🔎 The Ultimate Guide to Elrond
Exploring one of the most underrated blockchains in crypto
Every so often you stumble upon a rare hidden gem in Web3. These are the projects that have innovative underlying technology, a seasoned team and a passionate core community.
While these projects are indeed quite rare, I believe I discovered one of them recently when I began diving into the Elrond Network.
Elrond is a layer-1 blockchain designed for high throughput and fast execution speeds. While there are many layer-1 blockchains that have claimed to do this (otherwise known as the “Ethereum killers”), few have flown as under the radar as Elrond.
The goal of this report is to dive deep into the core facets of the Elrond network, and help raise awareness for a blockchain that I feel does not get the coverage it deserve.
By the end of this report you should have a much better idea of the Elrond tech, the $EGLD tokenomics, its ecosystem of NFTs and dApps, as well as some insights into how you can get involved.
Note: For insights into how I explore Layer-1 blockchains, check out this article.
The Elrond Tech + Protocol ⚙️
Before we dive into the Elrond tech, it’s worth taking a moment to consider why Elrond was built in the first place.
The reality is that engineering is often a question of tradeoffs, and blockchains are no exception. Usually the engineering dimensions involved with blockchains include: decentralization, security, and scalability, otherwise known as the “Blockchain Trilemma”.
For instance, Bitcoin is provably scarce & decentralized; however it is constrained by not having programmable contracts on the base settlement layer.
Meanwhile, Ethereum has a smart-contract powered programming layer; however, it still struggles to scale throughput on its base layer-1 to this day.
Simply put, Elrond is attempting to provide the extensibility of a smart contract protocol with the scalability of an enterprise-grade database while not losing the security & scarcity of BTC.
Now, in order to make it easier to approach how Elrond accomplishes this, we will break this section into 3 subsections:
Security via Secure proof of Stake
Scalability via Adaptive state sharding
Developer friendliness via WASM VM engine
Secure Proof of Stake (Security)
An important aspect to any blockchain is how the network reaches consensus on which node has the right to append a new block of transactions to the ledger.
Elrond uses a Proof of Stake consensus mechanism. For those who are unfamiliar with PoS, read this article.
There are a few unique aspects to how Elrond implements its PoS mechanism, namely in how it selects which validator nodes are selected for consensus out of a shard & the steps taken by validators to complete consensus in an efficient manner.
Each round when it’s time to update the ledger, the SPoS mechanism selects the validators for consensus using a randomness source. This randomness source cannot be predicted nor influenced. It also requires remarkably little time (around 100 ms or less) to produce the randomness source.
Once produced, the randomness source is used to select one validator in the group known as the block proposer. Since this validator is generated based on the hash of its public key and the randomness source, it cannot be manipulated.
The way in which validator nodes are put into the pool of the validators chosen for consensus each round is based on its rating score, which is determined by the amount of EGLD tokens staked and past behavior of the validator.
Lastly, as is the case with most PoS networks, the Elrond consensus mechanism is ESG compliant. This may make it easier for some enterprise customers to adopt its blockchain.
Adaptive state sharding (Scalability)
The concept of sharding is an important one in Web3, as it is a vital tool for scaling networks. Traditionally, sharding has been used in database as a way to distribute data across multiple machines.
This allows blockchains to split the transactions and the state of the network across nodes, so that no single node is overwhelmed and the load is split across them. Hence, creating major scaling unlocks.
Another important aspect to sharding, is that it allows for parallel processing of transactions. Some blockchains, such as Ethereum’s L1, are not currently able to do parallel processing of transactions, which constrains its throughput.
So long as there are a sufficient number of nodes to verify transactions in each shard, reliability and security can be maintained, while increasing throughput from the parallelization enabled by sharding.
The Elrond team does a great job in their docs of further breaking sharding down into 3 main buckets: Network sharding, Transaction sharding, and State sharding. It is crucial to understand the nuances behind each type of sharding, to fully appreciate what makes Elrond’s Adaptive state sharding model so effective.
Network sharding: A network consists of the different machines involved with the storage and maintenance of a blockchain. Network sharding is how these machines (i.e. nodes) are grouped into shards so as to optimize communication and data transfer while minimizing risk of attack on a specific shard.
Transaction sharding: Once the nodes have been grouped into network shards, transaction sharding helps map transactions to different shards based on the sender’s address.
State sharding: A blockchain’s state can get quite bloated, so ideally you don’t want every node to have to store the entire state at once. However, unlike transaction sharding, state sharding poses unique issues.
