By Gaurav Roy
Mar 21, 2024 | Updated Mar 21, 2024
Beginner
| KEY TAKEAWAYS: |
| — Though blockchain technology has some promising potential as a wide-ranging enterprise solution, the lack of scalability of many Layer 1 blockchains has hampered their adoption by large businesses. — VeChain is a public blockchain that aims to support the operation of large-scale commercial dApps through scalably fast and secure data transmission. — VeChain’s Proof of Authority consensus mechanism, meta-transaction features, and two-token model make it a suitable blockchain option for supply chain management. |
Blockchain technology, which underpins the wild world of cryptocurrencies, is disrupting various industries, from banking and insurance to healthcare, entertainment, digital identity verification, and supply chain tracking. According to the research firm Gartner, blockchain technology will generate more than $3 trillion in new business value by the end of this decade.
Of course, a single blockchain can’t fulfill all this potential and the diverse needs of different sectors across the globe. Instead, a multi-chain structure has started taking shape, with different networks popping up to cater to different use cases.
One example of a purpose-built, narrow-use blockchain is VeChain: a public blockchain designed for the widespread use of blockchain tech by enterprises.
But what exactly makes VeChain unique? What does this blockchain have to offer, and what drawbacks does it have? Let’s explore how VeChain works, who it’s for, and more!
What Is VeChain?
VeChain is a layer 1 blockchain protocol that provides businesses with a low-carbon, highly scalable platform to build and run decentralized applications (dApps). Ultimately, the goal of this enterprise blockchain solution is to provide unparalleled transparency into product supply chains, giving the power of information to product stakeholders and the market at large.
VeChain started as a supply chain management tool, using smart chips, Radio Frequency Identification (RFID), and sensors to send product information to its blockchain network. This makes it viewable for any authorized parties in real time.
The platform has since expanded to provide a wider range of data solutions. Some examples of major businesses that VeChain has partnered with include BMW, Walmart China, and DNV GL. The company has also received significant investment from PricewaterhouseCoopers (PwC) and lists Boston Consulting Group (BCG) as a key strategic partner on some of its sustainability initiatives.
Who Created VeChain?
Sunny Lu, a former chief information officer of Louis Vuitton China, co-founded VeChain with Jay Zhang in 2015, launching it as a subsidiary of the Chinese blockchain company Bitse.
In 2017, VeChain launched an initial coin offering (ICO) for 1 billion VEN tokens on the Ethereum blockchain, successfully raising $20 million. In 2018, VeChain moved from Ethereum to its own blockchain, the VeChainThor Blockchain. As part of this reform, VeChain conducted a token swap from VEN tokens to a new native token, VET, at a ratio of 1:100.
VeChain’s philosophy is rooted in its belief in the power of efficient collaboration. To that end, it aims to give businesses, governments, and individuals a highly scalable and transparent blockchain network designed for fast and secure data transfer.
VeChain’s Native Cryptocurrencies
VeChain’s economic model features two native tokens: VET, which functions as a store of value, and VTHO, which is used to pay for fees on the network. The project’s aim with this approach is to separate the cost of using the network from market speculation.
Like most cryptocurrencies, VET can be subject to a high degree of price volatility. Using an entirely different coin to power the network gives VeChain the ability to keep its network fees stable, as it can always adjust the supply of VTHO.
What is VET coin?
VeChain Token (VET) is one of the native tokens of VeChain and serves multiple purposes, such as storing and transferring value across the network and enabling stakeholder voting. Moreover, VET holders also receive VTHO tokens as rewards. To start earning VTHO, one just needs to hold VET in an official wallet.
What is VTHO coin?
Much like how the Ethereum blockchain uses ETH as gas, the VTHO coin is the fuel that powers transactions and smart contracts on the VeChainThor blockchain. The token is generated by holding VET, the rate of which can be changed by the VeChain Foundation (along with the required amount for the transaction) to keep transaction fees stable.
How Does VeChain Work?
Now, let’s take a look under the hood of the VeChain blockchain, which has two main components:
Proof of Authority Consensus Mechanism
VeChain utilizes the Proof of Authority (PoA) consensus mechanism, where validators earn their position through a combination of a financial stake, and by divulging their identity.
This is unlike the Proof-of-Work (PoW) mechanism, where miners compete to solve complex mathematical puzzles, and the Proof-of-Stake (PoS) mechanism, where the selection of validators is usually based on the size and duration of their stake.
PoA is neither energy-intensive nor does it require a minimum number of validators to reach a consensus. However, because PoA is partially based on reputation, the identity of holders must be revealed so that they remain accountable for their activities and obligations to the ecosystem.
In VeChain, the users responsible for verifying transactions are known as Authority Masternodes. The VeChain Foundation only selects 101 such nodes. Furthermore, to qualify as an authority masternode, users must stake a minimum of 25 million VET, own dedicated hardware for blockchain validation, and – notably – undergo a full KYC procedure.
