Overview
VeChain is its own blockchain designed to improve enterprise supply chains. It originally was built atop the Ethereum blockchain in 2015 to bring transparency and authenticity to luxury goods provenance to reduce fraud and combat counterfeit products. However, with loftier goals in mind, VeChain conducted an ICO in 2017 and launched its own blockchain in 2018.
On its own blockchain, VeChain tracks physical real-world items by assigning each product a unique identity and using RFID sensors to track that item across the supply chain until it ultimately ends up with the merchant. The idea is that companies who use VeChain can be sure their products are handled correctly and not counterfeited.
With the launch of their own chain in 2018, VeChain migrated to its own public blockchain ecosystem, VeChain Thor, converting the former VEN tokens to VET and adding the VeChain ‘gas’ token VTHO. Thus, VeChain has evolved into a multi-coin enterprise-focused supply chain management and Internet of Things (IoT) ecosystem as opposed to a single project. The protocol is designed to be used across industries such as automotive, pharmaceutical, or agriculture in order to make the supply chain more efficient, transparent, and cost-effective. With VeChain, different companies along the supply chain can track items through every stage of production and delivery in real-time and verify the information. Over 30 companies within the Fortune 500 have live solutions running on VeChain including Walmart, BMW, LVMH, Renault, Deloitte, and PwC.
VET Strengths
- One of a select few crypto-projects that have actual adoption and product-market fit with major corporations like Walmart China, Pricewatercooper, PwC, Cointelegraph, BMW Group, LVMH, Moët, Hennessy, and Louis Vuitton
- A tenured product (5+ years) with a dedicated team that has shown the ability to evolve with the ecosystem and continue to improve and develop the product for users
VET Weaknesses
- A permissioned, KYC’d, centralized, and closed ecosystem of MasterNodes that offers none of the open, free-to-participate, permissionless characteristics of Bitcoin or Ethereum
- The VeChain Foundation is the ultimate authority and gatekeeper to the blockchain with the ability to change the monetary policy and other critical decisions
- VeChain was built for a large but very particular supply chain management use case, meaning there is essentially no reason a retail user needs the coin
Important Links
Use Case
VeChain’s goal is attaining mass adoption in the supply chain, provenance, and traceability industry by providing value to enterprise business operations. VeChain technology has a wide array of uses across different types of industries but has a very obvious and immediate benefit within business supply chains. Different companies within the supply chain, from producers and distributors to couriers and merchants, can track items through every stage in real-time with the use of VeChain Identity Technology (VIDs), such as QR codes and RFID chips, to scan and identify products onto the blockchain. With asset digitization, VeChain allows manufacturers, supply chain partners, and even consumers to track the movement of products through the supply chain and determine the quality and authenticity of a product.
The VeChainThor blockchain platform is a public blockchain ecosystem intended for “mass business adoption.” VeChain was originally built on the Ethereum protocol but transitioned onto its own blockchain protocol, the VeChainThor, in 2018. At this time, the VEN token became the VET token. Transactions on decentralized applications occurring on VeChain’s blockchain use VET. A second token, the VTHO, is used to power transactions on VeChain and is equal to the cost of conducting business or ‘gas’ on the Ethereum network.
The VeChain protocol is attempting to replicate the success of the Ethereum ecosystem with some tweaks to perceived “obstacles” around governance and scalability. They envision all aspects of the Internet of Things (IoT) riding on the backbone of VeChain Thor as well as improvements that will take Decentralized Finance (DeFi) out of its current status of merely trading/speculation.
Technology
VeChain uses a “Proof of Authority” consensus model to ensure that future developments are aligned with the vision of The VeChain Foundation. In a Proof of Authority (PoA) network, the transactions and blocks are validated by pre-approved, verifiable, openly-public accounts known as validators. In the case of VeChain, the blockchain is maintained by 101 Authority Masternodes (AM). AMs are geographically-dispersed servers that keep a complete copy of the blockchain and are always connected to the network. They are required for the pre-approval of new VeChain entities and also to produce blocks on the VeChainThor blockchain. These AMs run the VeChain code which allows them to attest blocks and process transactions.
PoA's advantages are that once a node has been "authorized" it has an equal chance to publish a block (and gain 30% of the transaction fees as a reward). This means that an AM with 100 million VET has the same opportunity as an AM just meeting the 25 million VET threshold.
While the whitepaper claims this has the advantages of reducing time to consensus (and thereby making use of network bandwidth more efficient/increasing transactions per second), it is not decentralized in the same way Bitcoin is decentralized.
However, there are significant tradeoffs when using a Proof of Authority based consensus algorithm. A PoA system lacks the open, permissionless, decentralized, and pseudonymous nature of typical blockchains like Bitcoin and Ethereum. A PoA network is extraordinarily centralized similar to a big company or government, requiring large amounts of trust in the entity behind the project. VeChain has foregone decentralization and an open, permissionless network in order to meet its objectives.
While PoA’s identities are publicly known, the risk for third-party manipulation remains. VeChain is taking measures to address the issues of a PoA system by developing a “PoA 2.0” consensus system by adding oversight to the validation nodes.
VeChain Thor is a modified version of Ethereum’s codebase optimized for scalable enterprise solutions in a trusted environment. Thor is the main base layer of data exchange, key management, and state storage.
