Elrond is a project that has been getting quite a bit of attention lately. Like many other projects before them, they are focused on scalability. When I say a bit of attention I mean a more than 5,000% jump in the value of its ERD cryptocurrency in less than 4 months! That was in early 2020, between mid-March and the launch of the Elrond mainnet in July 2020.
However in September 2020 the ERD cryptocurrency underwent a change as it was transitioned to the new eGLD, or eGold, cryptocurrency. In addition to becoming the native cryptocurrency of the Elrond blockchain (all ERC-20 and BEP-2 tokens were swapped) it also saw a redenomination of 1,000 ERD to 1 eGLD, which was in-line with the changed economic model that saw the total supply of the cryptocurrency drop from 20 billion for ERD to 20 million for eGLD.
You can read more near the end of this article, when we cover the ERD and eGLD tokens and the tokenomics of the Elrond project.
We will note here though that the eGLD token has also seen a roughly 300% increase in the 5 months since it was released.
Scaling and throughput is perhaps one of the most pressing concerns facing some of the largest blockchains today. We have all witnessed blockchain bloat and the inevitable frustrations that come with low throughput and slow transactions.
Yet, with so many competing solutions, is Elrond worth it? Can we justify the huge spike in its price that’s come in response to the official mainnet launch of the Elrond blockchain? Given that after a brief period of profit taking in the token it resumed its climb high it does seem as if it is justified to Elrond investors.
In this Elrond review, I will give you everything that you need to know about the project. I will also take a look at the long term prospects for the eGLD token.
What is Elrond?
The Elrond Network is a public blockchain created to provide high-level scalability, interoperability, and high throughput. The goal is to create a decentralized network that can provide the same or better performance when compared with centralized networks, while also providing users with greater privacy.
Erond Network in Comparison. Image via Elrond.
The Elrond Network plans on achieving these goals through its unique technology Adaptive State Sharding, and by using the Secure Proof of Stake (SPoS) consensus mechanism.
The Elrond Network has several key pieces that make up the framework of the blockchain.
Nodes and Users: These are the two main pieces keeping the network running. Users deploy transactions on the network, either as a transfer of value or as the execution of a smart contract. Nodes are the devices on the network that process these transactions in both an active and passive manner.
Validator: These are special node types that provide block generation and consensus building in return for rewards. Validators are required to stake tokens to become eligible and are then nominated by other stakeholders. Other special node types include observers and fishermen, which we will describe later.
Shards: The 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.
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.
eGLD Tokens: The eGLD token is what powers the network, acting as the entry point for the network, and providing the means to pay for transactions, dApp deployment, storage, smart contract execution and rewards to validators. Transaction fees are split between validators and the Elrond Community Fund.
Adaptive State Sharding Technology
Adaptive state sharding is a unique way to employ sharding technology, and while it has long been a database optimization technique, it is only recently being introduced to blockchain applications.
Sharding Tree Structure & Shard Redundancy across Epochs. Image via Whitepaper.
Elrond is using adaptive state sharding to accomplish a number of key goals:
- The network will be able to maintain scalability without affecting the availability of the network. This means that no matter how many shards are present in the network it shouldn’t impact state updates or network uptime.
- Determining the destination of transactions is easy to calculate and deterministic thanks to the sharding solution, leading to instant traceability and dispatching.
- The adaptability of the network means shards remain balanced at all times.
- The state sharding solution employed by Elrond means demand changes are handled without an impact on the security of the network.
The Elrond Network divides its blockchain timeline into epochs and rounds. While it is possible to modify epochs by modifying the architecture of the system, for the most part, the epochs have a fixed duration.
At the end of an epoch, shards are pruned and reorganized across the network. Rounds also have a fixed time span. As each new round begins a new consensus group is randomly selected for committing one block.
Secure Proof of Stake Consensus (SPoS)
The SPoS consensus mechanism used by Elrond was developed to improve the existing Proof of Stake solutions. It reduces the latency in the network and allows any node in the shard to determine which members will be part of the consensus group at the start of each round.
