What is Elrond? It is a 3rd generation smart contract platform, which has received lots of attention and popularity in 2020. This project is named after the famous elf in LOTR. It promises up to 1000x scalability compared to Ethereum using sharding technology. This article is the Elrond Beginner’s Guide. We’ll go through all the key features of Elrond.
What is Elrond? It’s a scalable ecosystem
Let us first place Elrond in the correct category among cryptocurrencies. We divide cryptocurrencies into three main groups: coins, platforms, and tokens.
Coins include Bitcoin, Litecoin, Bitcoin Cash, Dash, and other P2P digital currencies. The purpose of these coins is to function as digital currency, nothing else. There are also subcategories such as privacy coins and stablecoins, which are purpose-designed currencies.
The platform category has been the hottest one for a couple of years. The best example is, of course, Ethereum. Platforms are also called operating systems, frameworks, and ecosystems. You can think of them as iOS and Android – they are operating systems for apps.
Elrond fits very well into the platform category. It is one of the many Ethereum’s challengers and a so-called 3rd generation platform. This generation has solved the scalability issues Ethereum has. Other 3rd generation platforms include EOS, Tezos, Tron, Cardano, and Zilliqa.
Below is a short introduction video of Elrond from 2018.
The main selling point of Elrond is the scalability, but it is not the only platform offering massive improvements to the current Ethereum framework. The team claims Elrond can reach up to 1000x transaction capacity compared to Ethereum with much smaller fees.
The Elrond network has its own native currency, Elrond, which is using a ticker EGLD (like eGold). The ticker used to be ERD before a token swap took place in 2020.
The native token EGLD functions as gas in the system and it is also used for staking. This is no different from competing platforms.
Elrond has its roots in Romania
Elrond is also often called the Elrond Network. In this article, we will be mostly using the shorter version. For all LOTR fans out there: yes, the project is named after the famous elf, played by Hugo Weaving in Peter Jackson’s popular movie trilogy.
Romania is a country not often mentioned in the crypto universe. The same can be said of Eastern Europe as a whole. Elrond is a refreshing exception to this rule. The project was founded by brothers Beniamin & Lucian Mincu and Lucian Todea.
Beniamin Mincu is the one giving a face to the project. You’ll find many interviews on Youtube featuring him.
Beniamin Muncu has been in the crypto scene since 2013. He was part of the NEM platform project in 2014-2015 and Mincu was also one of the founders of MetaChain Capital. This is a venture capital company, which has funded multiple blockchain projects.
Below is an interview of Beniamin Mincu by Coingecko.
Elrond is a young project compared to many of its competitors. It was born in late 2017. The team was focused on building a working prototype of Elrond first and did not take part in the ICO boom of 2017-2018. In hindsight, this was a smart move.
The first working prototype was launched in July 2018, which already reached 1000 TPS in simulations. A TestNet was launched in May 2019, where Adaptive State Sharding and SPoS consensus were implemented already. This network reached up to 12,000 TPS (Transactions Per Second).
Elrond started to reach mainstream popularity in the summer of 2019 when it launched an IEO. If you are not familiar with IEO, think of it as an ICO run by a cryptocurrency exchange.
There was a big IEO boom in the spring of 2019 on the Binance LaunchPad platform. This is where Elrond’s IEO was also launched. Therefore, the newly born ERD token made it to Binance very quickly, which gave it credibility and liquidity.
Probably around 99 % of the ICO-born coins were launched as Ethereum tokens, but IEOs have changed this narrative. Any coin launched on Binance has become a Binance-chain token instead. This was also the case with Elrond’s ERD token.
Elrond’s ERD token has had a steady run since its inception. The token had a big boom in the summer of 2020 due to Elrond’s MainNet launch. The MainNet became operational in late July.
The MainNet launch also meant there was a token swap. ERD tokens were moved from the Binance chain to Elrond’s own blockchain with a 1000:1 ratio, meaning 1000 ERD tokens became 1 EGLD token.
