VeChain: Supply Chain & Logistics Blockchain
VeChain (VET) Review:
Introduction
VeChain is a supply chain focused blockchain application which has VET and VTHO as its native tokens. It is a very exciting and popular coin in the cryptocurrency world and is the #20 crypto by market cap according to coinmarketcap.com. While it is very popular its price is still very low compared to other coins in similar rankings, which driving many VET enthusiasts to view it as “undervalued” and thus a great investment for the short and long term. So, besides its enthusiasm and high ranking on coinmarketcap.com what is VET and why should you be interested in it?
Background
VeChain was started in 2015 and launched its mainnet in June 2018. The VeChain Foundation is a Singapore based organization that maintains the development and promotion of the VeChain Project. VeChain is an enterprise application of blockchain and is focused primarily on the logistics field through supply chain management that provides tracking, quality control, inventory management, and much more to its partners. The team behind VeChain includes Sunny Lu (CEO), Jie Zhang (CFO), Kevin Feng (COO), and Jianliang Gu (CTO). Sunny Lu is the CEO of VeChain and one of the founding members of VeChain. Prior to founding VeChain, he was CIO at Louis Vuitton China and has over a decade of experience working for Fortune 500 companies in executive IT positions. Sunny Lu and his team have much to do with the vision and success for VeChain. The team has brought on many partners onto the VeChain network over the years, and they seem to add a new partner every month or so. Some of their most notable partners are BMW & Renault as well as Penfolds (Australian wine company) which VeChain provides proof of authenticity for their products in their supply chain. VeChain is a very exciting technology with a great team and some very interesting technical aspects which we will dive into next!
Consensus Method
VeChain is secured by the Proof of Authority (PoA) Consensus model. PoA functions similarly to Proof of Stake (PoS) models with one key difference, each authorized node has an equal chance of publishing a new block, regardless of the amount of VET staked on the network. Simply put, once a node becomes authorized it joins the pool of other authorized nodes and each has an equal chance of publishing new blocks and receiving rewards. Under this system the rich nodes have no advantages, and there is no requirement for nodes to compete with one another and use vast amounts of resources. This system features efficient bandwidth usage, which leads to higher throughput for the network and results in higher TPS and increased scalability in respect to similarly sized PoS blockchains. There are drawbacks to this consensus model, the most notable being an inability to prevent an authorized node from manipulating the entire system when it has the right to add a new block. This limitation is buffered by the ability of the blockchain can trace any misbehavior and use it as evidence against the node later. Additionally, as part of the family of Nakamoto consensus methods, PoA only gives us a probabilistic assurance that transactions are secure. This could leave the network vulnerable to large-scale network partitioning. Due to these limitations the VeChain Foundation has developed PoA 2.0. This new version of PoA will give the network the stability and security needed to support the growing number of business use cases on-chain. According to the VeChain Whitepaper 2.0 the new PoA 2.0 will deliver: Absolute finality on blocks and transactions, reduction of the platform’s risk of being temporarily disrupted, increased stability of blockchain service, will result in faster transaction confirmation for applications.
Like in many other blockchain applications, VeChain is secured using nodes that validate transactions and secure new blocks. VeChain has 3 types of nodes: Authority Nodes, Economic Nodes and X-Economic Nodes. Authority Nodes participate directly in consensus and require a minimum of 25 million VET tokens to be staked. These nodes are awarded 30% of the daily VTHO usage. Economic Nodes are nodes that do not participate in consensus but to provide stability to the network. These generate VTHO based on a pool of 15 billion VET set aside for this node tier. Within this node designation there are 3 subtypes of nodes that differ based on their staking amount. The Mjolnir Masternode requires 15 million VET to be staked, The Thunder Masternode requires 5 million VET to be stakes and the Strength Masternode requires 1 million VET to be staked. X-Economic Nodes are older economic nodes that supported VeChain is its earlier stages of development and generate VTHO based on a pool of 5 billion VET set aside for these nodes. Due to their legacy status no new X-Economic Nodes can be created. Now that you understand how the network is secured, lets examine the tokens that incentivize this security.
