Crypto Daily Topic

Is Sharding the Future of Blockchain Systems?

For the past few years, there has been a lot of hype surrounding blockchain – a technology believed to be one of the pillars that will support the 4th industrial revolution. Well, the craze around this revolutionary technology is justified, given the immense benefits it offers to every major industry. To be more specific, data immutability, decentralization, and security; are just some of blockchain’s fundamental properties fuelling the interest in this new technology. 

However, there is a general sentiment that blockchain has failed to live up to its hype due to the scalability problem. This explains the slow adoption of blockchain technology, even in industries such as the financial sector, where it’s well suited for use. 

The scalability problem is evident in Ethereum blockchain, which currently only processes less than 20 transactions per second. This leads to high gas prices and hence the cost of executing a transaction, as well as latency problems. Fortunately, sharding and its various iterations have proven to be a viable solution to the persistent scalability problem inhibiting blockchain adoption. 

What is Sharding? 

Sharding can simply be described as database partitioning. The concept isn’t unique to blockchain. In fact, It has been in use since the late 90s as a way of splitting large databases into smaller and manageable datasets. A good example of sharding is in a business where customers’ databases are grouped into geographical locations or age groups for efficient data management. 

Similarly, this concept is extended in blockchain. Essentially, the blockchain network is a large database with numerous nodes/validators that verify data stored in the network. Through sharding, the blockchain network is broken into smaller chunks, commonly known as shards. A set of nodes is then tasked with verifying data on an individual shard instead of verifying every data on the entire network. This way, the computational and storage workload is spread out across nodes, leading to increased throughput of transactions and lower latency. This helps to overcome the scalability problem. As such, the ledger entries are public, only that they are not processed and stored by every node. 

Types of Sharding 

There are several iterations of blockchain sharding, which are often classified in terms of the level of functionality. Below is a review of each type of sharding:

I) Network Sharding 

Network sharding is the most common type of sharding. It involves dividing the entire blockchain network into several subnetworks, with each consisting of one shard. All shards within the network process transactions in parallel, consequently increasing the performance of the entire network. 

However, this type of sharding poses a risk of one node gaining control over a majority of shards, which can lead to attacks or manipulation of the network. A possible solution for this problem would be to use a randomness mechanism to help assign nodes to a particular shard. Merkle tree root of transactions, in this case, can be used to facilitate public randomness to keep a node securely on one shard.  

II) Transaction Sharding 

Transaction sharding is an improvement of network sharding, whereby besides splitting the network into subnetworks, it goes further to divide transactions into groups which are later routed to different shards for authentication. 

III) State Sharding 

On state sharding, the entire ledger information is divided and stored in different shards. This is similar to dividing the state of blockchain into multiple states where each can process transactions independently and interact with others. 

Risks of Blockchain Sharding 

Sharding sounds great in theory, but its implementation is not as straightforward. There are several concerns that arise.

First, sharding can only be implemented on the Proof of Stake algorithm since it has active validators which can be randomly assigned to different shards. Proof of Work (PoW), on the other hand, relies on hash power to validate a block. Therefore, it’d be expensive in terms of hardware and electric power to alter any block.  

If sharding was to be done on the PoW algorithm, it would be feasible for a bad actor to accumulate enough hash power in a particular shard to manipulate the network. This is because by splitting the network – sharding – the hash power is also divided in the process. Therefore, it’ll be easier for bad actors to collude their hash power on a single shard and take control of that particular shard. 

Even when using sharding on Proof-of-Stake algorithms, there still exist challenges. One of these is maintaining inter-shard communication. Often, when nodes are assigned to a specific shard, all the associates of that particular node view the shard as an independent blockchain system, yet it’s just a segment of the larger network. In such a case, establishing inter-shard communication has proven to be difficult, requiring special efforts to develop communication systems. Even with the few inter-shard communication systems, most of which are yet to be rolled out into the market, they all have to sacrifice one of the key properties of blockchain – decentralization, and security – to achieve efficient communication. 

Also, as stated earlier, there are different forms of sharding, with each approach featuring its own pros and cons. This has led to a conundrum among industry players in terms of deciding which approach to take. 

The Future of Sharding 

Sharding has its own share of challenges slowing down its effective implementation, but it still presents an opportunity for solving the wider scalability problem facing blockchain technology. As Ethereum co-founder Vitalik Buterin once said, it’s impossible to maintain the two fundamental properties of blockchain – security and decentralization – when trying to solve scalability using sharding. His sentiments can be extrapolated to mean that, for now, the blockchain space has to rely on sharding for the maturation of the technology, and maybe with time, new approaches will be designed such that they don’t compromise on blockchain’s fundamental properties. 

In fact, social media giant Facebook under its Libra coin project recently acquired Chainspace – a blockchain start-up focused on sharding. Probably this suggests that Facebook’s Libra coin project may be considering using blockchain sharding to increase the coin’s throughput. It’s further predicted that with Facebook’s interest in blockchain sharding, new complementary technologies will be designed to solve some problems such as cross-sharding communication, to deliver the necessary scalability. 


Scalability is one of the roadblocks hindering blockchain’s mainstream adoption. With the borrowed concept of sharding, technology has a better chance of finally replacing the traditional data infrastructures. However, the blockchain sharding still struggles with a few bottlenecks that need to be ironed before this happens. With big data companies such as Facebook showing interest in the technology, we can anticipate that the solutions to challenges facing it will materialize soon. 


What is Aelf (ELF) And How Is It Solving Blockchain Scalability Challenge?

Blockchain technology has been around for more than ten years now. It has powered thousands of cryptocurrencies, which have grown into a force to be reckoned with. Today, industries are scrambling for a share of this revolutionary network premised on a belief that blockchain can effect faster, trustless, and fraud-free processes. 

The integration of blockchain into the business sector has, however, proven an uphill battle. This is due to the issue of scalability that’s inherent in the current iteration of blockchain. 