These nodes are rewarded with 30% of all VTHO generated from transaction fees and receive 30% of all voting power.
Meta-Transaction Features
The VechainThor blockchain network utilizes meta-transaction features to help make it more user-friendly for enterprise adoption. It comprises of:
Fee delegation: VeChain uses what it calls “flexible transaction fee schemes”. These are essentially options for multi-party payment. For example, users can add an account controlled by a smart contract that is purely for paying VeChain’s network gas fees.
Controllable transaction lifecycle: VeChain’s transaction model has certain features that allow its users to set expiration dates for their transactions. In other words, a user can set up a transaction to expire if it doesn’t get processed by a certain time.
Clauses (Multi-task transaction): This feature allows VeChain users to carry out multiple payments with one transaction
Transaction dependency: Similarly to setting a lifecycle on a transaction, Vechain users can set up their transactions so that they are only executed if a related transaction gets completed.
Advantages of VeChain
Now, let’s take a look at the pros of this blockchain protocol:
Improves Transparency in The Supply Chain
VeChain is a transparent and immutable blockchain, which makes it particularly useful in supply chain management. It is particularly well-known for tracking the movement of goods across industries.
In supply chain management, VeChain uses smart chips (NFC), radio frequency identification (RFID) tags, and QR Codes to identify and monitor a product’s progress and send information in real-time. It stores data collected at every step of the journey, allowing all parties involved, including end users, to track and verify it, thereby enhancing product authenticity and boosting consumer confidence.
Handles Complex dApps at Enterprise-Grade Speeds
By utilizing the reputation-based PoA model, where 101 authority nodes take on the responsibility for achieving consensus, VeChain ensures quicker consensus compared to other networks. Limiting the number of validators further helps VeChain achieve the high level of scalability that enterprises require.
Additionally, VeChain’s smart contract capability enables it to manage applications efficiently. To facilitate this, the protocol offers VORJ, a platform allowing anyone to create smart contracts tailored to specific requirements without coding. This approach simplifies the smart contract creation process and removes the technical barriers to creating dApps.
Provides Support for ICOs
By supporting ICOs, VeChain allows companies to issue their own tokens on its blockchain. This way, enterprises can easily create digital currencies for market trading. With VeChain, businesses also have the flexibility to generate both fungible and non-fungible tokens, further streamlining the process through the use of toolkits and APIs.
Disadvantages of VeChain
The System Is Centralized
As explained above, VeChain only has its 101 authority master nodes contributing to its consensus. Compare this to Bitcoin, which has 10s of thousands of nodes. Narrowing down its need for consensus in this way makes VeChain highly scalable, but it also means that the network is highly centralized.
Centralized systems inherently have some issues. After all, this is what led to the decentralized ethos of crypto in the first place. By definition, having a smaller number of nodes to validate transactions means that the system could be more susceptible to attacks than it might otherwise be. It also opens up the possibility of collusion among some nodes, resulting in actions that don’t benefit the entire network.
However, VeChain’s Proof of Authority system means that its authority master nodes have a strong incentive to behave appropriately. Not only do they have a significant financial stake in the network, but they also have to submit their identity, making it easy to track them down if they were to act out of turn.
The System Disadvantages Non-KYC Holders
As mentioned above, the VeChain network requires anyone wanting to act as an authority master node to disclose their identity and undergo a full KYC verification. While designed to keep the system secure, this obviously disadvantages VeChain users who forego KYC and stay anonymous.
It’s important to note that users without KYC can act as economic nodes – the nodes partially responsible for keeping authority master nodes in check. That said, economic nodes receive much less voting power than master nodes. In fact, holders of at least 1 million VET tokens with no KYC get 20% of all votes, while KYC holders with the same amount of tokens get 30% of votes.
Access VeChain with a Ledger Wallet
- Download Sync Wallet from VeChain and install it.
- Open up Sync and click “Create Now”, or connect it to your Ledger VET account.
- Open the VeChain app on your Ledger device, then click on the “Ledger” button in Sync wallet.
- Name your wallet, then click “import”. Your VET accounts will appear on a dashboard, and you can start receiving VeChain tokens from there.
Head over to Ledger Support for the full breakdown of how to manage VeChain tokens with Ledger.
The Power of Self-Custody, No Matter the Blockchain
All in all, regardless of whether you’re interested in the enterprise-friendly benefits of VeChain, or any other Layer 1 blockchain, self-custody remains the most reliably secure way to interact with cryptocurrency. Using a Ledger device you can easily manage your VeChain wallet and even stake your VET tokens.
So what are you waiting for? Put the power back in your own hands by picking up a Ledger device, and experience what it means to explore the decentralized world with the utmost confidence.
