Why We Invested: Shardeum (L1)
Case for why there is still room for a new L1
What is Shardeum?
Shardeum is the first linearly scalable EVM-based L1 blockchain with cross-shard composability. Shardeum uses dynamic sharding, autoscaling, and many more innovations to solve the Blockchain Trilemma problem.
Is there room for another L1?
A paper titled “A Relational Model of Data for Large Shared Data Banks” published by E. F. Codd at the IBM Research Laboratory in San Jose, California kicked off the database revolution in June 1970. 41 years later, we are still seeing new databases like SingleStore (formerly MemSQL) being developed in 2011 and gaining popularity. One would think that there isn’t much room to innovate in the database space after 41 years, but that’s clearly not the case!
Contrast that to the first blockchain to solve the double-spend problem — The Bitcoin Whitepaper was published by the pseudonymous Satoshi Nakamoto in 2008 and the first version of bitcoin-core was launched in 2009, just 13 years ago. With that in mind, along with some of the challenges yet to be overcome in the blockchain ecosystem, the L1 space is ripe for disruption!
Fundamental challenges in building a new L1 blockchain today
There are many challenges yet to be addressed in the blockchain space to make them more usable. A lot has been written about the Blockchain Trilemma Problem, or “Scalability Trilemma” coined by Vitalik Buterin, which states that developers of blockchains need to pick two between the three options of Scalability, Security, and Decentralization. This is analogous to the CAP-Theorem in Distributed Systems, which states that a distributed datastore can provide only two of the three guarantees of Consistency, Availability, and Partition Tolerance.
Any blockchain being developed today needs to solve all three of these challenges presented by the Blockchain Trilemma, otherwise they risk being left behind. This is not easy and is quite an engineering feat.
Why do we need a new blockchain like Shardeum?
Shardeum Solves the Blockchain Trilemma Problem
We believe we have found a blockchain with the potential to solve the Blockchain Trilemma Problem once and for all. Here are some common approaches to solving the blockchain trilemma problem by Cryptopedia powered by Gemini.
Shardeum, as the name suggests, is centered around using sharding as its approach to solving for scalability. Sharding is a time-tested technology for scaling traditional database systems and is used by all major traditional tech companies as they hit scale. There are three resources that need to be sharded for a blockchain to see all the scalability gains: compute, storage, and network. By sharding all these three resources, the blockchain will be able to scale linearly as new nodes are added to its network.
Shardeum uses a novel combination of Proof-of-Stake (PoS) + Proof of Quorum (PoQ) to validate transactions in a consensus group. Additionally, it brings a lot of security principles from the Web2 world of distributed computing to Web3.
Shardeum is decentralized by design — the cost of running a node is under $100/month. Unlike most blockchains, this cost will not increase as the network grows since they have some unique solutions to address that. Thus, it will be very easy and affordable to run a Shardeum node and that will bring about decentralization to their network quickly.
Their decentralization, combined with scalability through sharding, and strong security principles will allow Shardeum to solve the Blockchain Trilemma Problem. An argument can be made that a network that is sharded has fewer nodes validating a given transaction and that can be a security risk, however, it is important to keep in mind that there is a threshold beyond which the marginal security offered by an additional node is negligible, at which point it is better for that node to process different transactions as part of a separate shard to help with scalability. Secondly, a 1000+ node network with 10 shards will have 100 nodes per shard, which is more secure than a blockchain network that utilizes its full capacity to validate transactions but has only 50 nodes in its network. With Shardeum’s low cost of running a node they can achieve an extremely high level of decentralization which will then contribute to scalability.
Dynamic Sharding and Cross-Shard Composability
Shardeum uses an innovative approach to sharding blockchains called “dynamic sharding”. This allows the network to share load amongst every node that joins and therefore helps it scale. The network also moves/reassigns shards to nodes as needed if the network can find efficiencies from such movements.
One of the biggest challenges with sharded blockchains is that accounts in the same transaction can exist on different shards, which will require multiple shards to work together to process a transaction, leaving them unavailable for processing transactions in parallel. This results in slowing down the entire network. Shardeum has a new and never-seen-before approach to solving this problem, which enables Shardeum to limit the size of its “consensus group” even in cross-shard transactions, allowing the network to continue processing transactions in parallel across shards and therefore maintain its linear scalability invariant.
With Shardeum we will enter a new world where we will talk about network capabilities in terms of TPS/node in addition to the traditional TPS measurements.
Transaction Level Processing
Shardeum does not have blocks. They process each transaction individually. The rationale here is that if Person A pays person B $10, which is unrelated to any other transaction in the system, then the system should not wait for an entire block to be collected before processing this transaction as it can process this smaller transaction first. This logic can be extended even to competing transactions if you have a strict ordering mechanism in place. This helps scale transaction processing for Shardeum.
Autoscaling
Shardeum introduces a second innovation known as “Autoscaling”. Autoscaling allows their network to grow and shrink based on network load, which is a neat alternative to the traditional mechanism of pricing blockspace with surge pricing (i.e. increasing gas fee as network demand increases).
