When it comes to supply chains, food safety, or the verification of products’ authenticity, traditional solutions are in themselves problematic. It’s expensive and resource-heavy to develop and maintain such systems and they usually lack the efficiency, speed, and flexibility needed to fulfil rising consumer demands. And we don’t have to go back in time too much to see the real-world impacts of the above limitations.
In March, stories about Ever Given were all over the news, as the mega-sized container ship disrupted supply chains and caused an estimated $9.6 billion daily damage (nearly $58 billion in total) to global trade as it was stuck for six days in the Suez Canal.
Fortunately, as with many other industries, blockchain technology is increasingly utilized to enhance supply chain management, business processes, and other related areas. In this article, we will introduce you to VeChain, one of the leading enterprise-focused crypto projects leveraging the power of the blockchain to solve the inefficiencies of supply chains along with other vital fields businesses have long been struggling with.
What Is VeChain?
Founded in June 2015, VeChain is a cryptocurrency project that features a robust, highly scalable, smart contract-powered public blockchain platform designed to serve enterprise clients throughout various industries.
By integrating Internet of Things (IoT) devices, supporting smart contracts, and leveraging the benefits of blockchain technology – such as immutability, transparency, traceability, and high security –, VeChain’s enterprise blockchain allows businesses to control their risks and manage their processes more efficiently while reducing their operational costs.
Examples of industries VeChain seeks to disrupt include:
- Supply chain management
- Carbon reduction
- Digital content distribution
Managed by the non-profit VeChain Foundation along with a semi-decentralized governance process, the crypto project has achieved quite some adoption among enterprises since the launch of its mainnet in 2018.
In addition to strategic deals with well-known auditor firms like PwC and DNV GL, VeChain features numerous partnerships, such as with the Chinese government, the German carmaker BMW Group, the Chinese branch of the multinational retail company Walmart, the clothing giant H&M, and Cyprus’ government.
How Does VeChain Work?
Now that you know the basics of the crypto project, let’s take a look at VeChain’s ecosystem and its public enterprise-focused blockchain platform called VeChainThor.
Consensus and Meta Transaction Features
One of the most important components of blockchain platforms is the mechanism utilized to reach a consensus among participants.
VeChain uses the Proof-of-Authority (PoA) consensus mechanism in the VeChainThor blockchain network. Without going into the details too much, PoA is an algorithm that requires validators to get authorized to participate in the consensus process.
While this means validators have to perform KYC and verify their identities to get selected to produce blocks, the PoA mechanism removes the need for full nodes to compete with each other (e.g., like in the Bitcoin or Ethereum network). As a result, they don’t have to spend many resources to verify transactions and add new blocks to the chain.
Instead, the algorithm will pick a validator meeting certain criteria – including successful KYC, verified identity, staking at least 25 million of the native VET token, and having the necessary hardware and bandwidth – on random without taking the computational power, the amount of staked coins, or other factors into account. This allows VeChain nodes to start with equal chances.
Leveraging the PoA consensus mechanism, block production on the VeChainThor network is performed by 101 Authority Masternodes (AMs), consisting mainly of the project’s business and strategic partners. While the limited number of validators – and the fact that they have to be chosen to participate – increases the centralization of the network, it allows for much greater scalability than most blockchain solutions.
In addition to the consensus mechanism, it’s essential to highlight the enhanced transaction model VeChain utilizes to increase the efficiency of the network.
As this model is rather technical, we have simplified and collected its core features below:
- New method to identify the uniqueness of transactions and eliminate related vulnerabilities in a way that suits account-based blockchains
- Utilizing the Multi-Task Transaction (MTT) model to allow a single transaction to carry out multiple tasks
- The ability for users to customize the minimum and maximum time in which their transactions can get processed, which comes in handy during periods of high network capacity
- Optionally, users can delegate transaction fees, which allows them to utilize decentralized applications (dApps) on top of VeChainThor without holding cryptocurrency or paying transfer fees
VeChain has a rather unique on-chain governance model that aims to provide a good balance between scalability and decentralization.
As mentioned earlier, the project is managed by the non-profit organization VeChain Foundation, with its governing body being the Board of Steering Committee.
