VeChain VET is a blockchain protocol that seeks to incentivize a network of computers to operate a platform allowing businesses to build and run decentralized applications (dapps).
In this way, VeChain’s goal is to enable better digital collaboration between businesses by giving them new tools for efficient data transfer and supply-chain management.
Originally a solution for supply chain management alone, the VeChain protocol rebranded to VeChain Thor with the launch of the protocol’s mainnet in 2018, increasing the scope of dapps to include more general data solutions.
Corporations that have started using the VeChain blockchain include:
- BMW, which uses VeChain to prevent odometer fraud in automobile sales
- LVMH, which uses VeChain to track luxury leather goods
- Walmart, which uses VeChain to track food provenance.
Central to running the operations on its blockchain, VeChain boasts two native cryptocurrencies, VET coin, for voting on changes to the protocol, and VTHOR, for executing transactions.
Users seeking to stay connected on the current development status of VeChain, along with the companies that are integrating its blockchain, can follow its official blog for up-to-date details.
Understanding VeChain VET
VeChain states that its goal is “to build a trust-free and distributed business ecosystem platform to enable transparent information flow, efficient collaboration, and high-speed value transfers.1
Supply chain data for business processes are currently compartmentalized in silos among multiple stakeholders. This affects information flow, which is again divided among stakeholders.
According to VeChain’s white paper, blockchain technology can break “this asymmetric information problem and allow ownership of data to return to and empower its owner.” The VeChain platform claims to provide a 360-degree view of necessary information linked to a product and its business processes—such as storage, transportation, and supply—to authorized stakeholders and create greater market transparency.
Who Created VeChain?
VeChain was co-founded in 2015 by Sunny Lu, former chief information officer of Louis Vuitton China, and Jay Zhang.
The VeChain team initially distributed its cryptocurrency, VEN, on the Ethereum blockchain in 2017 as part of a crowdsale that sold 1 billion tokens and raised $20 million.
These tokens were later replaced by VET tokens (sometimes referred to as VET coins) when the VeChainThor blockchain was launched. VEN tokens were swapped for VET tokens at a 1:100 ratio.
How Does VeChain Work?
VeChain aims to give any company the ability to launch new kinds of dapps.
In order to facilitate the creation of dapps, the VeChain team built a component called the VeChain ToolChain, a software development kit.
Proof of Authority
To regulate the process in which transactions between users are verified and added to VeChain’s public ledger, VeChain Thor uses a consensus mechanism known as proof of authority (PoA).
Users who verify and add transactions to the blockchain are known as Authority Masternodes, and, to become one, users must stake a minimum of 25 million VET and submit identifying information to the VeChain Foundation.
While using a PoA mechanism helps process large transaction volumes rapidly, the disadvantage of its approach is that it relies on a central authority to check and authorize users who can take part in processing transactions.
Of note, VeChain is working to improve its PoA to ensure a more randomized and distributed block creating mechanism.
Two Token Design
In order for the protocol to work, VeChain uses two native tokens, VET, used to store and transfer value, and VTHO, used for transactions on its blockchain.
This design is intended to isolate the price volatility of VET coin from the cost of computations on the network, allowing applications on VeChain to charge stable fees (since the VTHOR supply can be adjusted to maintain a stable price for transactions).
Similar to how the Ethereum blockchain uses ETH and gas, miners earn VTHO fees for computations processed by the network. The more complex the computation, the more VTHO a given program will require.
Lastly, nodes staking VET coins gain the ability to vote on network upgrades, and are rewarded with VTHO every block.
Examples of How VeChain Can Be Used
For example, the platform can be used to track quality, authenticity, storage temperature, transportation medium, and last-mile delivery of a medicine pack or an alcohol bottle right from the manufacturing facility through to the final delivery to the end customer. To accomplish this goal, VeChain uses smart chips or Radio Frequency Identification (RFID) tags and sensors that broadcast key information onto the blockchain network that can be accessed in real-time by authorized stakeholders.
