Topics Altcoins
Bybit Learn
Bybit Learn
Intermediate
1 juin 2022

What Is Elrond (EGLD): Scaling with Adaptive State Sharding

As coined by Ethereum cofounder Vitalik Buterin, the phrase blockchain trilemma describes the three main challenges developers face when building blockchains — decentralization, security and scalability, which forces them to sacrifice one for the other two.

Developers have been on the hunt for ways to increase the number of transactions processed per second (TPS) without giving up decentralization and security. These solutions often are classified as Layer 1 and Layer 2.

This piece will delve into Elrond, a blockchain that seeks to increase scalability using a Layer 1 sharding solution. We’ll look into how it works, compare it with other solutions, and review the investment case for Elrond.

What Is Elrond? 

Elrond is a public blockchain built for scalability, speed and security. Like Ethereum, it provides a smart contract platform for decentralized applications (DApps). However, it also caters to enterprise use cases with its lower fees and higher throughput. 

The Elrond blockchain was developed in 2017 by brothers Benjamin and Lucian Mincu and Lucian Todea. The Mincu brothers are fintech veterans, having worked on projects such as Metachain Capital, a digital asset investment fund, and ICO Market Data, an ICO information aggregator.

Supported by a private funding round that netted over $2 million, the Elrond team developed the project specifically to tackle the issue of scalability using unique sharding technology. The result is a blockchain that can execute 15,000 TPS (compared to Ethereum's current 15 TPS), has fees as low as $0.001, and boasts a 6-second latency (time between sending a transaction and its initial acceptance by the network).

Elrond delivers on its promise of providing developers with a scalable and secure platform for building DApps. Since its launch, the platform has witnessed a proliferation of DApps with various utilities.

Applications 

Aerovek Aviation is a DApp in the Elrond ecosystem built to give aviation professionals and enthusiasts a place to trade aircraft, charter private flights, and socialize. It’s powered by the AERO token. 

Another DApp on the Elrond network is Black Hat Network, a marketplace designed for freelancers who wish to escape the stifling fiat freelance platforms with high fees and unfair practices. The project is expected to go live by Q4 2022.

Maiar is a digital wallet and payments app designed for exchanging money on mobile phones. It’s the official EGLD digital wallet deployed on the Elrond blockchain network. The wallet is end-to-end encrypted, and supports EGLD, BNB, Ethereum, ERD BEP2 and ERD ERC20. There are plans for Maiar to support Bitcoin in the future.

The Maiar DEX exchange is a decentralized exchange (DEX) powered by the Elrond network. Traders can swap digital assets with low fees and hardly any slippage. Maiar has its own native token, MEX, which acts as a governance token on the platform and can also be used to stake and yield farm.

How Does Elrond Work?

Elrond's primary objective is to build a high-bandwidth, secure, fast and decentralized platform that scales for the internet. Elrond's developers hope to achieve these goals by combining three critical technologically-advanced elements: Adaptive state sharding, secure proof of stake (SPoS), and the Elrond virtual machine. To get a complete picture of how Elrond works, we need to understand these technologies and how they’re different from existing scalability solutions.

Adaptive State Sharding

Sharding is a blockchain scaling technique that splits the network into shards, or fractions, to allow nodes to process only a portion of the network's transactions. Adaptive state sharding, Elrond's unique technique, combines the three types of sharding: Network sharding, transaction sharding, and state sharding to achieve full capacity.

    1. Network sharding: This manages how nodes are grouped into shards. Since sending messages to nodes inside a shard can be done faster than using the entire network, network sharding is meant to optimize communication.
    2. Transaction sharding: Handles the way transactions are mapped for the shards. Transactions are processed based on certain criteria, and each shard processes transactions in parallel to other shards.
    3. State sharding: Unlike the previous two sharding technologies, in which all nodes store the entire state, only a portion of the state is maintained in state sharding. The history of the blockchain system is divided between sections of the network.

Each shard has its own ledger. In order to reduce the amount of latent storage they require, each node will need to hold their shard state.

Adaptive state sharding combines these three sharding mechanisms into one solution that allows for parallel processing, improving communication in shards and increasing the blockchain’s performance and efficiency.

This cohesive protocol design helps the Elrond network to achieve scalability without sacrificing network availability. Consequently, increasing or reducing the number of shards should only affect a few nodes, and won't cause downtimes when updating states. 

The technology also facilitates the calculation of exact transaction destinations, making traceability simple. Finally, the technique ensures that the shards maintain balance at any given time, making the network more efficient and adaptable. 

Overall, the Elrond approach to sharding generally increases its throughput and reduces fees, without giving up either decentralization or security. 

Secure Proof of Stake (SPoS)

Secure proof of stake (SPoS) is Elrond’s consensus mechanism, an advanced version of proof of stake (POS) SPoS aims to enhance validation speed and efficiency. It allows any node in a shard to determine which nodes will participate in the consensus process.

This technique reduces the time spent forming a consensus group and selecting validators randomly. A weighting factor is used to encourage the performance-based selection of nodes.

Elrond Virtual Machine

Elrond developed its own virtual machine for building smart contracts. The Elrond virtual machine (Elrond VM) is based on an open standard known as WebAssembly (Wasm), which supports multiple programming languages. Some of these languages include C#, C/C++, Go, Rust and TypeScript.

As a result, developers have the flexibility to program in any language they’re most comfortable with. 

Furthermore, the Elrond VM is compatible with the Ethereum VM, allowing Ethereum smart contracts to function seamlessly on it.