While this may at first seem a centralized way to operate a project, the committee’s members are selected by VeChain’s stakeholders and include:
- Authority Masternodes (40% voting authority): VeChain’s KYC-verified validators consisting of 101 members that are randomly selected to produce blocks.
- Economic X Nodes (40% voting authority): A limited (non-extendable) set of economic nodes that have been early supporters of the VeChain ecosystem.
- Economic Nodes (20% voting authority): Like early supporters, Economic Nodes don’t participate in the consensus mechanism but stake their VET tokens to secure the ecosystem, vote on governance decisions, and gain rewards in exchange. Unlike Economic X Nodes, anyone can operate an Economic Node (upon fulfilling the criteria of staking a certain amount of tokens) with no limitations in terms of their numbers.
Stakeholders in the above three categories can vote on governance decisions, such as:
- The election of a new Board of Steering Committee
- Major changes to the blockchain’s consensus mechanism
- Matters concerning the project’s tokenomics
- Important subjects the Board of Steering needs stakeholders to vote on
While VeChainThor is designed primarily to serve enterprises, the project allows and encourages individuals, crypto startups, developers, researchers, and other market participants to become active users of the ecosystem.
For that reason, VeChain features a rapidly expanding ecosystem, with key solutions including:
- Toolchain: Toolchain is VeChain’s blockchain-as-a-service (BaaS) platform that offers a wide variety of services to enterprises, such as supply chain process control, product lifecycle management, and data certification.
- Connex: Connex is the standard interface to build and connect dApps with the VeChainThor blockchain to serve end-users.
- VeChain Sync2: Sync2 is the upgraded version of VeChain’s native wallet app, which is available on all mainstream devices, browsers, and operating systems. In addition to basic functionality (e.g., sending and receiving VET transfers), the wallet allows users to interact with dApps within the blockchain network.
- Grant program: VeChain offers grants to promising projects and development teams for a total of $1 million (for 2021) and up to $30,000 per application to encourage them to join the enterprise-ready blockchain’s ecosystem.
VET and VTHO: Introducing VeChain’s Two-Token Model
VeChain uses a dual token model to operate its platform, featuring two distinct coins:
- VeChain Token (VET): A value-transfer medium utilized mainly for business and financial activities, staking, and participating in the governance mechanism.
- VeThor Token (VTHO): A cryptocurrency representing the underlying costs of utilizing the VeChainThor blockchain. It is generated from holding VET at a constant speed, and it is consumed (destroyed) after performing on-chain operations.
Basically, while VET is a token designed for transferring value, VTHO has similar functionality as Ethereum’s gas, which is used to cover the costs of sending transactions, deploying smart contracts, and running dApps on top of the chain.
Interestingly, unlike in most DLT networks where validators stake the (primary) native token (VET in this case) to maintain the ecosystem, VeChain distributes block rewards to Authority Masternodes in VTHO instead of VET.
While VET has a fixed supply of 86,712,634,466 coins, VTHO has no such max cap and features a dynamic supply (it’s currently around 37.6 billion tokens), which is based on multiple factors, such as the demand for VET as well as the activity on the blockchain.
As mentioned earlier, VTHO is consumed after usage. In practice, this means that the network burns 70% of the tokens while distributes the remaining 30% to Authority Masternodes as block rewards.
Now, let’s take a look at how the two coins’ prices performed in 2021.
While VET started the year at $0.019, it entered into a bull run and managed to hold its price at $0.074 despite the recent market correction, representing a 290% year-to-date (YTD) ROI (as of July 13). VTHO experienced an even greater value increase since January, featuring a nearly 700% growth in 2021.
VeChain: an Enterprise Blockchain With Excellent Potential
With a robust, scalable, and speedy blockchain tailored to fulfill enterprise demands, VeChain has excellent potential to improve business applications’ efficiency throughout several sectors with innovative solutions.
Maybe this is the reason why VeChain is among the most adopted cryptocurrency projects, featuring a great number of well-known business partners.
While the project’s network is a bit more centralized than others due to the limited number of Authority Masternodes and Economic X Nodes, it provides a good balance between efficiency and decentralization.
And, considering that VeChain’s primary audience is enterprises, it makes sense to sacrifice a level of decentralization to offer a better user experience.
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