On the 30 June 2019, Picolo Research released an independent review report on Elrond (ERD) with a Technical Code Review update on 17 July 2019. View the full report here.

A Scalable Protocol Technology Utilizing Adaptive State Sharding with SPoS for Practicality

Elrond is creating a novel architecture through adaptive state sharding technology and Secure Proof of Stake (SPoS) consensus. This transfer protocol will enable a scalable ecosystem embedded with interconnectivity while maintaining the decentralisation, security and fairness features of a public blockchain. Preliminary test results have reflected an average throughput of 1000x increase as compared to existing solutions that are currently in the market.

Company Overview

Incorporated in 2017, with its core team in Romania, Elrond seeks to provide a novel architecture that augments current models to improve scalability performance, security and decentralisation. Adopting a two-prong approach through Adaptive State Sharding and Secure Proof of Stake (SPoS) consensus algorithm, Elrond seeks to provide 10k transactions per seconds (TPS), minimize network latency, and reduce fees for the digital economy.

Here are several issues that the project seeks to resolve:

Full decentralisation to create a trustless ecosystem and remove any single point of failure

High security to prevent attacks from different vectors

Scalability to achieve TPS that is higher or at least equivalent to centralised counterparts

Energy efficient ecosystem that reduces computational requirements

Bootstrapping and storage enhancement to reduce the time for network synchronization and data storage

Interoperability to enable communications across networks

Commercial & Technical Strategy

Elrond is reinventing the public blockchain infrastructure to be more secure, efficient, scalable and interoperable. The project seeks to eliminate energy and computational waste from PoW algorithms through the use of SPoS consensus and sharding technology, which are the two cornerstones of the platform.

Several core features of the platform include:

High overall throughput of 65k TPS in recent testnet performance

Adaptive State Sharding that splits the blockchain into multiple shards using a binary tree, which reduces latency

Implementing a technique to balance nodes and rewards to achieve overall network equilibrium

Automatic transaction routing within corresponding shards

Shard pruning mechanism to reduce bootstrapping and storage costs, increasing overall throughput

Secure Proof of Stake (SPoS) consensus mechanism

A block proposer, which is also the validator, to randomly select consensus group in under 0.1s, enhanced by a robust deterministic function to increase security

A byzantine adversarial model to prevent attacks

Interoperability with EVM (Ethereum Virtual Machine) compliant

Cross Shard Transaction Processing

Network Throughput with Increasing Number of Shards

Technical Code Review

The primary goal of Elrond is to solve several major issues faced by existing blockchain technologies. This technical review will cover 3 major components in detailed, namely:

Security through Secure Proof of Stake (SPoS) Scalability via Adaptive State Sharding Interoperability through VM based on K-framework

Security through Secure Proof of Stake (SPoS)

Elrond proposes a unique consensus algorithm called “Secure Proof of Stake” which aims to balance network efficiency with network security. This implementation is an expansion and improvement of Algorand’s concept of random selection mechanism.

A random sample from a smaller consensus group will be selected out of all eligible validators in a shard. The randomness is unpredictable before the signing of the previous block and is deterministic once the previous block signature is known. The randomness takes into consideration the stake and rating of a node when selecting validators for the consensus group. The default rating of a node is 0. The hash of the public key and randomization factor of every validator in the consensus group is derived, and the first node will be elected as the block proposer. The block proposer will aggregate transactions to build a new block before broadcasting the block to all validators in the consensus group for verification. Each validator will verify the validity of the block and process its transactions. If there are no problems, it will participate in the pBFT consensus. Every validator will then send a signature to the proposer for a modified BLS multi-signature scheme. If more than (2/3 + 1) signatures are collected, the block is considered validated and will be disseminated to the entire shard. The aggregated signature is used to prove that consensus was reached. Selection of next consensus group will be done through BLS signature over the last randomness source. Both the new and old randomness sources are then added to current block. The rating of the block proposer will increase at the end of the epoch, by analysing the statistical data on the behaviour of each validator.

Elrond’s approach to randomness selection with consideration based on stake and rating greatly reduces the possibility of collusion and deters bad actors with slashing.

However, this was not Elrond’s original proposal. The team managed to identify key issues with their previous proposal and made modifications to the design of the consensus and randomness source to achieve greater efficiency.