Take the example of Ethereum and Bitcoin that handle an average of 15 and 7 transactions per second, respectively. Such a scale doesn’t even begin to scratch the surface of the scalability/speed needed for the business world. The other two significant problems with the tech are the possibility for interference while executing smart contracts and the lack of clear protocols for onboarding new technology/updates (due the highly contentious Bitcoin and Bitcoin Cash’s hard forks). 

So where do we go from here? Blockchain is a revolutionary tech that could fundamentally change how we do a lot of things. For industries, it could help optimize processes at an unprecedented level. There needs to be a way to bridge the gap between the tech and the enterprise space. 

Aelf is a project that proposes to help accomplish this. This guide is an exploration of that promise, plus an in-depth look into how it works and everything in between. But first, we look at what Aelf entails.

What is Aelf? 

Initially launched as a testnet in August 2018, Aelf is a blockchain-based, customizable platform operating system (OS) intended to serve as the central hub for blockchains. The Aelf team designed the platform to act as the “Linux system” of blockchains. Since the introduction of Bitcoin, blockchain technology has evolved in profound ways. 

Bitcoin made the concept of a decentralized and peer-to-peer currency mainstream and disrupted the finance industry forever. Then came Ethereum, which expanded on that idea with the introduction of ‘smart contracts’ and ‘decentralized applications (DApps), unleashing the potential of blockchain beyond internet money. Dozens of industries are now experimenting with blockchain and looking to optimize their processes. 

But there remains a chasm between blockchain and the business world that is not easy to bridge. The Aelf team believes that the next face of blockchain should be an integration of these two worlds. For that to happen, however, there has to be an operating system designed for blockchains that will allow them to meet commercial needs. And for that to happen, blockchain needs to deal with three main challenges: 

  • The scalability challenge – the current blockchains are not equipped to handle enterprise-level transactions.
  • Lack of resources segregation – the current blockchains do not segregate resources for various smart contracts, resulting in interference in their execution.
  • Lack of a predefined consensus protocol allowing for the smooth integration of updates or the adoption of new technology

Aelf proposes to solve these problems.

The Aelf Team

Aelf is the brainchild of Ma Haobo, who is also the founder/CEO of blockchain as a service company Hoopox, and the CTO of GemPay and AllCoin. Founder and CEO of TechCrunch with Michael Arrington and FGB Capital Zhou Shouji, serving as advisors. 

It’s worth noting the venture capital support that the project received. Companies like Draper Dragon, Bitmain, Huobi Global, DHVC, Blockchain Ventures, Chain Funder, FGB Capital, and other notable investment firms participated in the ICO. Indeed, the project proved so popular that they had to turn down interested investors after hitting their 55, 000 goal just two weeks after the sale began. This testifies to the potential of Aelf.

How Does Aelf Work?

To address the three problems we previously mentioned, Aelf employs two major innovations: 

  • Sidechains
  • A unique governance system

The platform utilizes sidechain technology to segregate resources among various smart contracts, and a Delegated proof-of-stake consensus algorithm to achieve a more dynamic system of governance. 

Side Chains

Aelf features one main chain and a multitude of side chains to handle various commercial tasks. The main chain is responsible for distributing different tasks to the multilayer side chains, improving efficiency. Sidechains communicate with the main chain via a ‘sidechain index system.’ The index system categorizes the chains as follows: 

  • External blockchain systems to expand the boundary of Aelf, such as Bitcoin and Ethereum 
  • Internal side chains on the Aelf ecosystem, which contribute economically to it using the ELF token

The side chains can branch off further into subchains. Dividing the ecosystem into side chains ensures that downtime or failure in one part does not affect the entire network.

Aelf’s Token Ecosystem

The Aelf token (ELF) incentivizes honest behavior within the ecosystem. All side chains accept ELF as a store of value and as a means of transferring value. Hence, the token can be transferred across any chain that recognizes it is as such. When a side chain receives transaction fees, it has to give a fraction of this revenue to the miners on the main chain.

If the main chain finds that indexing a side chain is not economically favorable, it (main chain) is entitled to terminate the indexing or allow two side chains to offer the same services to compete. Sidechains can also charge fees to their sub-chains. 

What is the Aelf Consensus Protocol?

The running and maintenance of Aelf are more complicated than that of Bitcoin and Ethereum blockchains because Aelf’s involves recording information from various side chains on the main chain. Plus, miners must update information from all the parallel side chains. As such, proof-of-work and basic proof-of-stake consensus algorithms will not suffice. 

Instead, Aelf employs delegated proof-of-stake (DPoS) to run the network more efficiently and ensure the predictability of block formation, which enhances user experience. 

The process is as follows:- holders of the ELF token vote on who will become the mining nodes. Then the elected nodes decide how to distribute mining rewards among the rest of the nodes, plus stakeholders. This equation determines the number of miners: 

Miners = 2N+ 1, with N starting at eight and increasing by one every year. Just like in other blockchains, mining nodes are responsible for relaying and verifying transactions, packaging blocks, and transferring information. 

How are ELF Tokens Distributed?

Aelf held its pre-sale in December 2017. The distribution of the 1 billion tokens was as follows. 

  • 25% (250 million) went to investors
  • 25% went to the Aelf foundation, a 3-year vesting period
  • 16% went to the Aelf team, a 2-year vesting period
  • 12% went to the marketing and airdrops
  • 12% went to mining over a 100-year period 
  • 10% went to advisors and partnerships, a 2-year vesting period

What is ELF’s Market Standing?

As of May 30, 2020, Aelf is trading at $0.092932, while ranking at #105. It has a market cap of $50, 599, 793, a 24-hour volume of $24, 971, 816, a circulating supply of 544, 480, 200, a total supply of 880, 000, 000, and a maximum supply of 1, 000, 000, 000. ELF’s all-time high was $2. 77 (January 07, 2018), and its all-time low was $0.035013 (March 13, 2020). 

Where to buy ELF

ELF is traded on several major exchanges, including Huobi, Binance, Coinswitch, Cointree, KuCoin, YoBitNet, and IDEX. Most of the platforms require you to exchange such cryptos as BTC, ETH, or USDT for ELF. This means you will have first to purchase any of the proxy coins with Fiat.

