VeChainThor Primer: A transaction model built for the real world
The rise of #DeFi has shined a spotlight on #Ethereum as of late. The decentralized network and its smart contracts have enabled developers to build a whole new world of finance, devoid of a middle man (Hence, Decentralized Finance).
The reality however, is far from perfect. The single token system of Ethereum, bundled with the limited throughput of the network is already pushing many of these DeFi protocols to their limits, with outrageous network fees (Ethereum posts new highs as DeFi gas fees go through the roof (cointelegraph.com)). The rising price of $ETH only makes this situation worse.
This article is a study into why this is happening, and how #VeChainThor was built from the grounds up to prevent such situations.
Before we start, let’s revisit the need for network fee on a public blockchain. Any time one is using an online service (say, Email), they are consuming computational resources. When you use Gmail, you’re using computational resources set aside by Google to keep the email service running. And as a user of Gmail, you “Pay” for this service by having ads in your inbox.
When you opt to use a paid email service instead of a free one, you are directly paying for the computational resources and in general, receive a higher quality service.
Blockchains are no different. Every time you interact with a Blockchain, you’re consuming computational resources. If the transactions were truly free, a Blockchain network will be spammed with useless transactions, which will waste those resources and make it difficult for genuine transactions to go through. This is why almost all public blockchains have a network fee and those that do not, have massive amounts of network spam. However, the way each network handles this network fee is very different, and has a direct impact on how useable the network is in the real world.
This is a good time to revisit my article on the various consensus mechanisms used in blockchains, as this has a big influence on how network fee is calculated:
As described in the article above, Ethereum uses a consensus mechanism called Proof of Work (PoW) and is transitioning towards Proof of Stake (PoS). PoW relies on “Miners” who provide the computational resources needed secure the network and validate transactions. Miners pack incoming transactions into blocks and validate them, and keep the network fee paid by the users as reward for dedicating their computational resources.
Let’s now look at the anatomy of a “Block” on Ethereum.
Think of a block as a bus, and the miner as the bus driver. When the the bus is full, it takes off and the next bus comes in. And the next bunch of people get on board, and so on.
On Ethereum, one pays for network usage based on how much computational resources they consume. A simple token transfer does not consume a lot of resources. Think of it as a short bus ride of 3–4 stops. Interacting with a DeFi smart contract however, is a much more complex operation. Think of it as a long cross country bus ride. Of course, one has to pay a higher fee for this.
On Ethereum, the concept of “GAS” was introduced as a method of payment for using the network. The token transfer mentioned above (The short bus ride) costs 21000 GAS. The DeFi smart contract, perhaps 10x that.
On Ethereum, one unit of GAS is not a fixed amount of ETH. Rather, the user who wants to perform the transaction specifies how much ETH he wants to pay for each unit of GAS. This is called GAS price. (Measured in Gwei, a sub unit of $ETH)
The more ETH you want to pay per GAS, the more likely the miner (Bus driver) will give you one of the seats available on the bus. What if you are on a tight schedule and absolutely must get on the bus, so as to not miss an appointment? You end up paying a lot more ETH per GAS to secure your seat on the bus. And the more expensive ETH is, the more expensive your bus ride will get.
Now we come to the next problem. Imagine a long line of people waiting to get on the bus. A bus arrives, and everyone is scrambling to get on board. Let’s say the first 20 people in the line are all planning to go on long cross country bus rides (Executing DeFi smart contracts). However, the bus driver(Miner) is only allowed to collect a certain amount fo GAS per bus trip! This is called the “Block gas limit” of Ethereum. The Block Gas Limit also determines the maximum number of seats the bus is allowed to have (The theoretical max amount of Transactions each Ethereum Block can have)
What does that mean? It means that some of those people will have to give up their seats for people who want to go on shorter bus rides, so that the block gas limit is not exceeded, and will have to wait for the next bus.
The more people who want to take long bus rides (Use DeFi services and other complex smart contracts), the more amplified these problems will be on the Ethereum network, as we are seeing now.
The obvious question would be, why don’t the bus drivers (Miners) raise the Block Gas limit, so that each bus can have more seats and pack more people in?
The problem is, PoW is an extremely expensive way to reach consensus, and the higher the Block Gas Limit is, the more resources a miner has to dedicate towards the network. There are also additional problems such as “Uncle Blocks”, which are beyond the scope of this article. Read this excellent page to know more about these issues: What’s the Maximum Ethereum Block Size? — ETH Gas Station
Now how does VeChain handle these same issues?
As you may know, VeChain was derived off Ethereum and was designed to overcome many of these issues that plague Ethereum.
The first step taken by VeChain was to use a far more resource efficient consensus model called Proof of Authority, which consumes a lot less computational resources that Proof of Work. What does that mean? It means bus rides are cheaper for everyone on VeChain compared to Ethereum.
Again, my article on consensus mechanisms explains PoA and its successor, PoA 2.0 in detail:
The second step taken by VeChain was to separate the primary token of the network ($VET) from the token used for paying network fee ($VTHO). The GAS one needs to pay for a bus ride is calculated in VTHO, not VET.
This means that unlike Ethereum, the rising price of the primary token will not have an effect on the network usage fee. To use the network, simply hold VET, which generates VTHO at a predetermined rate.
The third step taken by VeChain is to set a predefined exchange rate between VTHO and GAS. Currently, this is set at 1VTHO: 1000 GAS (Which can be changed if needed ). This means that unlike Ethereum, the user is not forced to pay a higher amount of tokens/ GAS to get priority. So for a short bus ride (Token transfer)that costs 21000 GAS (On VeChain and Ethereum both), the user pays only 21 VTHO on VeChain, while the amount of ETH the user pays on Ethereum is dependent on how much of a hurry he’s in.
Suggested reading: This articles goes into further detail, the additional mechanisms in place on VeChain to keep transaction costs stable:
Now let’s go back to the Ethereum example. What if you have an important appointment and REALLY need to get on the bus? Well, on VeChain, you can pay up to 2x the required amount of VTHO. So for a short bus ride, you could offer to pay 42 VTHO (Which is still very cheap) and get priority.
And what if you’re really, REALLY in a hurry?
Well, on VeChainThor, there is a very novel concept called “In transaction Proof of Work”. This means that whoever wants to submit a transaction offers to dedicate some of their own computational resources to the network for a very short period of time. Think of this as offering to take over driving the bus for a short while so that the driver can take a nap. This way, you can get even more priority; ideal for large enterprises who want to use the chain and can afford the computational resources for In Transaction PoW.
So what happens when a lot of people show up for long cross country bus rides (Executing complex smart contracts) on VeChain, compared to Ethereum? Will they have to wait for the next bus, due to the Block Gas Limit?
No, they don’t.
As VeChain uses the vastly more efficient PoA consensus mechanism compared to PoW on Ethereum, the bus driver (Authority Node) can choose to increase the block gas limit depending on network load. i.e., he can increase the amount of seats on the bus when there’s high demand and reduce the number of seats during periods of low demand.
You might remember, how a few days ago, the gas limit of the VeChainThor testnet was massively raised in order to test a few massive transactions:
Yes, it’s a simple change on VeChain as opposed to Ethereum.
What does all this mean?
It means that no matter how much demand there is on network usage, VeChain is far better equipped to handle it than Ethereum. DeFi protocols and other such use cases will run far faster,cheaper and more reliable on Vechain.
In a follow up article, I will try to explain additional optimizations VeChain has in place that make its transactional model far more attractive to enterprises over Ethereum.
VET/ VTHO Tip Jar: 0x22e0820aC11F093e317446458f79C11CFaf58084