As load on the network increases, the network incentives more nodes to come online, which will increase the network capacity and TPS. As network load decreases it removes those incentives, which will result in some nodes shutting off or going into standby mode, which will conserve resources and cost. All of this is done while ensuring that the network is protected from a Sybil Attack that is intending to drain the token reserves. This is an innovation that no other blockchain network has brought to market before!
EVM Compatibility
Solidity has become a standard for Web3 so far and all major smart contracts are available for the EVM. By making the strategic decision to be EVM compatible, Shardeum will take advantage of the existing EVM ecosystem and will have a repository of projects to choose from when building out their own ecosystem.
You might be wondering that there are alternatives to EVM for the smart-contracting layer such as WASM, Move, or others and it may have been beneficial for them to go with one of those. That’s a fair point, however, that’s something they can add retrospectively. For now, the team is focused on bringing their innovation of scalability through sharding to the blockchain world, which will enable many innovative decentralized apps to be brought to market that weren’t possible previously!
History of Shardeum
It is important to mention that while Shardeum is a new project launched in 2022, it has a very strong history and background.
Shardus
Shardus is a project started by Omar Syed (ex-NASA, ex-Yahoo, ex-Zynga) in 2016. This is the foundation upon which Shardeum is built. This is a rock-solid platform that provides a lot of the scalability and reliability guarantees of Shardeum.
Shardeum is the smart-contract implementation of Shardus and Omar Syed is a co-founder of Shardeum.
WazirX
Nischal Shetty is the co-founder and CEO of WazirX, founded in 2017 and sold to Binance in 2019. WazirX was the largest cryptocurrency exchange in India at the time and had 10 million users as off November 2021. This makes Nischal a crypto OG, and he is a co-founder of Shardeum.
Strong Go-To-Market Strategy
With Nischal’s strong background as a cryptocurrency entrepreneur in India, he has a lot of influence and understanding of the Indian crypto landscape. He regularly appears on news channels and Shardeum is often in the news in India as a result.
So far, Shardeum has 58k followers on Twitter, 32k members in Discord, and 6k members in Telegram. They have a strong community presence that has started posting many Shardeum memes too, many of which are hilarious and culturally relevant to the Indian population. All of this even before their mainnet has launched!
They currently have 15+ dApps and 1k+ smart contracts available on the Liberty Alphanet (testnet). Many of these will be available as soon as Mainnet launches in Q1 2023 allowing for a robust ecosystem from Day 1. They are also starting up some of their BD efforts and launching their first hackathons in December, which is going to be very exciting! See their events page for more details.
Shardeum has an extremely strong advantage over other blockchains because of the strong community support they will get from India. Shardeum will be the very first L1-blockchain to come out of India and we are expecting many of the blockchain developers to flock to their platform.
Shardeum vs existing blockchain networks
Ethereum
Ethereum has proposed to ship their sharding feature tentatively by 2023. They intend to initially shard only the storage layer (data availability) and later consider how to shard the compute (execution) layer. In contrast, Shardeum has sharding of compute, data, and network built in from the get-go and is a feature of the network rather than something built in retrospect.
NEAR Protocol
Contrast Shardeum’s dynamic sharding with NEAR protocol’s “static sharding”. Static sharding only spreads the load of the network across a node once the new nodes reach a threshold equaling their “shard size”. The shard size is a number of new nodes needed to form a “full shard” that allows the transactions processed by that shard to be secure. NEAR Protocol intends to release dynamic resharding in Phase 3 of their Nightshade protocol, which was planned for Q4 2022, but seems to be scheduled to launch at the end of March 2023 with Full NightShade mode due by the end of June 2023 based on their live Gantt chart.
Zilliqa
Zilliqa uses traditional static sharding as well, based on the ending bits of the sender’s address. They don’t have a mechanism to process cross-shard transactions in parallel and their network waits for the transactions in each shard to be processed in parallel, after which it then proceeds to process cross-shard transactions serially. While there are some speedups from processing payment and user-to-contract transactions in parallel in separate shards, the network will slow down for other complex transactions.
Contrast this with Shardeum’s dynamic sharding described above. Since the sharding method in Shardeum is dynamic and not static, they are able leverage network statistics to ensure that the network is always using an optimal sharding strategy (rather than something that is depending just on the ending bits of the sender’s address).
Whitepaper
For more details on Shardeum, check out the following:
About Struck Crypto
Struck Crypto is a permanent capital evergreen vehicle with over $100M AUM and has been investing in the blockchain space since 2017. The firm was the first ever investor in leading deals such as Mythical Games and Zero Hash. The firm was also an early backer of leading Layer 1’s in the space such as Algorand and Hashgraph, as well as leading DeFi projects such as 1inch.
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Disclaimer:
Struck Capital Management LLC is registered with the United States Securities and Exchange Commission (“SEC”) as a Registered Investment Adviser (“RIA”). Nothing in this communication should be considered a specific recommendation to buy, sell, or hold a particular security or investment. Past performance of an investment does not guarantee future results. All investments carry risk, including loss of principal.