Aelf also has a reward system known as Candy. Through this system, you get to earn points that you can convert for ELF by carrying out simple tasks such as interacting with Aelf tweets, inviting more users into the Aelf Telegram channel, among other promotional activities. However, a quick check online reveals the Candy program does not seem to be active currently.

Aelf supports a web wallet but recently introduced beta versions of both Android and iOS wallet apps. However, you can use a third-party compatible wallet such as Ledger, KeepKey, Exodus, Coinomi, Trezor, and MyEtherWallet. 


Aelf is a relatively young project, but still holds a ton of potential. The enthusiasm displayed by big-time venture financiers is a testament to how big it could become, and its implications for the blockchain and business spaces. Its strategy to separate resources through side chains and a unique governance model should help propel it to significant heights, both as a blockchain project and as a business model. 


VeChain Blockchain Review: What is VeChain, Where to Buy, and How Does it Work?

Most cryptocurrency projects come with a lot of pomp, revolutionary white papers, and a ton of promises about changing the industry. But if you’ve been in the crypto world long enough, you’ve probably realized that a majority of these crypto projects don’t live long enough to actualize these promises. Most of these fade away because their value proposition was not strong enough to weather the competition. There, nonetheless, have been several crypto projects that dazzled us with their ambition and went on to actualize their product.

VeChain is one such project. VeChain was one of the earliest blockchain industry players. It not only has a substantial customer base but has also inked several lucrative deals with several big-name brands that align with its growth and expansion plans. Headquartered in Singapore, the project has also branched out into China, France, the US, Hong Kong, and Japan.

This VeChain review explores what you need to know about VeChain: its product, team, working model, tokens, and everything in between. 

What’s VeChain?

VeChain is a blockchain platform that seeks to inject more transparency, efficiency, and speed into supply chains. As stated in the VeChain white paper, its goal is “to build a trust-free and distributed business ecosystem platform to enable transparent information flow, efficient collaborations, and high-speed value transfers.”

VeChain Token (VET) - Forex Academy

The current supply chain data management process is done in silos when various departments are unable to share information for speedy and informed decision-making. Yet, effective data sharing processes are the lifeblood of any business. Impaired information-sharing interferes with innovation, leads to weak collaboration, reduces supply visibility, and undermines a business’s potential.

VeChain believes blockchain can end the “asymmetric information problem and allow ownership of data to return to and empower its owner.” It proposes to enable utter transparency in business processes such as storage, transport, and supply.

For instance, the platform can help to monitor quality, source, mode of transportation, and the authenticity of a bottle of wine right from the manufacturer to the end-user (customer). It can also help automobile owners regain control over their data and use it to negotiate for better and fairer insurance policies.

History of VeChain

VeChain was launched in 2015 by Sunny Lu, former Chief Information Officer of Louis Vuitton China. It began as a subsidiary of Bitse, Shanghai-based blockchain company. The VeChain product is being used across real industries, unlike many crypto projects that are still stuck in the development (beta) phase. From fashion to agriculture, to wine, to food safety, to carbon emission reduction, to governments, VeChain’s blockchain technology has already found multiple use cases.

The VeChain network was formerly hosted on the Ethereum blockchain. In 2018, it launched its mainnet and rebranded into ‘VeChainThor’ (VET) blockchain.

VeChain has notably secured strategic partnerships in a bid to realize its goals of disrupting the current supply chain. VeChain also aspires to be a decentralized applications (DApps) and initial coin offerings (ICO) destination. To achieve this, VeChain has entered into business with several high-profile financial companies like PricewaterhouseCoopers (PwC), Chinese electronics company Jiangsu Electronics, and automobile company Renault.

VeChain’s Team

Sunny Lu is the leader of the team. Lu has been the lead of IT and information system departments for various companies, including Louis Vuitton China.

Other team leaders include Chief Financial Officer Jie Zhang, who has a wealth of history in IT, as well as the founder of Bo Shen, founder of Chinese venture capital company Fenbushi Capital.

VeChain’s VET and VTHO

VeChainThor blockchain features two tokens that are “the blood” of the VeChain body: VET and VTHO. VET is used by companies to facilitate “smart contracts.” It is also available to the public as a store of value and for speculative investment.

Here, owning more VET grants a company more rights on the VET blockchain.

The VTHO token – VeChainThor Energy in full and also known as VeThor Energy, is much like gas for Ethereum or NEO blockchains. It is used to power transactions on VeChain and as payment for running applications.

According to VeChain’s white paper, the two-token system is designed to achieve effective governance and to provide a simplified economic model for developers.

Proof of Authority

The VET blockchain utilizes Proof of Authority to achieve consensus. According to this protocol, voting rights are granted based on one’s stake in VET and disclosure of identity. VET holders without Know Your Customer (KYC) info are, for instance, assigned 20% while holders with KYC with the same amount of tokens are allocated 30% voting rights.

101 ‘Masternodes’ are tasked with the responsibility of reaching a consensus about the validity of transactions within the VeChain blockchain. This mechanism is different from Bitcoin’s blockchain – in which all nodes in the network must approve a transaction before a consensus is achieved.

On VeChain, anonymous nodes cannot take part in transactions’ validation, and disclosure of one’s real identity is a precondition for becoming an Authority Masternode. VeChain states that this system consumes far less energy compared to Blockchain 1.0.

There also are economic masternodes within the VeChain blockchain. These nodes do not approve transactions or blockchain entries. Instead, they serve as a check on the power of voters. Here, power is allocated by granting a specific number of votes to each economic masternode based on the size of VET staked where 10,000 VET = 1 single vote.

This voting rights distribution mechanism centralizes what should be a completely democratic and decentralized system. VeChain acknowledges this, arguing that the protocol is meant to strike a balance between centralization and decentralization.

The VeChain Foundation

Launched in 2017, VeChain Foundation is a centralized organization by the VeChain community that’s responsible for “developing and maintaining the VeChainThor Blockchain, community building, and management, business engagement, technical research, and design.” According to VeChain’s whitepaper, the foundation is responsible for “organizing and representing the entire VeChain community and for setting up the Steering Committee with seven seats, which could expand depending on the stage of development, to lead the core team of VeChain.”