Randomization is provided through the aggregated signature from the last block. The Elrond team estimates this reduces the time required to elect a consensus group to under 100ms.
Graphical Representation of Elrond Sharding. Image via Elrond Docs.
There is also a weighting factor introduced that serves to promote meritocracy among nodes while also considering stakes. And Elrond introduces the Bellare and Neven multi-signature scheme which was designed to reduce the number of rounds of communication necessary in the signing algorithm.
As a more sophisticated version of Proof of Stake, it aims to ensure distribution of shards is fair, and it is a compromise between increased energy and computational demands and security.
Elrond Network Roles
Validator: Validators are nodes on the Elrond network that process transactions and secure the network by participating in the consensus mechanism, while earning rewards from the protocol and transaction fees. In order to become part of the Elrond network, a validator needs to put up collateral in the form of EGLD tokens, which are staked to align the incentives between validators and network goals. Validators stand to lose, their stake if they collude to disrupt the network.
Observer: Observers are passive members of the network that can act as a read & relay interface. They can be either Full, keeping the entire history of the blockchain, or Light, keeping only 2 epochs of blockchain history. Observers are not required to stake EGLD tokens to join the network and are not rewarded for their participation.
Fisherman: A node which verifies the validity of blocks after they have been proposed. They challenge invalid blocks resulted from adversity of malicious actors and are rewarded for their service. The Fisherman role can be fulfilled by validators which are not part of the current consensus round or by observers.
Elrond Network Performance
Elrond launched its mainnet on July 30, 2020. The developers are looking to create a blockchain that is at the heart of a global, border-less and fully accessible digital economy.
This can be achieved by making Elrond a platform that uses a scalable value transfer protocol along with easy deployment of decentralized applications (dApps). The first such dApp called Maiar was launched alongside the mainnet launch. The Maiar mobile dApp, which is both a wallet and a fiat on-ramp, has a number of features that tie in with the broader goals of Elrond.
One of the key features offered by Elrond is its near-instant transaction performance and the linear scaling that will allow the network to grow. The Elrond website claims the network can process 250,000 transactions per second, and Elrond’s Adaptive State Sharding enables up to 260,000 TPS according to their recent testnet results.
The platform also features reduced storage requirements and improved linear scaling as more nodes join the network. The combination of linear scaling and parallel processing is the key that will allow Elrond to surpass the throughput of current centralized solutions.
Cross Chain Interoperability
In addition to efficient decentralization, Elrond is also looking to provide cross-chain interoperability. The team wants to deliver full decentralization in hopes of minimizing the possibility of bad actors exploiting a single point of failure.
The team also hopes to do away with exchanges as the main point of interoperability between blockchains. The Elrond Network has plans to allow full communication between various external services, beginning with the implementation of the Elrond Virtual Machine (EVM).
Components of the Elrond Virtual Mahchine
This virtual machine will support smart contracts written in Solidity, allowing users to create secure transactions between Elrond, Ethereum and other ERC-20 tokens without using an exchange. The Elrond VM will also feature an adapter mechanism that will allow communication with other chains that include adapters to work with Elrond.
The Maiar dApp
One of the major goals of Elrond is to develop a dApp ecosystem and that got off with a bang as the team released the very first dApp, called Maiar, in conjunction with the launch of the mainnet.
Benjamin Mincu, founder and CEO of Elrond, has called the Maiar mobile app the “gateway to the unbanked”, noting that “A large population of the world is unbanked, without access to the existing financial infrastructure, and so their opportunities to participate in wealth creation are extremely limited”
Maiar is a blazingly fast, privacy-focused browser first and foremost, but it will also have a wide array of useful features. These include the ability to store, stake, send, and receive eGLD coins. Users will also be able to purchase eGLD tokens right from the wallet using more than 150 different fiat currencies.
Elrond Maiar App on the Apple iTunes Store
Maiar has been positively received from the start, with a 4.4 star rating on the Google Play store, and a 5 star rating on the Apple App store. Unlike many new dApps Maiar is fully developed at launch, with few bugs. It has a clean and easy to understand interface that is meant to make adoption by new users as stress-free as possible.