The application of sensors means that all parameters related to the product can be constantly monitored and problems, if any, can be communicated back to the relevant stakeholders. Manufacturers and customers are informed if a drug packet is stored outside a prescribed temperature range, allowing for service improvements and better quality control.
In another example, the VeChain platform can enable automobile owners to own their data and use it to negotiate better terms and policies with their insurance companies.
History of VeChain
VeChain was founded in 2015 by Sunny Lu, the former chief information officer (CIO) of Louis Vuitton China. It started as a subsidiary of Bitse, one of China’s largest blockchain companies, and is among the few blockchains that already have a substantial customer base among established companies.
Initially, the VEN token functioned on the Ethereum blockchain. VeChain transitioned onto its own blockchain and rebranded itself in 2018. As part of the rebrand, the VEN blockchain became the VeChainThor (VET) blockchain.
Goals for the VeChain blockchain platform are outlined in its white paper. Its initial target was to disrupt the supply chain industry by making data actionable and transparent. It also plans to be a leader in dApps and initial coin offerings (ICOs) made using VeChain as well as being an Internet of Things (IoT) intermediary.
VeChain has inked strategic partnerships over the years with several companies in order to help achieve this goal. Among them is an agreement with PricewaterhouseCoopers (PwC) for VeChain’s blockchain-powered solutions to be used by the accounting firm’s client base to improve product verification and traceability.
VeChain has also partnered with Renault, creating, in conjunction with Microsoft and Viseo, a digital car maintenance book that cannot be tampered with and is the government technology partner for Gui’an, an economic development zone for the Central Chinese Government.
VeChain’s Blockchain Platform
The VeChainThor blockchain platform is a public blockchain intended for “mass business adoption.” It has two tokens: VET and VTHO. VET is the VeChain token that is used to carry value or “smart money” from smart contracts. In other words, transactions on decentralized applications occurring on VeChain’s blockchain will use VET. It is available for investing by the general public.
The VTHO token stands for VeChainThor Energy and is also known as VeThor Energy. It is used to power transactions on VeChain and is equal to the cost of conducting transactions on its blockchain.
The concept is similar to that of Ethereum’s ether and NEO’s “gas” in that developers need to budget for a certain number of underlying tokens (which are not exposed to the public) in order to conduct transactions for their decentralized applications. Per VeChain’s white paper, the two-token system was devised for effective governance and to have a predictable economic model for decentralized applications developers.
In its current form, Ethereum lacks such a model because the price of ether, its native gas token, is volatile. As such, developers have to estimate the amount of ether required for a transaction. The transaction fails if their estimate turns out to be incorrect. VeChain’s white paper outlines several technical enhancements that its platform has made to overcome this problem.
For example, the VET blockchain allows Proof of Work (PoW) to be conducted for every transaction. This means that the people conducting a transaction can mine more VTHO if their initial estimate was wrong.
Governance Protocol
The VeChainThor blockchain uses Proof of Authority as a consensus protocol. Per this protocol, votes are disbursed based on VET holdings and disclosure. VET holders without know-your customer (KYC) credentials and with 1 million tokens in their account are assigned 20% of all votes while VET holders with KYC and the same amount in their accounts are responsible for 30%.
There are 101 master nodes responsible for reaching consensus on transactions in VeChain’s blockchain. This system is different from Bitcoin, which requires all nodes to vote on a transaction before reaching consensus.
Anonymous nodes are not allowed, and disclosure of identity is an essential pre-requisite to becoming an authority master node. According to VeChain’s white paper, this system uses less power and does not require a minimum number of validators to reach consensus.
The other type of master node in VeChain is the economic master node. These do not produce blocks or ledger records and are used as a check on power. This is done by allocating a certain number of votes to each economic master node based on their VET holdings. Each 10,000 VET held by an economic master node gets it a single vote.
The system of master nodes centralizes voting rights in a decentralized system. But the founders of VeChain have said that their aim in designing this protocol is to achieve a balance between centralization and decentralization.
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