Tokenomics of VET

On May 30, 2020, VeChain was trading at $0.005620, at position #31 and with a market cap of $311, 667, 818. Its 24-hour volume was $186, 888, 250. VET has a circulating supply of 55, 454, 734, 800, with a total supply of 86, 712, 634, 466. The token’s all-time high was $0.019 775 (Sept 4, 2018) while its all-time low was $0. 0.001 678 (March 13, 2020).

Where to Buy VET

You can purchase VET from several exchanges, either directly with Fiat or in exchange for cryptos such as Bitcoin or Ethereum. Some popular exchanges include Gemini, Binance, Coinswitch, Huobi, KuCoin, Changelly, and Bitit.

You can store the VET tokens in the VeChainThor wallet that’s available on iOS and Android app. Other great options include Ledger, Nano, Guarda Wallet, and Atomic Wallet.

Final Words

VeChain is one of the most successful players in the blockchain space. It identified problems in the supply chain and proposed to solve them with blockchain-based solutions. Its partnerships with companies such as PwC, Renault, and Jiangsu will help expand and solidify its client base.

Crypto Daily Topic

SOLANA COIN: Solving the Scalability Problem with Proof of History

Bitcoin and Ethereum are widely lauded for pioneering the blockchain and smart contract technologies, respectively. While this has paved the way for a litany of similar technologies, the scalability challenge inherent to blockchains remains the most significant hindrance preventing decentralized blockchains from replacing centralized data systems. 

There have been a few noteworthy attempts to solve the problem, but often the newfound solutions come at the expense of blockchain’s fundamental features. For example, the EOS blockchain can process more than 1,000 transactions per second, but at the expense of decentralization.

Other blockchain iterations have resorted to using off-chain solutions as a way to reduce the influx of transactions on the main chain. Although they may have made a substantial improvement to the traditional linear blockchain, the complexity of their computations results in inevitable technical challenges. 

Solana is a new blockchain project that aims to solve the scalability dilemma by using a cutting-edge protocol known as Proof of History. The protocol can handle up to 60,000 transactions per second (TPS), which is way more than the 3,000 TPS that Ethereum’s Istanbul fork can process. Before we can examine how the Proof of History protocol solves the scalability problem, let’s first understand how the scalability problem comes about.

Scalability – It’s all About Time 

To develop a high throughput ( transactions per second), the computers in a network need to synchronize the time between transactions. This means that each computer node will need its own ‘internal clock’ to ensure that they all coordinate properly. It’s only when they are in coordination that transactions will take less time to be verified, meaning more transactions can be processed within a short time. 

Blockchain Scalability - Forex Academy

Think of Google Spanner, a scalable database that relies on atomic clocks that are synchronized with each other and the network’s data centers. To maintain this coordination, Google spends an enormous amount of resources to act as the “central clock” from which all nodes take the information. 

While Google Spanner has worked for centralized systems, it can’t work for blockchains since they are trustless systems. Blockchain’s network nodes can’t rely on a “central clock” for consensus timestamps since doing so means sacrificing the decentralized nature of blockchain. 

Besides, as far as increasing the overall throughput is concerned, there is one fairly successful technique. It is referred to as sharding and works by partitioning transactions. Although it works almost perfectly, it introduces vulnerabilities such as double spending and the risk of fraudulent transactions due to a lack of communication between different shards (partitions). 

Solana’s Proof of History protocol seeks to enable time coordination, thereby increasing blockchain throughput while reducing the average cost. 

How Proof of History Works 

Proof of History (PoH) enables network participants to reach a consensus on time. Instead of network nodes confirming transactions, as is the case with Bitcoin and Ethereum, they are only required to agree that one event took place before the subsequent event. 

Let’s say you capture a photo of a popular magazine using your camera. In this case, the photo is proof that the magazine was first published before the photo was taken. Proof of History employs the same concept by encoding the passage of time into the blockchain, creating a record that shows a certain event occurred at a specific time before or after another event. 

To do this, the Proof of History protocol uses a new cryptographic concept known as Verifiable Delay Function (VDF). The function records the passage of time by cryptographically verifying that real-time has passed in the process of generating output. It should be noted that the VDF requires several sequential events to produce a unique and reliable output, which is then made public.

The VDF being a cryptographic hash function means that it’s impossible to predict the final output without executing the whole function from the beginning, using the original input. And after running a hash function from an initial input, the resultant output is used as an input of the next function. This cycle of feeding output as input is then recorded as time passage.

The output of one operation becomes the input of the next operation, in which the current count, status, and output are periodically recorded as a passage of time, creating a sequential thread of time, which we may call History. 

Solana also employs other innovative protocols to achieve superior throughput. These protocols include:

i) Tower Byzantine Fault Tolerance Consensus

In the tower Byzantine Fault Tolerance (Tower BFT), all nodes act in the interest of the network. It works in harmony with Proof of Stake to help determine who can participate as a block validator. As such, the ecosystem created allows participants to stake tokens so they can vote on the validity of a PoH hash function. Bad actors are penalized if they vote in favor of a fork that doesn’t match the PoH records. 

The PoH hash, in this case, can be compared to a block as in a typical blockchain. Once a validator votes for a block, they cannot vote another block in parallel. They must wait for the next block by which the PoH VDF will have verified the passage of time. 

ii) Avalanche

Avalanche is Solana’s solution for reducing congestion in a network. This architecture works by splitting block data into two amongst peers. By sharing only half of the block data, avalanche greatly reduces bandwidth and data usage. 

iii) The Honest Approach

The honest approach aims at maintaining integrity between nodes and verifiers by randomly sending an invalid hash intentionally, through the proof of History. 


Solana’s ambitious goal to solve the scalability problem in blockchain could prove to be what the industry needs as a replacement for traditional data systems. Besides being an effective solution for scalability, the project has managed to remove sharding from its design, making network-wide validation faster and secure while reducing the overhead costs.