Elrond hasn’t released a roadmap for new Maiar features, but we can bet it will include a connection to a dApp store and links to any coming DeFi applications
The Elrond Team
Elrond is fortunate in that it has a team that features professionals with both technical and entrepreneurial backgrounds.
The CEO of the project is Benjamin Mincu, who began his blockchain experience as a part of the NEM core team for 1.5 years. He led the marketing, business and community building efforts to turn NEM into a global blockchain product.
The CIO at Elrond is Lucian Mincu, an engineer with 8 years experience designing complex infrastructure and network solutions for clients such as the German government.
Some members of the Elrond Team
The COO at Elrond is Lucian Todea, a successful entrepreneur who has over 15 years of experience investing in the technology space and is active in both startup and blockchain spaces.
All of this has given him significant management, business development, leadership, and investment experience. In addition to his role at Elrond, he is also a CEO, partner and founder of several tech startups.
The complete team is comprised of 24 technology and business professionals, all of whom bring extensive experience, skills, and talents to the Elrond Network project. There are an additional 7 advisors to the project who bring even more technical experience to Elrond.
The size and enthusiasm of a community can have a direct impact on the awareness and adoption of a cryptocurrency project. They impact on marketing as well as general trading volumes.
Hence, I decided to take a closer look at the community that is behind Elrond.
Firstly, they have an official Telegram group that has over 29,000 members. Note that this is more than double the size of the group just 6 months earlier. I jumped into the Telegram to get a better sense of the conversation and the conversation was quite engaging.
Convo in the Elrond Telegram
Then, on the traditional social media side, they appear to only have a Twitter account. This has just over 138,000 followers which is a jump of over 800% compared with the 16k followers they had just 6 months earlier. It’s safe to say that Elrond is generating a lot of interest since launching its mainnet.
Plus, the team is quite active on their Twitter and share useful updates about the project. They also have an official blog that is kept fresh with contet that keeps their community informed.
The (Discontinued) ERD Token
The ERD token was used to power the Elrond Network, and it was the second token launched on the Binance Launchpad. The lottery format initial equity offering ended on July 1, with the Elrond Network raising $3.25 million. That sale offered 5 billion ERD tokens or 25% of the total 20 billion token supply.
The ERD token was a BEP-2 token while the network ran on a testnet. Since the launch of the mainnet the Elrond team has announced a dramatic change to the token economic model, which I will discuss in further detail below.
ERD tokens sold for $0.00065 each during the IEO, with the winning lottery ticket holders receiving 461,538.61 ERD, or $300 worth. There were a total of 10,833 winning lottery tickets.
ERD Price Performance. Image via CMC
The price of ERD initially jumped higher following the IEO, trading above the $0.007 level. It fell off its highs and has been volatile since, trading in the range of $0.0027 and $0.0075.
As of August 5, 2019, the price was $0.002953, giving the lottery winners a more than 4x return on their investment.
That was only the beginning though. In 2020 the ERD token fell to a low of $0.000569 on March 13. From there enthusiasm for the coming mainnet launch began and the price of ERD rocketed higher, gaining over 5,100% by the mainnet launch on July 30, 2020.
The actual all-time high for the token was $0.029489 reached on July 27, 2020. The price dipped following the mainnet launch, but was still holding up well at the $0.024 level as of early August 2020.
Mainnet Launch & Tokenomics Change
While the mainnet launch itself was obviously a big deal, the biggest announcement was the change to the token economics of Elrond. The team made the decision to drastically reduce the total supply of ERD tokens from 20 billion to just 20 million.
Along with that they also announced that over the next ten years there would be a maximum of 11,415,927 new tokens emitted. So the maximum total supply is now 31,415,927, which is significantly better than the old model since now it is capped. After ten years no more tokens will be emitted.
The change was made to adopt an improved deflationary Bitcoin-like economic model, and to build a more robust currency that could eventually become the global digital reserve currency.