Namely, if accounts involved in a transaction reside in different shards, a synchronization process must be completed to update each shard, or else the nodes will begin introducing discrepancies in the ledger. This process is also prone to malicious attacks, so an additional node reshuffling step must also be completed.
To bring this all together, Elrond has created their own full sharding model which combines network sharding, transaction sharding and state sharding into it’s protocol design.
Elrond is able to accomplish this by automatically moving data across the nodes on its network as the load on the network increases or decreases. This allows the network to scale up or down without causing downtimes.
Furthermore, to prevent collusion, the protocol is programmed to reconfigure each of the nodes regularly. At the end of each epoch, the nodes on the Elrond network are shuffled between the different network shards.
For a full breakdown of how node shuffling works, check out this page of the Elrond docs.
WASM VM Engine (Developer friendliness)
The final piece of Elrond’s tech that is worth diving further into is its WASM VM engine.
Many people are familiar with the Ethereum Virtual Machine (EVM) model, however, Elrond has attempted to make some improvements to the way smart contracts are executed in its virtual machine.
For starters, since the Elrond VM executes WebAssembly, it means that it can execute smart contracts written in any programming language that can be compiled into WASM bytcode.
This include popular programming languages such as C, C++, C#, Rust, Go, TypeScript and many others. While developers are encouraged to use Rust, the ability to use a multitude of other programming languages significantly lowers the barrier to entry for new builders.
Additionally, the Elrond WASM VM is stateless, meaning instead of smart contracts writing directly to the blockchain when being executed, the API accumulates the changes from the smart contract into a data structure which is then applied to the blockchain at the end of the execution. This is an intentional design decision, since it removes the need for reverting operations.
The WASM VM also has other benefits such as a just-in-time streaming compiler that increases execution time and asynchronous calls between contracts.
Tech Summary
Perhaps one of the reasons that Elrond has not received more public attention, is that it requires a deep understanding of the entire tech stack involved with blockchains to truly appreciate the breakthroughs made by the team.
The 3 aspects described above help introduce material improvements at both the execution and consensus layers. While many people may not be able to understand the more technical nuances, they will be able to benefit from these features in production.
Not to mention, developers who take the time to dive into the technical docs, should be attracted to the performance unlocks and the ability to start building with programming languages they already know.
The Elrond Tokenomics 🪙
The native token of the Elrond is $EGLD. EGLD is used to help secure the network via SPoS, to pay network transaction fees and in different dApp use cases.
From an investment standpoint, EGLD has the added benefit of scarcity that many PoS networks lack. Before we get into the details, here’s a quick background on the token:
According to Messari, Elrond initially issued tokens under the ERD ticker on both the Ethereum and Binance blockchains. Initially, 20 billion ERD were distributed on July 4th 2019, which now represents the equivalent of 20 million EGLD.
The initial distribution was as follows:
A year later, Elrond updated it’s tokenomics and monetary policy after the blockchain went live on mainnet in July of 2020. Specifically, the team reduced the supply of the native token by 1000x from 20 billion to 20 million. There was also a token swap, during which ERD holders were able to exchange their ERD for the new native token EGLD, at the 1000:1 rate established by the monetary policy update.
Overall, the Elrond token launch seemed well balanced. I like the fact that anyone was able to invest through the IEO and only 19% was allocated to private investors. While a sizeable chunk was devoted to the team & treasury, it appears that they have been good stewards of the funds and used it to continue to expand the ecosystem.
Beyond just the launch, Elrond also made some other updates to the EGLD tokenomics that makes it even more appealing for holders.
While Elrond does need to issue more EGLD in the short term via staking rewards, the inflation rate should reach 0% by the 11th year post-mainnet launch. This gives EGLD a theoretical max supply of 31,415,926 tokens.
However, the max supply may actually end up under this amount, since Elrond implemented a mechanism that leverages transaction fees to pay out the staking rewards.
If the sum of fees in a year is higher than the guaranteed staking rewards, then the inflation rate of EGLD will become 0.
For all of this to work, Elrond must organically grow its fee market to the point where it can continue to pay out all validators. This is the same destination that other blockchains such as Bitcoin will need to reach in the long term.
The Elrond dApp + NFT Ecosystem 📱
In order to start exploring any blockchain ecosystem, you first need to start with some of the native token.
Unfortunately as a US user, EGLD is not available on Coinbase or Moonpay (which are popular options). However, there were some alternatives for US residents between Binance US and crypto.com.
Once I had some EGLD, I began exploring the Elrond network, beginning with finding a wallet provider.