Blockchain and DLT

Introducing Cosmos, the Internet of Blockchains

When Satoshi Nakamoto introduced Bitcoin to the world, he likely did not see the extent to which the technology would be adopted in the coming years. The Ethereum blockchain entered a few years later and demonstrated to everyone that blockchain is a versatile technology. Right now, these are the two most dominant blockchains in terms of market cap and public awareness. But they are also the foster children for the shortcomings of blockchain tech.

Every week we hear of another blockchain project that’s going to be better than Bitcoin and Ethereum. Some projects have gone on to be a roaring success in this regard – while others fall by the wayside.

Cosmos is one of the latest projects to make bold claims about being able to fix two of the biggest blockchain flaws: lack of interoperability and scalability. This article is going to lay bare every relevant thing you need to know about Cosmos: how it works, its core components, and its potential use cases. But first, let’s get a brief understanding of the scalability and interoperability problem.

The Scalability and Interoperability Problem of the Blockchain

The existing blockchain model is, to say the least, flawed. Consider, for instance, Bitcoin and Ethereum, which have transactions per second speeds of 7 and 15, respectively. Compare that with Visa, which processes around 1,700 transactions per second. This speaks to the scalability problem of these blockchains. 

To address this problem, several proposals have been advanced, including SegWit and the Lightning Network. And while these offer ingenious solutions, they have their weaknesses that render them useful only for a limited period of time. Segwit, for example, will eventually lead to massive consumption of resources as everything, including transactions and bandwidth, increases. For its part, the Lightning Network can currently only handle microtransactions.

The other issue with the blockchain is the lack of interoperability. Today, cryptocurrencies such as Ethereum, Litecoin, Dash, etc. have no way of interacting with others. This makes each blockchain a ‘silo’ that cannot share information with the other. The lack of interoperability also means banks have no way to interact with blockchains – a fact that has given rise to crypto exchanges.

But again, that right there is another problem. Exchanges are centralized – which does not just contravene the principles of cryptocurrencies but also renders them susceptible to hacking and other malicious attacks. Also, they’re prone to downtimes during spikes in demand and blackouts when the system is undergoing upgrades.

What is Cosmos?

Cosmos is a blockchain project with the ambition to be the “internet of blockchains.” The Cosmos architecture comprises multiple parallel blockchains called ‘Zones’ connected to a central blockchain referred to as ‘Hub.’

Zones can exchange value i.e., tokens with each other and generally interact with each other without impinging in each other’s sovereignty.

Who’s Behind Cosmos?

Cosmos is the idea of the Interchain Foundation (ICF), a foundation that funds and collaborates with projects in research, engineering, social good, and community. ICF has contracted the Tendermint team to work on Cosmos.

Tendermint is the team behind the Tendermint consensus algorithm.

The Tendermint team comprises three chief players: Jae Kwon, Ethan Buchman, and Peng Zhong. Kwon is the co-founder of “I done this,” a productivity app for work teams. He has also made contributions to projects like, Flywheel networks, and Yelp. Buchman has 2+ years of experience in science research and blockchain. Zhong is the founder of Nylira, a web development firm.

How the Cosmos Blockchain Works

Tendermint is the basis of the Cosmos infrastructure.

It is a customizable platform on which to build blockchain applications. First, you need to know any blockchain protocol has the three main layers: network, consensus, and the application layer. Tendermint prepackages the first two layers so that developers can fully concentrate on applications by saving a ton of time on complex code. Tendermint has the following benefits:

  • It can handle 10,000 transactions per second
  • It is a simple light client, making it suitable for mobile and IoT
  • It has fork-accountability which helps prevent attacks such as attempts at double-spending

What is IBC and Hubs and Zones?

IBC (Inter-Blockchain Communications protocol) is another important player in the Cosmos ecosystem. IBC is a software that connects the ‘zones’ and ‘hubs’ in the network to allow the exchange of coins among various chains.

In Cosmos speak, varying chains are referred to as heterogeneous chains. This is because each chain is sovereign and features its own architecture.

Now let’s get into hubs and zones.

The Cosmos architecture follows what’s called a Hubs and Zones model. The Hub is a central blockchain on which multiple independent blockchains, called Zones, are connected. The Zones can communicate with each other via the Hub by utilizing IBC.

Now obviously, the Hub occupies a very important role in the Cosmos ecosystem, and for this reason, it’s very important that it’s highly secured. This is achieved by having a globally distributed and decentralized cluster of validators. This cushions it against would-be attacks such as censorships or attempts at splitting the network.

The Atom Token

 Atom is the native token for the Cosmos network. It is neither a store of value nor a medium of exchange, but rather for staking coins. To become a validator for the Zones, participants must stake a certain number of coins. Upon validation of blocks, validators earn Atom block rewards and a fraction of transaction fees.

As of March 5, 2020, the following were the tokenomics for the Atom token. Atom traded at $3.85 with a market capitalization of 735m. It ranked at #23 in the market, with a 24-hour volume of $150, 596,824, a circulating supply of 190, 688, 439, and a total supply of 237, 928, 231. Its all-time high was $.8.31 on March 16, 2019, while its all-time low was $1.91 on September 5, 2019.

Governance of the Blockchain Ecosystem

The Cosmos blockchain has a strict governance model and rightfully so – given its crucial role. Validators are tasked with preserving the well-being of the system and approving changes to the protocol via a vote. For this to happen, the following conditions must be met:

  • Validators commit a certain value of tokens – either Atom or any other
  • If validators fail to vote for a proposal within a given timeframe, they receive the punishment of temporary suspension

For proposals, validators may answer with either of the following:

  • Yea
  • YeaWithForce
  • Nay
  • NayWithForce
  • Abstain

Based on the result, the following scenarios may emerge:

  • If a strict majority votes Yea or YeaWithForce, the proposal is passed
  • If a strict majority votes Nay of NayWithForce, the proposal is dropped
  • More than a third of validators can, however, veto a majority decision “with force.”
  • When a strict majority decision is vetoed, everyone involved is punished by losing a day’s worth of block fees

Some Use Cases for Cosmos Blockchain

The Cosmos blockchain could potentially improve the blockchain space in these interesting ways:

  • Decentralized exchanges: Since Cosmos excels at connecting multiple chains, it can obviously link many other ecosystems together. This includes decentralized (authorization-less, peer-to-peer) exchanges.
  • Cross-chain transactions: Perhaps the most obvious use case, chains in the Cosmos network can easily avail services of each other through the Hub
  • Ethereum Scaling: Any Ethereum-based chain connected to the Hub will also be supported by the Tendermint system, allowing it to scale faster

Final Thoughts

Cosmos’ selling point is impressive, but it’s not the only blockchain proposal promising to be the panacea of blockchain problems. However, its integration of the Tendermint core is certainly a highlight and will be critical to improving the scaling and interoperability of blockchain. Cosmos’ success hinges heavily on its adoption by a big number of blockchains – especially the big names. Can Cosmos pull this off, is it worth the fanfare? We can only watch.