The permissioned-blockchain is capable of handling 10,000+ transactions per second from the data collected by sensors in the real world. VeChain designs and manufactures its own physical sensors that can read and publish data to the VeChainThor blockchain. VeChain IDs are assigned digital identities created with a SHA256 hash and tracked with NFC, RFID, and QR codes. Only the hash value of the raw data is stored on-chain and can only be accessed by permissioned entities. Raw data is stored in a decentralized data encryption storage solution developed by VeChain.
Economics
VeChain adopted a two-token model once it created its own blockchain in 2018: the VET token and the VTHO token. The two-token economic model of the VeChainThor blockchain is designed to detach the cost of transacting on the blockchain with market volatility thereby stabilizing the cost associated with transactions or executing smart contracts on the VeChainThor blockchain. VET is the primary token of VeChain and it has several uses. VET’s main use cases are to govern the network, store and transfer value, and generate the VTHO token. Each VET generates VTHO at a rate of .000432 VTHO per day.
VTHO is the secondary transactional token or ‘gas’ token of VeChain. When executing transactions, a small amount of VTHO is required for the transactional cost. Companies and developers utilizing the blockchain must use VTHO to add data to the blockchain and create smart contracts. This is similar to Ethereum, only Ethereum is a single token blockchain and just uses ether for its gas payments. However, in Ethereum’s case, as token prices and network adoption increase, transaction fees also increase. Network congestion causes fees to rise and makes interacting with the blockchain impractical for some use cases. VeChain’s dual-token model aims to eliminate that issue and provide stable prices for their enterprise business environment. If fees become too high, the VeChain Foundation and Steering Committee are able to adjust the minimum amount of VTHO needed for a transaction (currently 21) and/or increase the issuance of VTHO per VET. This allows the market for VTHO to stay predictable for the companies using the chain. However, this is inarguably a centralized, top-down system where a small group can make dramatic changes to the protocol. All VET holders, enterprise and retail, are trusting the VecChain Foundation with their funds.
The VeChain Foundation monitors the market, estimates the VTHO demand, and adjusts the fees accordingly to maintain VTHO stability against fiat. On use, 70% of the VTHO gets destroyed while the remaining 30% is paid out to the Authority Node as a reward for validating the transaction.
The reported market cap is about $700 million while the liquid market cap is just under $1 billion. VeChainThor (VET) is traded on 152 active markets with the highest volume pairs being USD, BTC, and ETH.
Vechain’s ICO was held on the Ethereum platform between August 18th to 31st, 2017 raising just over $60 million in order to release VeChainThor on its mainnet. Currently, the VET token is held 84% by whales, 19% by investors, and 7% by the retail sector, in just over 309,000 accounts. As a PoA consensus ecosystem, the majority of the assets are held by the authority voters (main node owners).
Governance
VeChain's governance system is well defined and a bit different from a "traditional" decentralized governance system like in Bitcoin and Ethereum. VeChain’s system of governance is based on transparency and speed but sacrifices some level of decentralization in doing so.
Stakeholders with voting authority select the Steering Committee Board of the VeChain Foundation which adopts strategies and selects committee chairs overseeing the operational units of the Foundation.
The VET ecosystem’s governance structure includes:
- Stakeholders/voters (Authority Masternodes, and Economic Nodes)
- VeChain Foundation’s Board of the Steering Committee
- Advisory Board
- Five different functional committees:
- Technical, Regulation, Compensation, Operational, and Public relations
The Steering Committee is a critical body in the overall project strategy. The main members of the Steering Committee Board are elected to two-year terms where they must be re-elected if they wish to continue to serve.
One governance feature that developers traditionally control and that helps maintain the integrity of the VeChain ecosystem are VeChain Improvement Proposals (VIPs). VIPs propose network upgrades to the VeChainThor Blockchain and VeChain ecosystem.
Funding to support continued code development and other VeChain expenses comes primarily from investor and VC funding. So far, VeChain has received capital injections from Jim Breyer/Breyer Capital and Fenbushi Capital.
Vulnerabilities
While VeChain's list of impressive partnerships suggests that enterprise clients feel comfortable in the level of security VeChain provides, are there any glaring vulnerabilities?
A good sign is constant and transparent code development which can be seen at any time via the project’s Github. Santiment shows a steady waxing and waning of activity in line with the expected output of two developers spearheading the majority of Github commits in the project (mentioned in the Governance section).
VET developer activity (purple) vs. price (green). Image credit: Santiment
Since VeChain uses the previously mentioned PoA consensus algorithm, there is no hash rate (and by extension, hash rate distribution/concentration). There are 101 Authority Masternodes, all with an equal chance of minting the next block. All authority nodes are randomly ordered and selected to charge a block. This helps eliminate the possibility of predicting which accounting nodes in advance will produce work for the chain, theoretically removing the ability to launch a network attack.
Spam is economically discouraged as transactions require VTHO (similar to gas for ETH transactions) and you must be holding VET to generate VTHO.
Finally, the most obvious and significant vulnerability concerning the VeChain project is around centralization risk. VeChain is not your prototypical cryptocurrency or crypto-project. It is a closed-off, permissioned system geared towards hyper-compliant enterprise companies. The PoA system, used in VeChainThor, lacks the open, permissionless, decentralized, and pseudonymous nature of typical blockchains like Bitcoin and Ethereum. It is centralized by design, similar to a big company or government, requiring large amounts of trust in the entity behind the project. A limited number of identified validators can freely cooperate to censor particular types of transactions based on the identity of the user or the purpose of the transaction.