The change is expected to allow the token to serve as a low-cost unit of account and staking asset for now, while gradually lowering its stock to flow, which will incentivize users to hold ERD in their wallets and use it like money.
Conversion of ELD Tokens into eGLD. Image via Elrond Blog
One other change is to migrate the current ERC-20 and BEP-2 ERD tokens to a new native eGLD token that will be exchanged at a rate of 1,000:1. That means 1,000 ERD tokens will be exchanged for 1 eGLD coin.
Along with that the value of eGLD will be 1,000 times that of ERD. So, if ERD is trading at $0.025 at the date of conversion it will mean 1 eGLD will be worth $25.00. The swap from ERD to eGLD was announced on August 28, 2020 and the eGLD token began trading on September 3, 2020 while the actual token swap began on September 4, 2020.
Those interested in learning more about the economics and operational reasoning behind the switch from ERD to eGLD can watch the AMA that was put on by the Elrond team following the launch of the mainnet.
An Overview of eGLD
In changing the native currency of the Elrond network so dramatically you can imagine that the Elrond team had very good reasons for doing so.
So here’s an overview of the most important features and characteristics of eGLD:
1. Designed for simplicity and global adoption.
When we look at the adoption of blockchain technology and cryptocurrencies the largest obstacle has been the complexity inherent in the new technology. Just try explaining blockchain and the utility of cryptocurrencies to the average person and you’ll quickly see this is true. The Elrond team saw this obstacle with ERD and knew that to reach over 1 billion people they needed to completely rethink and redesign the tokenomics of the Elrond native currency.
2. Digital store of value and a global reserve.
When the Elrond team created eGLD they knew it would be the core of all internal usage in the Elrond ecosystem. They went further by designing it to create a strong store of value, similar to physical gold, but with functionality that could make it superior to gold in the long run.
By creating new ticker symbols beginning with the ‘e’ prefix the team is making cryptocurrency more intuitive and easier to understand. Plus it creates a logical and coherent derivation path for future digital assets and currencies.
Embedded in the design of eGLD is the premise that the Elrond network will be compatible with other cryptocurrencies and with fiat currencies issued by governments. Eventually all will be able to tap into Elrond’s huge bandwidth capabilities and offer ways to transfer value electronically. In the future Elrond plans on creating many new ‘e’ tokens that encompass fiat currencies, synthetic assets, and stable coins.
3. Built-in scarcity reinforces demand for eGLD
By lowering the supply of eGLD to 20 million the supply of eGLD per person is a very low 0.0025 eGLD per person. This stimulates demand for eGLD, assuming owning several hundred eGLD now is similar to owning several hundred Bitcoin back in 2010.
4. Staking incentive for validator adoption
Validator nodes have a strong incentive to stake eGLD and secure the network which comes from the newly issued eGLD supplies over the coming decade. Eventually as adoption increases the inflation created by new supply is supplanted by transaction fees to cover staking rewards. The staking incentive becomes greater by limiting the total supply of eGLD to 31,415,926 eGLD, which will be reached by 2030.
5. Adoption reduces inflation and increases scarcity
By substituting the emission of new tokens with transaction fees the theoretical limit of eGLD is reduced, which contributes to the scarcity of the token over time. Increased adoption of eGLD increases this dynamic and ensures that the theoretical supply limit of 31.4 million eGLD will never be reached.
Looking at the utility of eGLD, the strength of the Elrond network, and the potential adoption of Maier it is clear that each is individually very valuable. When combined however they create a powerful ecosystem that is liable to create a financial revolution similar to the industrial revolution experienced over a century ago.
Given the fixed supply of eGold, combined with the global distribution and intuitive simplicity of Maiar, every new user joining the application will be directly reflected in the value of eGold. So the question becomes, how will eGold look with 1 Million people using Maiar? How about 10 million or 100 Million people?
Buying & Trading eGLD
Since the coin was launched by Binance Launchpad it should come as no surprise that nearly all the trading volume is on the Binance Exchange. There are only a handful of other exchanges who list the coin, and the only other significant trading volume is at OKEx.
