Elrond: How the Platform Works and What Beginners Need to Know
Cryptocurrencies are helping build a new digital economy centered around blockchain technology. Decentralization makes financial services accessible, fast and confidential. The platforms that came first “sowed the seed” for the growth of a decentralized ecosystem, but were far from perfect. Newer crypto projects have focused on solving the main problems of legacy blockchains: low bandwidth and, as a result, low transaction speed, high fees and poor network scalability.
Another problem facing distributed platforms is the lack of compatibility between blockchains, or in other words, lack of interoperability. Users can easily transfer and convert tokens within one platform, but to transfer tokens to another platform they are forced to use intermediaries (crypto exchanges).
Elrond (EGLD) is one platform that addresses these and other problems. This project will be discussed today in this article. Read on to find out what Elrond is, how the platform works, and what EGLD tokens are used for.
What is Elrond
Elrond is a blockchain platform for building high performance and secure applications (DApps) based on smart contracts. The platform creates a global digital economy by enabling blockchain interoperability. Elrond’s network is capable of processing up to 15,000 transactions per second, making it one of the highest performing blockchains. Transactions at Elrond are confirmed almost instantly. For comparison, Ethereum can process up to 15 tps, and Tron — up to 1000.
This high throughput is achieved through sharding: the network is divided into several interconnected shards that can work in parallel to each other. This increases the performance and speed of transactions. The same principle is implemented in the ETH 2.0 update, but sharding is already working in Elrond.
Elrond is based on Secure Proof-of-Stake or SPoS consensus mechanism. The network is supported by validators, of which there are now more than 2169. There will be more information about who validators are and how they are chosen in Elrond in the next section. Any user can become network validators or delegate EGLD tokens issued on the Elrond blockchain, and this comes with a reward.
What is Proof-of-Stake
Proof-of-Stake or PoS is a consensus mechanism based on how many tokens the owner of the node(s) has. PoS was invented in 2011 and replaced the inefficient Proof-of-Work (PoW) algorithm, which requires large computational resources to match the added blocks.
Although the goal is the same for both consensus algorithms, the methods for achieving them are different. PoS has several key differences:
- To add new blocks, you need to reserve a certain amount of coins instead of buying expensive equipment.
- Typically, coins are issued in advance and validators are rewarded using fees that users pay for transactions.
- In PoS, validators cooperate with each other, rather than competing for the right to mine a new block.
- New blocks are added by validators, not miners. Therefore, the process is somewhat different from the usual PoW concept. This approach is not called mining, but forging, since mining involves the production of new coins.
Who are validators
Validators are node operators. Their task is to check the blocks added to the network for validity, thereby ensuring continuous operation of the blockchain. Validators are rewarded for this. Validators need to reserve a certain amount of tokens in order to vote for added blocks.
Typically, the validators that will process the next block are chosen pseudo-randomly, but the choice is influenced by several factors, such as the age of the stake, the state (health) of the node and the amount of staked tokens. Therefore, the more coins a node has staked, the higher its chances of becoming a validator of a new block will be. But on the condition that the node works almost flawlessly. Otherwise, the validator will be charged with fines that can be hundreds or thousands of times higher than the reward, or they will fail. This is necessary to protect the network and make attacks unprofitable.
In the Elrond network, the network is divided into segments, the number of which depends on the number of validators. The blockchain is designed in such a way as to provide the required number of segments, depending on the need for transactions. Therefore, the network is designed for a drastic increase in transactions: in this case, new validators will be connected, and the blockchain will not be overloaded. Remember how during a certain period on the Ethereum platform due to the rapid growth commissions soared to dozens of dollars, and the transactions themselves were frozen for several hours or were canceled altogether?
To prevent this, Elrond uses the TargetShardLoad method, which aims to keep the shard loading no higher than 50%, taking into account possible spikes in activity. But at the same time the possibility of low congestion is excluded, otherwise maintaining the network will become unprofitable. Elrond also proposed an improved approach called SPoS node negotiation.
Secure Proof of Stake
The Elrond platform uses a modified consensus algorithm called Secure Proof-of-Stake (SPoS). Elrond nodes form a consensus group rating, based on which the chances of becoming a validator for the next block are determined. Validators are shuffled randomly and can be reassigned to another segment. This maintains a high level of network security.
Unlike classical PoS, the improved mechanism selects node operators in a truly random and unbiased manner. The new source is determined by signing the previous random source generated by the validator. For successful block additions, validators receive Elrond tokens (EGLD).
Where to buy EGLD
You can get EGLD directly with credit card, bank transfers, Revolut or ApplePay through one of the many payment processors that Elrond is integrated with. Elrond http://buy.elrond.com page will help you find the most efficient onboarding platform available in your region.
Furthermore, you can get EGLD on cryptocurrency exchanges or exchangers. Here is a list of exchanges where tokens are traded:
- Bithumb Global;
- Bitfinex and others.
A complete list of crypto exchanges can be found on the coin page on CoinMarketCap.
Exchanges, unlike exchangers, allow you to buy EGLD tokens at market prices. Exchangers charge a commission, so the price is higher. Therefore, it is most profitable to exchange on exchanges.
Where to store Elrond (EGLD)
EGLD tokens are stored in cryptocurrency wallets. If you don’t have one, then you must first create such a wallet. Here are some crypto wallets in which you can store EGLD tokens:
- Elrond Wallet — the original wallet for EGLD;
- Trust Wallet is a mobile multicurrency wallet with Binance Smart Chain (BSC) support.
- Ledger Nano S/Nano X is a secure EGLD cold storage hardware wallet.
- Maiar Web Wallet — powered by the amazing technology of the Elrond blockchain.
How to stake Elrond (EGLD)
Staking could be executed by validators. For that, you need to launch your own node and lock a large amount of tokens, more precisely 2500 eGLD. Otherwise, your node will have no chance of being designated a validator.
But ordinary users can delegate their tokens to staking providers, receiving income even from small amounts. Such staking is supported by Elrond web wallet and Maiar mobile wallet where you can also store EGLD tokens. You may read about other Maiar functions in this detailed article.
Delegates pay a commission (fee) to staking providers (SP) for the validating service they provide, this commission is set by validators themselves. Let’s see an example of how the fee is calculated. A user staked 100 EGLD with a provider who has a 10% fee and the APR is 10% also. Over a year this user will get 10 EGLD(10% from 100 EGLD) as an income and will pay for the validating service only 1 EGLD(10% from 10 EGLD), as SP fee is calculated from the rewards but not the actual sum staked.
We made separate guides on how to stake via Mobile and Web wallet.
Staking via Maiar Mobile wallet
Staking via Elrond Web wallet
The minimum amount for delegation is 1 EGLD. Remember that income from delegation may vary from staking provider to staking provider. There are different factors which influence APR, amount of nodes, uptime rank, SP top-up amount and total network top-up amount.
What is Top-Up?
In Elrond there is a Base stake which is 2500 EGLD per node and Top-Up stake which is everything above 2500 EGLD per node. For instance, in the Elrond Network there could be only 8milion EGLD staked as a base stake, 3200 nodes x 2500 EGLD = 8milion EGLD. At the moment there are 11,7milion EGLD staked, this means that 3,7milion EGLD is a Top-Up stake. The more Top-Up, the more users who stake and the more secure Network is, nevertheless the more Top-Up, the less APR. Because the same amount of tokens, which are supposed to be distributed during staking, is spread among a greater number of users.
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