Weaknesses of Blockchain

Blockchain, the technology that underlies cryptocurrencies, constitutes distributed ledgers shared across nodes (computers) participating in the network. These ledgers record data in a sequential fashion after cryptographically securing it. Once data is recorded on the blockchain, it can’t be deleted. This, among many other features of blockchain, like transparency and being deregulated, has given blockchain tech a revolutionary reputation.

But some of these features have also proven to be the Achilles heel for blockchain. This article dives into some of the weaknesses of blockchain as it stands today.

i) 51% Attack

Consensus algorithms that help protect blockchains, like the bitcoin blockchain, have proven resilient over the years.

However, there’s the 51% attack threat that’s always hanging over these blockchains like the sword of Damocles. A 51% attack would occur if an entity managed to gain control over 50%+ of the network. This would disrupt the network by allowing such things as double-spending, excluding valid transactions, or altering the correct order of transactions.

ii) Data Modification, Or Lack of It

Once data is recorded on the blockchain, it’s immutable. Immutable means it’s unalterable. While this promotes accountability and reduces chances of fraud, it’s not always favorable for blockchain. Humans are prone to making mistakes, and once inaccurate information is stored on the blockchain, it can never be changed.

iii) No Customer Protection

Blockchain technology operates on the basis of the individual holding power over the asset they are verifying on the blockchain – whether it’s a title deed, a cryptocurrency, etc. Naturally, transactions go sour sometimes. In a scenario where this happens, the only way to overturn the transaction is if both parties agree, which might prove a tall order. This is unlike a centralized system where an arbiter mediates between two conflicting sides.

iv) Slow Settlements

Before any transaction is verified on the blockchain, all nodes must come to a consensus about the validity of the transaction. This is way slower than say, a bank verifying your transaction at the counter. And in the time between when a transaction is lodged and when it’s verified, a malicious actor can enter and execute malicious transactions.

v) Miners Can Be Selfish

On blockchains such as Bitcoin’s, mining is a process that incentivizes network participants to commit computer processing power and then gets rewards in the form of coins or a fraction of transaction keys. However, this has a downside. Miners may not be very concerned about settling the optimal number of transactions. All they care about might be finding the next block as quickly as possible in order to verify it and get rewarded.

There’s also the case of Selfish Mining, a.k.a block withholding attack, in which a miner finds and validates a block but does not broadcast it to the rest of the network. This results in the miner having more ‘proof-of-work’ than other miners in the pool and increasing their odds of unfairly getting more block rewards.

vi) Private Keys

Blockchain uses what are known as private keys to give crypto owners full control over their funds and data. Users need their private keys to access their funds and conduct transactions. This means if you own cryptocurrency, the security of funds is solely on you. In other words, you’re your own bank.  Once a user loses their private key (either by forgetting the seed phrase or misplacing their hardware wallet), their crypto holdings are effectively lost, and there is no recourse.

vii) Inefficiency

Blockchains that, for instance, use proof-of-work consensus mechanisms, are incredibly inefficient. This is because they store the entire history of transactions that ever occurred on the blockchain. This takes up massive storage capacities across devices. To make a transaction, the entire downloading and verification process needs to be completed. This could take several days – spelling crippling inefficiency about the network.

Viii) Storage Issues

As blockchains get more popular, it means more and more users are interacting with the network. This increases the size of the blockchain. We’re talking about hundreds of gigabytes of storage. This puts the network at the risk of losing nodes when people find the ledger too huge to download and store in their devices. And this puts the health of the blockchain in jeopardy since the health of a blockchain partly depends on how many nodes are supporting the network.

ix) Scalability Issues

To demonstrate the scalability issue of blockchain, let’s look at the most widely applied blockchain – the Bitcoin blockchain. It takes around 10 minutes for a transaction to be verified, translating into an average of 7 transactions per second. Compare this with Visa, which processes an average of 2,000 transactions per second. What this means is blockchains are still a long way off from achieving the level of scalability that they would need to be able to serve millions of customers around the world.

Final Thoughts

The idea here is not to discredit blockchain but point out how the technology could improve. Blockchain is not referred to as revolutionary for no reason. Developers are coming up with new solutions for blockchain’s weak spots every other day. Some of these are the Lightning Network, a technology that promises to improve Bitcoin’s scalability by offloading some transaction data off the blockchain so as to facilitate faster transactions. Industries of all types are also exploring technology so as to achieve more efficiency in processes. Despite its weaknesses, blockchain remains a technology to reckon with.

Crypto Daily Topic

Lightning network: A major hurdle in the path of crypto regulation

The very first public critique of Bitcoin right after Satoshi Nakamoto proposed it was made by James A. Donald. He said that while such a system (Bitcoin network) was very, very much needed, the way he understood it, “it does not seem to scale to the required size.” Sure enough, over a decade after its launch, Bitcoin is being plagued by scalability problems – apparently its biggest challenge. But there is another less discussed one: taxation.

For a long time since its rollout, Bitcoin was used primarily by enthusiasts and speculators more as a store of value than a medium of exchange in everyday payments. Bitcoin has a serious scalability problem for two main reasons: the blockchain technology on which it runs limits the amount of information that a single block can contain to 1 megabyte, and a block of transactions can only be added to the chain every 10 minutes. These limit Bitcoin’s processing speed to about 3.3 and 7 transactions per second (TPS). In comparison, Visa does an average of 1,700 transactions per second.