The Maiar wallet
I believe it’s super crucial for every layer-1 blockchain to have a go-to wallet provider that provides a seamless onboarding experience. I found this with the Maiar wallet.
Maiar is a high quality non-custodial wallet that is available on both desktop as well as native mobile clients.
I was particularly impressed with the quality of their chrome extension and iOS app (one of the best I have seen in all of Web3).
Specifically, I liked how Maiar had built NFT exploration directly into the app (something I think more wallet providers should do), as well as other helpful content such as network adoption metrics & a feed from the Elrond Blog.
Elrond dApp ecosystem
In terms of the wider Elrond dApp ecosystem, I would describe it as still being in its infancy from a consumer product standpoint.
For instance, the Elrond website doesn’t have a robust dApp ecosystem explorer, and instead links to a pdf. Elrond also is not listed on DappRadar, which is my go-to source for seeing the top used dApps on different blockchains.
I did check out Maiar exchange, which could be valuable for swapping to USDC. However, there were only 13 other tokens listed on the exchange, which is relatively thin, and most of them were projects I had never heard of before.
If I had more time, I would have explored more dApps in the DeFi and Metaverse space, however it appears that none of them have managed to hit true mainstream adoption… yet. But this shouldn’t come as a surprise as even top blockchains like Ethereum and Solana still only see WAUs in the tens of thousands.
I will also caveat all of this by saying that it appears Elrond has focused much more on Enterprise and partner use-cases ranging from Utrust and Twispay for Web3 payments, as well as partnerships with Samsung and Huawei.
Unfortunately, it’s not possible for me to test out all of these use-cases, but the brand names listed are certainly promising.
Elrond NFTs
One area where Elrond does seem to have some traction on the consumer front, is with NFTs.
Aside from the NFT explorer within the Maiar app, I did enjoy browsing for NFTs on DeadRare.io. I picked up a MaiarPunks NFT, which seemed to be one of the most popular collections on Elrond.
After tweeting about my purchase, I was greeted with a warm welcome by the community. This is another really positive sign as NFT collections live off of community energy.
Obviously the NFT market has suffered a major drought in the past few months, and Elrond has been no exception. According to DeadRare, there was only 911 EGLD in trading volume over the past week or around $52,000 worth.
While this pales in comparison to top blockchains which do tens of millions of $ in volume every week, there are some signs of life. All it takes is 1 or 2 top NFT collections (see DeGods on Solana or SpaceBudz on Cardano) for an ecosystem’s NFT market to pop off.
The Elrond Community 🤝
Without a doubt, my favorite part of exploring Elrond, has been its active and enthusiastic community.
Elrond boasts a large social presence with over 585K followers on it’s main Twitter handle, 56K members in its Telegram channel & 16K followers on its subreddit.
In fact, the entire reason I prioritized Elrond over “larger” crypto projects, was because of the active engagement I saw on Twitter.
Specifically, I put out a poll asking which blockchain I should research next, and the Elrond community won the poll via comments despite not even being an option on the poll!
One of my core theses behind Web3, is that blockchains will only go so far as their core communities take them. The fact that any time someone mentions they are interested in exploring Elrond, there’s a large group of people there to greet them is crucial for onboarding.
As a content creator, I would recommend that more independent creators cover Elrond. Not only will you learn a lot, but you will also be greeted with an active and engaged community that is happy to help you grow your audience in return.
Conclusion
I feel extremely fortunate to have stumbled upon the Elrond Network when I did. It’s easy to focus on just the top blockchains by market cap, however, there are many blockchains that are sleeping giants.
I believe Elrond is a great example.
Up until this point Elrond has demonstrated that it will take the time to get all of the fundamental building blocks right. From its high throughput and a secure PoS consensus mechanism, to its well thought-out tokenomics design.
Moving forward, I believe Elrond can start to lean more heavily into its end-user facing dApps and really make a splash during the next bull run.
If Elrond continues to execute and build upon its strong core community, then it won’t be flying under the radar for too much longer.
Thank you for taking the time to read my report on Elrond. These blockchain reports are extremely time and energy consuming. Please consider supporting me in the following ways:
Subscribe to Web3 Pills, to receive my daily newsletter and future blockchain reports:
Share this article with your network:
Tip me in EGLD or Elrond NFT’s (I may even highlight it in a future newsletter):
erd1fq0u80g0a38mp59yu0cr4n9pagnt2vefz3y60lj59yurdljwcldqkrqu0q
Any support is greatly appreciated 🙏