Even though the BLS multi-signature scheme is more time-consuming on both signing and verification, the reduction in communication rounds reduces the overall time spent in consensus.

We review several of Elrond’s Github repositories.

consensusState.go

Deriving of next consensus group from random source

In the above code snippet, computing of the next validator group takes in a byte array parameter generated by a random source.

consensusState.go

First node of the consensus group is elected as the block proposer

The way this function is structured indicates that the leader (or block proposer) is the first node in the consensus group.

blsMultisig.go

Generating signature using BLS multi-signature scheme

Line 152 shows the signing of the share using a private key. Line 157 shows the adding of the signed share into the array of signature shares.

subroundEndRound.go

Aggregating of signatures and broadcasting the block

Line 57 shows the generating of the bitmap using the signatures obtained, followed by line 58, which checks the validity of the bitmap. Line 65 shows the aggregating of the signatures using the bitmap. Line 71 and 72 show both the bitmap and the signature being added to the next block’s header. Finally, line 88 shows the broadcasting of the block.

Overall, the team has completed the codes for this component of Elrond’s platform. The implementation of SPoS is elegant yet provides an effortless way to achieve finality and security. Furthermore, the team’s flexibility to make modifications to their previous approach shows their ability to identify key issues and develop improvements to increase the platform’s efficiency.

Scalability via Adaptive State Sharding

Elrond’s approach to scalability is through their proposal of Adaptive State Sharding. This mechanism will adapt and reorganize the shards based on the number of active nodes in the network.

There are usually a few considerations regarding sharding — latency, cross-sharding capabilities and storage.

Elrond has conceptualized solutions to each of these issues:

Latency — Using a binary tree to divide the account address space in shards to reduce latency. This is achieved due to the lack of split overhead as it is predetermined by the hierarchy when using a binary tree. Cross-sharding capabilities — By using miniblocks within shards and a metachain as state sync. Miniblocks containing the transactions in the current shard are sent to the metachain which notarizes the block by creating a new metachain block (metablock). Other shards will then be able to fetch the hash of the miniblock from the metablock, request the miniblock from the original shard, and execute any cross-shard transactions. The resulting block will be sent to the metachain. After notarization, the cross-shard transaction can be considered finalized. Storage — A shard pruning mechanism is implemented to ensure the sustainability of the network. At the end of each epoch, the block proposer will create a state block containing the hash of the Merkle tree’s root and balances. When consensus is reached, the block proposer will store the state block in the shard’s ledger, making it the genesis block for the next epoch. At the end of the next epoch, the nodes will drop the previous state block and all the blocks before it.

multiShardCoordinator.go

Binary tree splitting of account addresses

This code snippet returns the shard of which the given address belongs to. This is computed using a binary tree. Line 49 computes the number of bytes needed to find out which shard the address belongs to. Line 50 and 52 initializes the starting index of the byte to begin the binary tree split. Line 58 to 60 iterates through the binary tree. Line 62 to 65 returns the shard that the address belongs to.

shardblock.go

Retrieval of miniblocks from metachain, processing of miniblocks

Line 1190 gets the list of metablocks to retrieve. Line 1210 retrieves the headers from the metablock. Line 1232 retrieves the miniblocks using the headers and processes them.

Overall, Elrond’s approach is different from the conventional sharding methodology, where the number of shards is static. However, the team has yet to implement the full Adaptive State Sharding mechanism on their platform as the testnet utilizes static state sharding where the number of shards is fixed.

Interoperability through VM based on K-framework

Elrond’s approach towards interoperability is to implement an adapter mechanism at the VM level (as proposed by Cosmos). This would require specialized adapters for each chain that will interoperate with Elrond.

Elrond’s proposed VM infrastructure is built on top of K Framework. The advantage of using K Framework is that programming languages can be clearly defined, resulting in reliable and safe execution and behaviour. Using a common VM interface, each VM can be plugged into the Elrond network by having an adapter that implements the interface.

testInitializer.go

Integration tests for IELE VM

Line 95 is the initialization of an IELE VM.

The Elrond team has yet to implement its full interoperability solution, which is slated to launch by Q3 2019. In a recent technical update, the project has implemented VM and protocol integrations with several tests conducted. The team has also open-sourced the codes. However, communications from the team were that work is still in progress, and developments are ongoing internally.