This does mean that eGLD liquidity is highly concentrated on one exchange. If ever there was a disruption with trading on Binance then is could pose a risk the broader liquidity of the token and hence have a negative impact on trading. It’s unfortunate that this was the case for the ERD token, and there was no change after the swap to the eGLD token.
Having said that though, the turnover on Binance is really quite impressive. In fact, compared to similar market cap coins, Elrond has much higher levels. This bodes well for execution of large block order on Binance.
For storing your eGLD tokens your best choice is to use the native eGLD wallet. It’s a crypto wallet where you can securely transfer, receive and store your Elrond tokens, while interacting with Elrond dapps. You could also choose to use the mobile dApp Maiar, which acts as a wallet and much more.
At the genesis of the mainnet Elrond deployed a closed staking and delegation system to help bootstrap the mainnet. At the time there was a no-in and no-out for deligators and validators.
In addition to bootstrapping a larger community, the closed staking and delegation was designed to create an economic deterrant to network attacks.
Once that was complete the network moved on to a four phase staking and delegation transition as below:
- Phase 1 – Incentivized Delegation Queue
- Phase 2 – Validators Queue
- Phase 3 – Open Staking
- Phase 4 – Advanced Staking features
Phase 1 (Activated October 14, 2020)
The first phase created an incentivized queue for community members to delegate eGLD tokens and reserve a spot in the queue, subsequently receiving rewards for the time spent in the queue. In phase 1 the existing delegators were also given the ability to withdraw their delegation, thus allowing the first queue members to replace them. In phase 1 a minimum of 10 eGLD was required to join the queue.
In the first phase delegation was done towards Elrond community nodes. Later phases open delegation to staking providers. The reasoning was to ensure that foundational nodes remained fixed at 1454.
Phase 2 (Activated December 1, 2020)
Phase 2 introduced features that allow any validator to stake and unstake eGLD. Current validators seeking to add new nodes and new validators wishing to create their first node were able to join the queue by staking 2,500 eGLD per node.
The queue system was used in order to keep a list of new nodes wishing to join the network so that when an existing node unstakes a new node is able to replace it on a 1:1 basis from the validator queue. This was done to ensure the number of nodes doesn’t fall below 1,920, which allow 3 shards and 1 metachain to be maintained. It also allows a minimum of 80 additional nodes on the waiting list for additional shards. At phase 2 the APR is held to a maximum of 20%.
Phases 3 and 4
Phases 3 and 4 were meant to go live 4-6 weeks after the launch of phase 2, but as of early February 2021 we are still awaiting these next phases. When enabled they will allow for an increase in the number of nodes, the possibility of staking more than 2,500 eGLD per node, open delegation, and a new soft auction system.
Phase 3 and 4 will feature a proposal to Elrond validators and to the community in order to generate comments and feedback. It is expected that the transition to these phases will also feature the very first on-chain community voting.
The Elrond Network has been in the works for three years, and with the release of the mainnet is joining the mainstream blockchain projects. The fact that the project was backed by Binance Launchpad is a good sign, indicating Elrond was fully vetted by Binance and found to be a solid project.
The run-up in the price of the ERD token ahead of the mainnet launch is also highly encouraging, especially when you consider the lack of coverage by cryptocurrency exchanges for the token. That’s also been followed up by a rise in the value of the new eGLD token, showing that the token value has staying power.
Certainly, the team seems very competent, with a deep skillset. So far they have performed very well, hitting deadlines and deliverables as promised. This alone is valuable in the blockchain space.
With the unique Adaptive State Sharding and Secure Proof of Stake, the project promises speed and scalability that hasn’t been seen from many projects. And the inclusion of support for multiple smart contract languages can only help as Elrond moves into the decentralized application space.
It’s an ambitious project to be sure and we will have to wait to see how rapidly the team is able to continue developing and deploying solutions to determine the potential longevity of the project. While the project looks excellent on paper, it will need to remain nimble and agile to remain ahead of the competition.
Featured Image via Fotolia