VeChainThor Primer: Keeping transaction costs stable

When using a public blockchain, especially for enterprise use, it is imperative to implement a transaction fee (However small it is). The reason is that if transactions are truly free, the network will be spammed with useless Transactions.

This dramatically increases infrastructure requirements in the long run. Ethereum for eg. uses “Gas” as network fee. “Gas” is an arbitrary unit, a subdivision of $ETH, the native token of Ethereum. The problem with this approach is that as ETH gets more expensive, so does GAS.

To mitigate this, several Gen 3 blockchains such as #NEO, #Ontology and of course, #VeChain introduced a dual token system where the primary “Value” token generates the secondary “Fuel” token. This is better, but it still does not completely mitigate price volatility.

Enterprises have no problem budgeting for operational expenses while using a blockchain, but what they like to see is consistency. randomly changing the annual budget because a crypto asset moves +/-30% is a no go for any enterprise. Let’s see how VeChain tackles this.

Before we start, let’s understand the dual token model of #VechainThor. $VET is the primary token. Every VET token generates 0.000432 $VTHO per day. VTHO is the secondary token of the network, and is used as network fee while performing a Tx. 70% of the used VTHO is burned, While the rest is distributed amongst the Authority Nodes that validate the Tx. However, on a deeper level, the Tx costs are calculated in GAS. GAS is not a token, but an arbitrary unit to measure Tx costs. To send VET from one wallet to another, one needs to spend 21000 GAS.

The current GAS:VTHO ratio is 1000:1. That means, the above transaction requires 21 VTHO to be spent. This setup is applicable for direct interactions with the blockchain, such as wallet to wallet transfers. However, most clients of Vechain use #ToolChain to perform Transactions.

For customers of #ToolChain, VeChain provides another unit of measurement called ToolChain Credits (TCC).Each TCC represents a certain amount of VTHO that VeChain purchases on behalf of the customer & loads into the MPP sponsor account.

Confusing? let’s look at a simple analogy:

Think of VET as oil wells. There are only a limited number of them in the world.
VTHO is the crude oil generated from the well.
GAS is refined gasoline that you pour into the car.
TCC are vouchers that you purchase from the oil company that are redeemed against fuel.

Think of a Vechain client like @arketofficial. Their “Car” is “MyStory”, the dApp developed by @DNVGL that enables Arket to track their products on VechainThor. Imagine Arket signs a preliminary deal to track a limited number of products.

Think of it as signing a limited mileage lease to drive their car. Based on their expected mileage, Vechain calculates their expected GAS usage. let’s say, 100,000 GAS/ year. This means, ARKET needs 100 VTHO/ year. Let’s assume 1TCC = 1 VTHO. Arket pays Vechain for 100 TCC.

Now,Vechain buys VTHO based on the TCCs that Arket & Other ToolChain clients have ordered and fills up the MPP sponsor account regularly. Say, every 2 months. Now their cars are guaranteed to have enough fuel till the end of the lease at an upfront cost.

If the client unexpectedly drives further than planned,(i.e. add more products to MyStory), they can purchase additional TCCs to top up the “Lease”.
Now imagine a global turmoil & crude (VTHO) prices shoot up through the roof, lets say, 3x,with no signs of a downward correction.

VeChain cannot tell all the ToolChain clients that their leases are now void and the cars can only travel 1/3rd the planned mileage. No customer will continue using a platform that does that. On VechainThor however, there exists an elegant solution for this problem.

The ratio between VTHO and GAS can be dynamically adjusted, with no pauses or hard forks. This decision is taken by the steering commitee in such drastic situations. Imagine this as finding a more efficient way to refine crude to get more refined gasoline out of each barrel.

In the above scenario, the solution to revise the GAS: VTHO ratio from 1000:1 to 3000:1. This means the clients burn exactly the same amount of fuel (GAS) as planned in their lease, but from 1/3rd the amount of crude(VTHO) as before. Since Crude now costs 3x as before, the total FIAT costs of the leases remain the same as planned.

Now imagine a scenario where suddenly, 10x more customers sign up for new leases and there simply isn’t enough crude out there to be refined into fuel,no matter how efficient the refining process is.

Now, the next step of optimization comes in. Remember that every VET generates 0.000432 VTHO per day.Through an all stakeholders vote and a hard fork, this ratio can be adjusted upwards (But never downwards). In this scenario,the vote would be to change it to 0.00432VTHO/VET

Think of this as optimizing the oil extraction process to extract more crude/well Now,there’s 10x more crude available to cater to the additional customers who have signed new leases,but since fuel prices haven’t changed,no one is paying more. We just have more cars on the road!

Ensuring consistent Tx costs (In Fiat) for their clients, irrespective of VET/ VTHO prices is the goal of VeChain Foundation and while the above steps might not be foolproof,as of now,they offer a better hedge against crypto volatility than the models offered by competing chains.

VET/ VTHO Tip Jar: 0x22e0820aC11F093e317446458f79C11CFaf58084

Ich bin kein Berliner, ich bin Knoblauchbrot. I like utility tokens. VET/ VTHO Tip Jar: 0x22e0820aC11F093e317446458f79C11CFaf58084