What is OmiseGO (OMG)?

The murky realm of ‘unbanking the banked’.

The problem

Everyday, deals are made, goods exchange hands, and a little something is skimmed off the top. On a national or global scale, there are intricate networks tasked to facilitate these transactions; collecting value, reassigning it somewhere else in another form, and taking a cut.

A few of the more notable among these networks (as selected from the OMG Whitepaper) are FedWire, CHIPS, SWIFT, OCC, and ACH. If you’re not in the know (I wasn’t until I read up on this) you may not have heard of any of these networks. Still, chances are you’ve made use of all of them. They function as financial hubs, brokering transactions around the world.

FedWire, as an example, facilitates transactions between over 9,000 US financial institutions. Imagine for a moment how important it is to the US economy that these institutions are able to exchange funds safely and efficiently.

And these networks function pretty well, considering. But they have their problems. They’re often slow and expensive to use and even though they are carefully designed and heavily regulated, they are not immune to fraud and error.

OmiseGo proposes to improve on these traditional systems by leveraging Ethereum to create a decentralized network designed to safely transfer value at high volume and low cost.

The Team

With such an ambitious project at such an early stage, the team and organization are crucial. I’d argue that it would be hard to see value in OMG right now without seeing the team behind it.

Omise, the company responsible for OmiseGo, has been around since 2013. They operate an online payment system in Southeast Asia. Prior to launching OmiseGo, they had already produced a viable product, assembled a sizable team, built serious relationships in their sector, and secured 20 million in funding.

Also, OmiseGo counts Vitalik Buterin (Ethereum), and Joseph Poon (Lightning Network Co Author) among their advisers. Joseph Poon is actually billed as author of the OmiseGo whitepaper.

And for what it’s worth, they made a pretty respectable decision to cap their ICO funding at 25 million at a time when projects that are even more controversial are collecting many multiples of that. Odds are… even though this is a pretty crazy project… the crowd would have easily thrown 3 times as much money at it, probably more.

Altogether, OmiseGo looks to have a shot at revolutionizing the way that value changes hands worldwide. It’s up for debate how good that shot may be, but that’s an impressive market to go after.

The Token

Until the OmiseGo blockchain is launched, OMG is an ERC20 standardized Ethereum token. When the chain launches, OMG becomes a Proof-of-Stake token on the OmiseGo network. Owning OMG tokens will buy the right to validate blocks and earn fees.

Just under 10% of existing OMG was distributed to founding members, and 20% reserved for development expenses. This allotment is under a 1-year lockout. The remaining OMG were distributed through the OMG token sale.

The Technology

The OMG design is based on a Proof-of-Stake blockchain that maintains records corresponding to wallets that may represent any number of assets or commodities, from shopper rewards points, to digital currency, to fiat.

The network allows for the matching and trading of orders across these wallets. Basically, they seem to propose a market where order matching is done in conjunction with network validation and recorded to a blockchain.

Additionally, Ethereum can be locked into the OMG network via Ethereum smart contracts. With this Ether bonded to the OMG network, it is possible to trade alternate assets over Ether, thereby increasing liquidity. This also serves to bolster Ethereum.

So basically, a third party pledges to provide some Ether. The network matches trades, leveraging this bonded Ether when necessary. When the majority of network members agree on a trade history, a block is registered and rewards are distributed. Meanwhile, that third party holder of Ether gets a cut of the transaction, provided they behave according to the rules of the network, otherwise they are penalized.

The trading parties remain liable to each other through a system of Hashed TimeLock Contracts, (HTLC’s). HTLC’s are basically digital contracts that expire if they are not claimed. Two parties offer up these self-destructing contracts. When an approved third party is able to match these contracts under the terms of the network, a transaction is recorded that will be hashed to the blockchain.

Transactions can also be moved to sidechains in order to reduce impact on the network. If you’re using the platform to back a customer rewards program, for instance, you can conduct most transactions on a sidechain, reconciling to the main chain for major transactions.

This is definitely complicated, and represents my own incomplete understanding of the system. But I‘m not entirely convinced that the creators of this platform have nailed down the details of how it will work just yet. As always, do your own research, and if you have a chance to go through the whitepaper on your own, let me know if any of the above seems incorrect by commenting below or emailing me at chat@blockknight.com.