Enter the Lightning Network

Today, more people are adopting Bitcoin to make everyday payments, largely because of the development of the Lightning Network. Popular Bitcoin apps such as Fold and Bitrefill that are designed to make it cheaper and easier for users to make payments with Bitcoin have integrated the Lightning network in their payment systems.

What is the Lightning Network?

The Lightning Network is an additional layer on top of the blockchain network on which Bitcoin runs that is designed to make transactions between nodes faster and cheaper. It is implemented to be a solution to Blockchain’s scalability problems.

How does it work?

The Lightning Network creates a temporary communication channel between two nodes, much like how the Bitcoin Network does, allowing them to carry out as many transactions as they need. When the transactions between the two nodes are completed, the channel is closed, and the outcome communicated to the underlying Bitcoin network. Transactions carried out on the Lightning Network will, as a result, cost only a fraction of a cent while taking a load off the Bitcoin Network.

There is a problem, though. While the Lightning Network significantly improves user’s Bitcoin transaction experience, lowers the costs of transactions, and improves the overall Bitcoin Network speeds, it presents a serious challenge when it comes to taxation.

Bitcoin’s taxation problem

Under the US law, the Internal Revenue Service (IRS) considers Bitcoin and other digital currencies ‘intangible property’ and as such, are subject to capital gains taxes. Everywhere else in the world, cryptocurrencies are rightfully regarded as money that can be used as legal tender in exchange for goods and services.

The United Kingdom treats Bitcoin as a foreign currency, while Germany does not subject it to capital gains tax. Even Switzerland, a tax haven, levies various taxes on Bitcoin, including income taxes, wealth taxes, and profit taxes.

Since Bitcoin payments are taxable transactions, it is vital that users accurately track capital gains accrued when they use it. However, there is a serious problem because its transactions are peer-to-peer, meaning that there is no middleman, such as a bank, between the parties involved in the transactions. Governments have always had an easy time regulating, monitoring, and taxing transactions because of middlemen.

With the widespread adoption of cryptocurrencies and the introduction of efficiency platforms such as the Lightning Network, more people are choosing to make regular payments for goods and services with Bitcoin and other cryptocurrencies.

The problem here is that cryptocurrency users are generally reluctant or find it too bothersome to report taxable Bitcoin transactions to tax authorities, more so for small transactions such as buying a cup of coffee or paying for software. Keeping detailed records of every Bitcoin transaction can be exhausting as there are virtually no tools on the market that simplify the process or make it easy to report such events to the taxman.

To the minority of people who care a lot about conforming to their tax obligations have three options: painstakingly keep records of their transactions, risk getting in trouble with the taxman, or avoid using Bitcoin altogether. To most people in this category, the tax burden associated with making regular payments using Bitcoin overshadows the potential benefits.

How Lightning Network makes the situation worse

Cryptocurrencies and tax laws have only one thing in common: most people do not know the first thing about them. From a cultural and worldview perspective, these two subjects are polar opposites.

Bitcoin was created and is largely accepted as a solution to financial control by governments, exploitation by banks, and abuse by corporations. Cypherpunks, who form the majority of individuals who lead the embrace of cryptocurrency, use it to make a political statement against authority. By using Bitcoin, they are happy to escape the rules and regulations that define the traditional financial world.

In October 2019, the Internal Revenue Service, in its attempt to catch up with the users of cryptocurrency, published its first guide on how cryptocurrency holders can calculate taxes owed on their holdings. The agency admits that the world of cryptocurrency ‘has grown more complex over the years.’ As the general public increasingly adopts the digital currency, IRS’s attempts to come up with regulations and guides on how individuals can remit taxes is a game of playing catch up, to say the least.

The Lightning Network makes it easier for ordinary folk to make payments with Bitcoin, but not to keep records of them. In the eyes of many people all over the world, tax laws are a symbol of the excessive and unnecessary regulations imposed by politicians. Technologies such as the Lightning Network are a savior that finally enables them to take advantage of the benefits of decentralization of digital money, transactions with no regulations, and living in a free society rather than under the foot of a central power of the elite.

Is there a possible solution in sight?

Governments all over the world, including the Lawmakers in the US and China, have realized that outrightly banning Bitcoin is pointless. Governments are slow to find ways to bring cryptocurrencies into the tax bracket and presently have to rely on the goodwill of the citizens to keep records of their transactions and to diligently report and pay their taxes.

However, some industry leaders are making reasonable propositions that may just work. For instance, Coin Center is pushing a bill in the US that would exempt Bitcoin transactions less than $600 from capital gains taxes.

The most viable solution to the Bitcoin taxation problem, according to industry experts, is in policy level and not technical. While regulating Bitcoin wallets may seem like a simpler way for governments to make the taxation problem more manageable, a more practical solution would involve exempting more payments from the burden of taxation rather than attempting to regulate all payments across the board.

Crypto Daily Topic

Solving Blockchain’s Scaling Problem

Blockchain was conceptualized the first time in 2008 with the launch of Bitcoin. However, it took almost a decade to be fully appreciated as an invaluable public ledger with the potential to disrupt virtually every modern industry. That was the year when the price of Bitcoin got close to $19,900 from a low of $978 at the start of the year, and Ethereum went above $850 from just over $8. At its peak value, Bitcoin’s market cap stood at $320 billion – higher than the total value of all M3 UK currency in circulation. This was before the infamous 2018 cryptocurrency crash of January 2018.

Predictably, the massive cryptocurrency explosion was followed by a big crash, from which many cryptocurrencies that had successfully launched ICOs (Initial Coin Offerings) never recovered. During the preceding explosion, blockchain technology was hyped as the most revolutionary since the internet, and many industries started figuring how it could work for them. From transportation and health industries to banking and voting, the promises and claims that the new technology brought may have set people’s expectations a bit too high too fast.