Tokenomics
VeChain uses a dual economic model for its tokenomics. The two native tokens are VET & VTHO. The VET token is uses for governance of the blockchain, speculation of exchanges, and staking. VTHO is used to pay for transaction fees and is the reward for staking VET. The default transaction fee is roughly 21 VTHO, but users can increase their VTHO to increase the transactions priority in the network. This dual token model allows the cost of transactions to remain low even when the price of VET increases, as network fees are kept separate from the potential volatility in the price of the VET token, which has seen a pretty significant rise as of late. VEN is an ERC20 version of VET that predates their mainnet launch. VEN was how they deputed their token in their ICO, but since the mainnet has launched they have a token swapping service that swaps at a ratio of 1 VEN: 100 VET. At the time of the mainnet launch in June 2018 each VEN token was worth around $1.62, and thus VET tokens were given the valuation of $0.0162 per VET. The price of the VET dipped after the swap and remained between $0.004 and $0.009 until July of 2020 when it finally broke back above the $0.01 mark. It then remained pretty stable around the $0.01 and $0.02 mark until January of 2021. Since then, it has experienced some impressive price action in the heat of the bull market, reaching an all time high of $0.28 before settling back into the $0.15 - $0.20 range. The main wallet for VeChain is the VeChainThor wallet, which is available on the IOS and Android app store. One nice feature of this wallet is that if you hold VET in the wallet, you will earn VTHO, with a generation rate of 0.000432 VTHO per VET per day. The wallet also offers a swap service for the ERC20 VEN token into the VET token. VET is available for trading on Binance, Crypto.com, Voyager, Bittrue, BitMart, KuCoin and many more.
Concerns
VeChain poised to be a great success story in the Cryptocurrency space, but there are still some concerns surrounding the project. One concern is the inherent competition in the supply chain and logistics space. While it is far ahead of fellow blockchain projects, it still faces competition from more traditional players in the space. IBM recently partnered with the shipping giant Maersk to create a global shipping management blockchain platform. This platform has attracted nearly 100 companies that include ocean transport companies, logistics companies, ports, and others. IBM has also begun work with Walmart and Unilever to uncover new areas of the supply chain that can benefit from blockchain technology. With its technological dominance and global reach, IBM is a threat that cannot be overlooked.
Another issue is security. In December of 2019, the VeChain foundation was hacked and lost 1.1 billion ($6.5 million at the time) of VET tokens. VeChain attributed the hack to “human error and misconduct” that allowed their private keys of the foundations buyback wallet to be exposed and subsequently drained of roughly 1% of the current token supply. While this was a grave mistake for VeChain as least this was not caused by an underlying exploit in their consensus method, which could have done much more damage to the project.
A third concern is diversity in partnerships. Due to COVID-19, Sunny Lu has stated that VeChain has had a difficult time securing new partnerships to expand the network and grow adoption during the limits on international travel. Due to this while VeChain has expanded more into Asia-Pacific region since American and European were widely inaccessible to in-person demonstrations. There is also stated hesitancy in American markets do the fact that the company is Singapore based and therefore could have unwanted association with the CCP, even though these claims have been refuted by the VeChain foundation.
Conclusion
All in all, VeChain is a promising blockchain application with strong technical and good tokenomics. With their ever-growing partnerships and increasing awareness amongst cryptocurrency investors VeChain is poised to do very well in the supply chain and logistics field. The project is well-thought out, with good governance, and a unique economic model that works very well when considering the needs of large organizations and enterprise customers. It also has not faced the scalability issues common at many blockchain projects, although that could change if it starts experiences greater levels of adoption. With the looming threat of competition faced from large traditional technology companies such as IBM and SAP, investors are understandably worried that VeChain will be buried by these mammoth companies. The VET token has been able to make strong gains during the altcoin rally of 2021, but if VeChain cannot establish a dominant position in the logistics space soon investors could lose their optimism for the project. The coming year will be a crucial one for VeChain. If it can get PoA 2.0 successfully launched on its Mainnet it will have the means to attract more high-profile clients. While it remains ahead of the major traditional companies working in this space, VeChain will have too maintain the momentum that has been key to keeping VeChain in the lead.