Elrond technology explained – Adaptive State Sharding
Elrond wants to provide a platform for anyone to send digital currency easily, fast, and with low fees. How is Elrond able to make this possible from the technical point of view?
This is where a technology called adaptive state sharding is introduced. See the video below for a quick introduction.
Some of the readers might be familiar with sharding since this technology is also used in the database world. It is a very efficient way to scale blockchains as well, but very difficult to implement. The first MainNet using sharding technology was launched by Zilliqa.
The synonym for a shard is a fragment. In essence, sharding means splitting a database or a blockchain into smaller fragments. This is done to split the network workload into smaller portions, which can be then processed more efficiently.
What makes sharding so special is the fact that the network capacity actually increases when it expands. More nodes there are in a sharded network, more fragments or shards can be created to process transactions.
Elrond is using Adaptive State Sharding, which takes the sharding solution used by Zilliqa one step further.
”Zilliqa tries to solve scalability by addressing half of the problem, and that is by doing network and transaction sharding – so it improves somewhat the scalability and the network can process about 2500 TPS (2828 TPS with 3600 nodes). The network sharding is not optimum however as all the shards still need to synchronize the entire state of the system leading to communication overhead. It does not solve the hardest part of the problem which is state sharding.
Having no State Sharding basically means for Zilliqa that every node in the network has to store the entire state of the blockchain. In very high throughput blockchains the storage requirements grow very fast. A validator needs some special hardware to keep up with this kind of demand. Elrond solves the storage problems, by also sharding state, so that every node in the network has to store just a part of the entire state, the one corresponding for it’s shard.”
The quote above is taken from Elrond.com.
The technical term sharding can be divided into three: there is network sharding, transaction sharding, and state sharding. Zilliqa is only able to do network and transaction sharding, but Elrond can handle all three. This is what makes the network so intriguing from the technical point of view.
The use of state sharding makes Elrond’s network extremely scalable. They have reached up to 260.000 TPS in simulations, which is 100x the capacity Zilliqa currently has.
The Elrond blockchain has a five-second block time, which means transactions are almost real-time. The pBFT consensus algorithm gives transaction finality (Zilliqa has this also), which means there are no confirmations needed. All transactions are 100% final right away.
Elrond’s consensus algorithm Secure Proof of Stake
Elrond has a strong vision, which is described by the founder Beniamin Mincu in all of his interviews. This vision can be squeezed down to words scalability and user-friendly.
The project wants to create nothing less but a new digital money standard. According to Elrond, this means the network must be able to have at least the capacity Visa and Mastercard currently possess. There is also a strong need for a user-friendly GUI.
Previously described sharding technology gives Elrond enough scalability. However, it must be also combined with a powerful and efficient consensus algorithm.
Elrond is using a Proof of Stake based consensus algorithm, just like all other 3rd generation platforms as well. PoS has become a de facto standard for platforms in the past few years. It has replaced Proof of Work, which is still used by Bitcoin and Ethereum with few other older coins.
There are many variants of Proof of Stake. The best-known one is probably Delegated Proof of Stake, DPoS. The basic idea of a PoS system is that you have a group of validators (instead of miners), who create blocks and maintain the blockchain. Transaction fees are given to validators as a reward.
Elrond is calling its PoS algorithm as Secure Proof of Stake, SPoS. The image below shows the SPoS as an animation. Image source: Elrond docs.
The word secure is used because there is a lot of randomness used in the consensus process. In Elrond, the network validators are not known beforehand, which is the case in the DPoS system.
Elrond’s SPoS selects a small group of validators randomly to create the next block. One of these validators is titled as a proposer. This proposer will bundle all transactions together and proposes the block to other validators, who will then validate the block and it is added to the Elrond blockchain.
Validators get chosen based on the amount of EGLD tokens they stake and there is also a scoring system in place. Validators functioning poorly will be penalized and might lose their stake entirely.
SPoS makes also sure that nodes of the Elrond network are split into different shards randomly. This makes it even more difficult for any possibly hostile nodes to act together against the system.