While famous investors, economists, and even finance professionals warned that the rapid rise of the cryptocurrency prices was a bubble that would ultimately burst, a world driven by vague expectations and hunger for profit failed to listen. Most people read the most subtle signs they wanted to see – such as the listing of bitcoin futures by the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) in December 2017 as a stamp of approval that Bitcoin and cryptos, in general, were ripe for investment.

Weaknesses of blockchain come to light

The rise in the popularity of blockchain and the rapid adoption of Bitcoin, Ethereum, and other cryptocurrencies brought blockchain’s most significant problem to light: it is expensive and can barely work on a large scale. When Bitcoin’s price soared to almost $20,000, its network quickly became overloaded, transactions took as long as a day to confirm, and transaction fees shot up to as much as $60 per transaction.

The world may not have been wrong to believe that blockchains presented a massive opportunity for the human race, but it was at this point that many started having doubts about whether Bitcoin was the currency of the future.

The blockchain technology was introduced to the world just at the right time when we were dealing with the aftermath of the 2008 financial crisis. However, in its current state, it cannot deliver on these promises on a global scale because it has one glaring weakness: it just cannot scale.

To see why this is such a concern, it is necessary to understand how blockchain works.

Blockchain is basically a list of ‘blocks’ of ordered data, in the case of cryptocurrency transactions, ‘chained’ together as a linked list. The blocks, once added to the chain, cannot be modified, which means that the list is add-only. There are specific rules that are followed before a block of data is added to the chain known as ‘consensus algorithm.’ In the case of Bitcoin, it is Proof-of-Work (PoW), while Ethereum is presently switching to Proof-of-Stake (PoS).

Due to this nature, blockchain has no single point of failure or control, its data cannot be altered, and the trail of changes made on the platform can be easily audited and verified. However, these benefits do come at a cost because blockchain is slow, and its immutable database has a very high redundancy rate. This is what makes it very expensive to use and virtually impossible to scale to a global scale.

Blockchain’s need to scale

The evolution of the entire blockchain ecosystem has been rapid over the past couple of years. The widespread implementation of blockchain systems for public use has been a significant vote of approval that the world is ready for it. However, the increasing adoption of these systems has brought to light the need for better design or alternatives.

The consequences of the increase in the number of daily transactions on a blockchain network have shown that block difficulty increases, thus increasing the average computational power required to mine a block of transactions. This translates to increased electricity consumption.

Another problem that prevents blockchain from scaling is that an increase in the number of transactions increases the size of the blockchain, making it harder to set up new nodes on the network to help in maintaining the complete blockchain network and to process and verify transactions. Therefore, the systems get not only slower and more expensive, but also unsustainable for such use cases as making regular small payments.

Potential solutions for blockchain scaling

There are numerous real-world uses of blockchain that have shown just how necessary the technology is for the future of humanity. Aside from payment processing and money transfer, it can also be used in monitoring supply chains, digital identification, digital voting, data sharing, tax regulation, and compliance, weapons tracking, and equity trading, among others.

One area that shows great promise and has accelerated the need for blockchain to scale is dApp or distributed apps that run on the blockchain network.

Over the past year, many developments have been proposed to resolve the platform’s scalability problems  – even implemented in some industries. So far, it shows great promise.

Here are some of the most sustainable ideas that blockchain platforms can implement to scale

☑️ Increasing the number of transactions in a block

A blockchain network would scale better when the number of transactions in a block is increased. This can be achieved by either increasing the block size or compressing individual transactions.

Bitcoin’s block size is limited to 1 megabyte. There was a lot of controversy in 2010 through 2015 on whether this size should be altered to accommodate more transactions to help the network scale.

Blockchains can also implement more efficient hashing algorithms that better compress the data to be added to the block. Algorithms that generate shorter signatures would go a long way to reduce the size of the block, and using better data structures to organize transactions may not only reduce the size of the block but also improve the privacy of its content.

☑️ Increasing the frequency in which blocks are added to the chain

The Bitcoin network adds a block of transactions every 10 minutes, while Ethereum does so in about 7 seconds. This duration is a function of the block difficulty level in a Proof-of-Work consensus. Since the frequency in which a new block is added to the chain significantly affects its transaction rate (TPS), reducing this time would significantly increase the network speed and reduce delays.

However, this rate of adding block cannot be arbitrary. Increasing the frequency would mean an increase in the block orphan rate (the rate at which mined blocks are not added to the blockchain due to competition) and an increase in the network bandwidth.

A change of such magnitude would require a hard fork of an existing blockchain platform. Since this is not backward compatible, it would not work for Bitcoin, Ethererum, or other established blockchain systems.

☑️ Implementing alternative communication layers between nodes

There is constant communication between nodes on a blockchain platform depending on the protocol it implements. For instance, in the Bitcoin network, transaction information is sent twice: the first time is in the broadcasting phase of the transaction, and then after the block is mined.

The Lightning Network is an excellent example of a second layer payment protocol that runs on top of the Bitcoin blockchain. It enables faster transaction speeds between nodes by opening a payment channel that commits funding transactions to the underlying layer without broadcasting to it until the final version of the transaction is executed. This is presently touted as the best solution to Bitcoin’s scalability problem.

☑️ Adopting better consensus and verification methods

At the time of writing this post, Ethereum is in the process of switching its consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS) to mitigate its scaling problem. Bitcoin uses the oldest yet most difficult to scale PoW. PoS is not only sustainable in power consumption but also results in higher block addition frequency to the blockchain and, ultimately, better scaling platforms.

Other than the blockchain consensus, a blockchain platform can scale better when better storage architecture that saves space is implemented. Blockchain takes up a lot of storage space because each node is required to have the whole blockchain state in order to verify new blocks. Since the size of the block increases with time, the platform would scale better if nodes could only store parts of the chain required to verify current blocks.

Bottom line

Different blockchain platforms have implemented various strategies in an effort to make their platforms scale better. The bottom line, however, remains that blockchain’s scalability problem persists as no solution has proven to be effective without compromising any of the top features that make blockchain a transparent, secure, and truly decentralized ledger system. However, considering how far the world has come in developing this new technology, we remain optimistic that there will come a solution that will finally make a global-wide blockchain system practical and seamless.