares become available and bidding for them using ONE tokens. If you win the bid to become a validator, your winning bid ONE tokens are staked for the 7 epoch period.

Although the current incentive model is far from complete, the general outline looks like this:

Token Rewards

  • The leader who proposed the block will get another 5% of block reward.
  • Block reward will increase with more signatures signed on the block to incentivize the leader to collect more votes.
  • Inflation rate (or block reward) will increase when the ratio of totally staked tokens to the circulating tokens is low.
  • VRF submission rewards: 5% more block rewards are given to the leader who submits his VRF randomness at the first block when it became the leader.
  • VDF submission rewards: 10% more block rewards are given to any account who is able to submit a correct VDF within the predetermined range of time.

Additionally, Harmony uses slashing to punish bad actors on the network. The slashing rules and consequences are:

Slashing

  • When the leader/validators double-sign blocks.
  • When the leader is offline (not proposing blocks).
  • When a validator fails to sign on 90% of the blocks during the last 4096 blocks (~ 6 hours).
  • When the leader fails to submit the VRF result.
  • When the leader fails to include a VDF result within the predetermined range of time.

Use Cases

Additionally, the emerging decentralized economy may find a home away from vaguely centralized entities like Ripple, Steller, Hyperledger, and EOS. Harmony’s capable system will enable cross-border remittances, digital currency payment networks that outperform Visa and PayPal, decentralized exchanges for any asset (both fungible and non-fungible) imaginable, credit ratings, carbon credits tracking, and much more.

Team and Roadmap

According to Harmony, “…Very few teams have combined expertise in academic research, global-scale engineering, and long-term company building. And while that’s who we are, it’s our down-to-earth vision of a better world that drives us. Our team members have built systems at the largest scale in the world’s top tech companies. We’ve worked on exciting projects at Google Maps, Apple Siri, and AWS Infrastructure — and now we’ve come together to build Harmony.”

Scanning through the palmares of the Harmony team leads one to see countless accolades, awards, achievements, and years spent at top engineering positions with Google, Microsoft, and leading research institutions. As a twelve person team based out of Silicon Valley, the Harmony squad has seemingly unparalleled qualifications that appear to be taking blockchain to new heights.

Their roadmap achievements appear to be a testament to their capabilities as a cohesive team. Up to now, they’ve rolled out three versions of their testnet and are due for a throttled mainnet launch during this financial quarter. In Q3, investors can expect a full mainnet launch before zero-knowledge proof DApps are rolled out in Q4.

Token Metrics

SWOT Analysis

Weakness: There is tons of competition in the sharding PoS realm, the most notable of which being Ethereum 2.0. Like Harmony, Ethereum is staking it all on a novel sharding solution. While Harmony’s team looks deep and can probably deliver on their promises, Ethereum is, next to Bitcoin, the most deeply embedded blockchain there is. Like Bitcoin, Ethereum has first-mover name recognition when it comes to smart contract platforms and is unlikely to be dislodged from its throne. There is definitely enough room for several blockchains, but if Ethereum and Harmony resemble each other too closely, then it’s likely Harmony that will lose out in bringing applications onboard.

Opportunity: Binance IEOs have been flying — we all know that. However, past performance does not indicate future results. The thing is, Harmony is a legitimately exciting project with concrete results and a bright future ahead. It also just so happens to be Binance’s strongest IEO offering so far. With the likes of Charles Hoskins tweeting support for the project, the hype for Harmony’s launch is off the charts.

Additionally, Harmony’s team has made it easy to port Ethereum-ready applications over to their blockchain. It was a smart move and one that has a good chance of prying existing DApps to their chain. With Harmony’s mainnet launch on the horizon so soon after its Binance launch, we rate this project highly in terms of financial opportunity. Having said that, investors should take care not to chase it too far should it moon on launch.

Threat: The most apparent threat to the Harmony project is Ethereum 2.0. Just as is the problem with second layer scaling solutions like Matic and Celer, the moment ETH 2.0 goes live with full onchain sharding and staking, competitors that emerged in the downtime face the possibility of being vaporized. Harmony will need to get a quick foothold if it hopes to stand the test of time against the looming juggernaut that is the next iteration of Ethereum.

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