Conclusion — Technical Code Review

Taking into account all 3 major components, as evident from the technical review, the Elrond team has displayed a clear understanding of their objectives and have conceptualized novel approaches to solving the major issues faced by blockchain technology. The source codes are well documented and adhere to a Test-Driven Development approach.

However, the project is still in the early stages with several repositories due to be completed in the coming months. Solutions to scalability and the implementation of sharding and cross-sharding capabilities, along with the added goal of interoperability between blockchains, are complex in nature and the concepts put forth are still theoretical. At present, the Elrond team has taken considerable steps towards a solution that has a high possibility of success, reaching the required throughput and be the go-to platform for the digital economy.

Roadmap

Elrond has a simple and straight forward roadmap, which has been delivered timely, adding to the team’s credibility.

Team

The project comprises a team of 19 employees, many of whom have prior experiences in the blockchain sector.

Beniamin Mincu (CEO) — 8+ years of experience, of which 4 years are within blockchain. Prior experience includes Metachain Capital, NEM, and ICO Market Data. He graduated with a bachelor’s in economics from the German University of Sibiu.

Lucian Todea (COO) — 16+ years of experience as a serial entrepreneur within the technology sector. He founded Soft32, ITNT, Travelgator, and mobilPay.com. He majors in Finance from The Bucharest University of Economic Studies.

Lucian Mincu (CIO) — 8+ years of experience in IT. Prior experiences include Computer Troubleshooters, Uhrenwerk24 UG, Cetto Services GmbH, LIEBL Systems GmBH, Metachain Capital, and ICO Market Data. He is an IT Specialist in Computer Science and graduated from Industrie- und Handelskammer.

Felix Crisan (Head of Research) — 20+ years of experience in IT, and specialises in BigData, Machine Learning and AI. Prior experiences include IBM, Hewlett-Packard, Phenomedia, Cybersoft, and founded companies such as mobilPay.com, NETOPIA system, and BTKO. He holds a bachelor’s in computer science from the University of Bucharest.

Radu Chris (Head of Technology) — 11+ years of experience as a developer and an expert in Advanced computer architecture. He worked both as a developer and research assistance in the Lucian Blaga University of Sibiu and was a partner in NTT Data Romania. He holds a PhD in computer science from the Lucian Blaga University of Sibiu.

Adrian Dobrita (Head of Engineering) — 10+ years of experience in software engineering. Prior experiences include Intel, Continental Automotive Systems, AUSY, and Pentalog. He holds a master’s in advanced computing system from the Lucian Blaga University of Sibiu.

Addition team members include:

3 Core Developers

6 Software Engineers

2 UX Designers

2 Business Development & Marketing

Advisors

Alex Iskold (Business Advisor) — Managing Partner @ 2048 Ventures, a seasoned investor with presence in 90+ startups

Alex Tabarrok (Economics Advisor) — Professor @ George Mason University, specialises in economics

Raul Jordan (Technical Advisor) — Co-Lead @ Prysmatic Labs, Ethereum protocol developer, Partner @ zk Capital

Grigore Rosu (Technical Advisor) — Professor @ University of Illinois, specialises in formal methods and programming languages

Fabio C. Canesin (Technical Advisor) — Co-Founder @ Nash, City of Zion

Ethan Fast (Technical Advisor) — CTO @ Nash, Co-Founder @ City of Zion, PhD Computer Science from Stanford University

Andrei Pitis (Business Advisor) — VP Product and Head of European Development Centers @ Fitbit

Investors

Several investors participated in Elrond’s previous round. Notable ones include:

Binance Labs — Binance Labs is the venture arm of Binance with a vision to incubate, invest, and empower blockchain projects

Neo Global Capital — NGC invests in inspiring projects related to blockchain. Past investments include Bluzelle, Zilliqa, Trinity, Fortuna, IHT, Ontology, Dekrypt Capital, mainframe, Switcheo Network, Solana, Ankr, Blockcloud, NKN, Oasis Labs, nOS, Certik

Maven11 Capital — A European investment firm solely focused on DLT/blockchain technology and digital assets. Past investments include DUSK, Nash, Ethereum, ICON, Basic Attention Token, SONM, Ontology, 0X, Carry Protocol, Omisego

Electric Capital — The fund invests in crypto companies and protocols through deep due diligence in the technology by compiling codes, security audits and running nodes. Past investments include Coda, Coinlist, Dfinity, Near, Spacemesh, Oasislabs, Thunder Token

Token Sale

Elrond raised a total of $1.9m in a private sale round for 19% of the tokens. Total token supply is fixed with 44% allocated for all capital raising rounds.