What is Elrond’s Arwen VM
You should know by now, that Elrond is one of Ethereum’s rivals in the platform category. This means it is an operating system for smart contacts and Dapps. You can read more about smart contracts from this guide.
There is a VM, Virtual Machine, at the core of each platform. This might be familiar to some users, who have downloaded the Jave VM for their desktop computer. Virtual Machine is running program code, and in this case, smart contracts.
Every VM is a bit different, depending on the platform. Ethereum Virtual Machine, EVM, is by far the most popular and best-known VM. Some other platforms support EVM as well, like Tron, and EOS. EVM is processing smart contracts written in Solidity smart contract language.
Elrond has also its own VM, which is called Arwen WASM VM. For all LOTR fans: yes, this is yet another name taken from Tolkien’s world of elves.
Arwen differs quite a bit from EVM because it supports WebAssembly. This is also where the letters WASM come from.
The difference to EVM is significant because WebAssembly makes it possible to write smart contracts in any language, which can be compiled to WASM bytecode format. Such languages include C, C++, C#, Rust, and Go.
There are several new platforms, which try to lure Dapps from Ethereum to their own platform by making it EVM compatible. The latest example of this is the Binance Smart Chain. This way Solidity programmers could easily move their Dapps from Ethereum to a more scalable solution.
As it says in the image above (Source: Elrond.com), Arwen might support Solidity-based smart contracts in the future. First, one would need a proper Solidity -> WASM converter, which is currently not out there yet.
Investing in Elrond
Elrond has entered the platform race like a storm in 2020. The project has reached lots of interest all around the world in a short time. This is for a good reason since Elrond is offering something its competitors do not have.
Probably the biggest selling point is the scalability and transaction capacity. The numbers really speak for themselves. Elrond has also finally launched its MainNet, which is the only adaptive state sharding implementation out there.
The project has also entered the EGLD era, as mentioned earlier. The old ERD token has been replaced with EGLD, which is now running in Elrond’s own blockchain.
Many investors have also become interested in Elrond due to nice staking rewards, which are up to 25% APY. You can find more information about Elrond staking from this article and Youtube.
One of the most important milestones going forward is Maiar. Once more, this name is well-known by all LOTR fans. Maiar is already available as a mobile app for iOS and Android. You can also go to maiar.com or check this Youtube presentation.
Maiar is The Application for Elrond to provide ease of use for anyone who wants to send digital currency. This is a new project, which will have many more features in the future. You’d definitely keep an eye on it.
If you consider investing in Elrond, you have to compare this project to other platforms. Even if Elrond stands out of the crowd positively, it has so many competitors. EOS, Tezos, Tron, Zilliqa, Cardano, and half a dozen more decent platforms are fighting for adoption.
You also must follow what Ethereum is doing. The 2.0 version will be out eventually. That will solve the scalability issue Ethereum has and it probably makes most of the competing platforms obsolete.
The ever-growing DeFi sector could also play a significant part. Elrond is trying to get DeFi developers to build apps for its platform, just like all competitors are doing as well. So far there is no significant DeFi adoption outside Ethereum.
Elrond price and how to buy Elrond
If you want to invest in Elrond, you’d do that in Binance (or Binance U.S.), which is the leading cryptocurrency exchange out there. Binance supports fast and easy deposits with credit & debit cards and bank transfers.
Currently, there are no other exchanges listing the EGLD token we’d recommend. This due to two major facts.
First, Elrond was launched on Binance’s IEO platform, which is why other exchanges don’t like to list it. Secondly, Elrond MainNet has been out just a few months, which is why exchanges haven’t had time to upgrade their systems yet. This will likely change soon.
The project has already launched a native wallet for the EGLD token, which can be found at wallet.elrond.com. If you don’t want to hold your tokens at Binance, you can use this wallet instead.
Follow @ElrondNetwork and @BeniaminMincu on Twitter to stay up-to-date with all the latest events. The official website is at Elrond.com and the Reddit discussion can be found reddit.com/r/elrondnetwork/.
We also recommend checking the video below by Coin Bureau.