Elrond vs. Other Layer 1 Blockchains

Ethereum, Solana and Elrond are all examples of Layer 1 blockchains. Each one has its own unique features and benefits, but they all share one common goal: To provide a secure and scalable platform on which to build other applications.

Elrond vs. Ethereum (EGLD vs. ETH)

Ethereum started out using proof of work (PoW) consensus, which is slower and requires significant computational power to validate transactions. Transaction fees can also be high, depending on network congestion. 

ETH 2.0 is currently in its testnet phase and is not expected for full release until 2023, when the blockchain will be transferred from PoW to proof of stake (PoS) consensus. Elrond, on the other hand, already has its PoS rolled out, allowing for a faster, more scalable and low-fee blockchain.

Users can earn passive income on Elrond by staking either as validators or delegators. Meanwhile, Ethereum only permits validators, who must meet a certain ETH balance threshold.

Ethereum benefits from being the second biggest cryptocurrency, with a large ecosystem of developers, investors and users. It’s also decentralized, without a single point of failure. However, when ETH 2.0 is fully implemented, the current mining model will be changed to a staking model in which you can only stake if you have a minimum of 32 ETH (roughly $62,000 as of this writing). 

Although popular, Ethereum experiences significant network congestion and scaling problems, which leads to higher transaction fees.

Elrond vs. Solana (EGLD vs. SOL)

Solana boasts a TPS of 50,000 TPS which is also scaled for the internet. Unlike Elrond, which employs revolutionary technologies to achieve a secure and decentralized network, Solana is not as decentralized as it claims. It’s been criticized by crypto enthusiasts for having fewer than 200 validators. The team behind Solana is experienced in building large scale systems, with individuals having worked for companies such as Dropbox and Qualcomm.

Elrond vs. NEAR Protocol (EGLD vs. NEAR)

NEAR Protocol uses a threshold proof of stake (TPoS) staking mechanism. The main difference between NEAR and EGLD is in the decentralization. Elrond is far more decentralized, with over 3,200 validators, while NEAR has just 100 validators. Only validators are eligible to vote on protocol changes.

What Is EGLD and What Are EGLD’s Tokenomics?

EGLD (Electronic Gold) coin is the native currency that facilitates the functioning of the Elrond Network. EGLD has utility as the platform governance system, for staking and validator rewards, and as a means of payment for transactions and smart contracts.

According to CoinMarketCap, EGLD is priced at $83.91 as of May 31, 2022, with a circulating supply of 22,011,295 EGLD coins and a maximum supply of 31,415,926 tokens. Over the next few years, EGLD tokens will be distributed as follows:

Launchpad sale: 25%

Private token sale: 19%

Team: 19%

Reserve token: 17%

Marketing: 8.5%

Ecosystem Rewards: 7%

Advisors: 2.5%

Community: 2%

New EGLD coins will be released gradually over the next ten years until the final supply reaches 31.4 million.

Is EGLD A Good Investment?

For a coin that launched at $17.20 and went as high as $542, EGLD has had its fair share of supporters. Due to its unique sharding technique and consensus mechanism, the Elrond blockchain elegantly tackles the crypto trilemma problem. Its native token, EGLD, powers an ecosystem that is fast, secure and highly decentralized, with over 3,000 nodes.

But do these outstanding features reflect the value of EGLD? Will an investment in EGLD be as solid as its blockchain?

Analysts are optimistic about EGLD’s price movements in the future. This bright outlook is predicated on its strong fundamentals. With well-designed tokenomics, a vibrant community of users and the backing of a solid team, the token ticks all the boxes for a successful investment.

The Elrond team continues to improve the interoperability and scalability of the platform, drawing significant attention from web3 project developers. Some of the anticipated developments include web3 payments solutions, an NFT marketplace, gaming apps, and a new version of the popular Maiar App. 

These projects, when launched, have the potential to grow the user base of the Elrond network and boost the price of EGLD.

Future Plans for Elrond

Elrond plans to roll out features and innovations that will help to deliver the most scalable, fastest and most secure blockchain platform for real-world applications.

Innovations for 2022 include:

  • Introduction of an NFT Marketplace

  • Multisig DAOs

  • Integration of web3 payments

  • Maiar 2.0

  • Elrond Gamify

  • Elrond Staking Phase 4

  • DeFi 2.0

  • Onchain governance

  • Merchant Yield 

EGLD Price Prediction

Cryptocurrencies are notoriously volatile, and even experts often miss the mark when predicting future price trajectories. However, sound fundamentals and a strong use case go a long way in positively influencing the price of a token. When compared to other Layer 1 solutions, Elrond looks like it has a promising future. 

Analysts at Coinpedia see EGLD reaching $1,203 in five years. They base their prediction on the continuous improvement of Elrond's scalability and cross-chain capabilities. They also predict a new all-time high of $721 in 2022.

Gov.Capital is even more optimistic. They foresee EGLD hitting $822 within a year, and spiking to $6,559 by 2027.

According to WalletInvestor, EGLD will ascend steadily, passing the $200 mark by the end of 2022. They expect the coin to reach $500 by 2025. 

Somewhat less enthusiastic, DigitalCoinPrice expects EGDL to pass only above the $300 mark in five years. They predict that the coin price will continue to rise steadily to $727 by 2030.

The Bottom Line

Elrond is a revolutionary blockchain that has the potential to change the competitive landscape of Layer 1 blockchains. It boasts unique features, such as adaptive state sharding and secure proof-of-stake algorithms, which make it one of the most efficient and secure blockchains available. Additionally, through its DApps and partnerships, Elrond has created an ecosystem in which users can harness blockchain technology at a faster speed without sacrificing security and decentralization.