The main token functionalities of ERD are of 3 folds:

Currency/ payment transaction — ERDs circulated on the network will be used as a unit of exchange to quantify and pay fees

Staking/ Mining — Users will be able to earn rewards and transaction fees when contributing to the network

Voting — Tokens will be used for voting governance once this function has been enabled

Partnerships

Nash (formerly NEX) — A decentralised digital asset exchange (DEX). The partnership will explore the integration of Elrond blockchain and ERD into Nash, closing the gap between end users and Elrond’s platform

typingdna — A behavioural biometrics company protecting users on how they type on keyboards. Elrond will integrate biometrics to further improve security

Smartbill — Fintech company providing SaaS services to SME for invoicing, accounting and inventory management. Elrond will explore potential integration of its platform to improve trust, transparency and traceability features

DSRL — A research lab with extensive experience across various distributed systems. The collaboration will focus on research-education themes on the applicability of blockchain technology

Netopia — An electronic payment processor in Romania processing more than $400m worth of transactions. The partnership would enable Elrond access to 6000+ merchants to accept ERD as a payment option

Holochain — A scalable distributed app with data integrity. The partnership will explore the potential integration of both platforms to boost technology performance

Runtime Verification — A dynamic platform that analyzes programs when executed, providing results and bugs detection. The partnership will work towards better research and development in formal verification methods

Community Engagement / Social Media

Elrond has hired both a communication and marketing personnel internally to drive community engagement. The team has extensive social media usage across Twitter, Medium, Facebook and Telegram, and constantly provides technical updates, explaining the technology in layman terms to educate users. In addition, the project hosts both community meetups and AMA to increase interactions within their community.

Here are the project social media statistics as per the report date:

Telegram (English) — 13,200+ members

Twitter — 15,400+ followers

Medium — 1,900+ Followers

Facebook — 3,100+ Followers

Competitor Analysis

Strengths

Testnet achieved a peak throughput of 65,000 TPS with 3,500 TPS per shard, relatively higher than most sharding projects currently in the market

Adaptive state sharding with pruning to improve storage and bootstrapping

SPoS consensus with an improved random function that reduces overall network latency to 5s

Energy efficient sharding infrastructure that utilises PoS versus PoW

Team has strong entrepreneurial and blockchain experience

Great deal structure with low hardcap and low diluted market cap valuation (half that of past launchpad projects)

Low initial market cap (based on initial circulating supply) of $4.875m provides greater upside potential

Weaknesses

Roadmap has limited business and marketing plans, coupled with a lower proportion (8.5% versus 11.6% spent prior) of funds raised are reserved for this segment might cause a concern

Test results of weaknesses are unavailable as no dApp has yet to be deployed to stress test the protocol and network. However, the project will embark on this stress test and will release results in the coming quarters.

The project currently has a lower number of partnerships relative to its peers

Opportunities

Improvement to current sharding technology — There are various ways to integrate different types of sharding mechanisms into blockchain. The first being energy efficiency where PoS algorithms are preferred over PoW due to the rising issue of energy wastage incur by the latter. Secondly, the use of chain pruning in adaptive state sharding to reduce storage costs is not widely used with the exception of Omniledger. Third, a robust random function to ensure fairness, at the same time reducing latency to its minimum.

— There are various ways to integrate different types of sharding mechanisms into blockchain. The first being energy efficiency where PoS algorithms are preferred over PoW due to the rising issue of energy wastage incur by the latter. Secondly, the use of chain pruning in adaptive state sharding to reduce storage costs is not widely used with the exception of Omniledger. Third, a robust random function to ensure fairness, at the same time reducing latency to its minimum. Cross chain interoperability — With the rapid development of blockchain, many varying technologies have emerged, causing interoperability to become more prevalent. The ability to operate across chains would make it easier for users to access the network, eventually increasing adoption. Within the sharding sector, there are limited solutions with interoperable features (with the exception of Dfinity), hence creating the opportunity for Elrond to capture this part of the market.

Threats

Strong competition within the sharding segment with the likes of Zilliqa, Harmony, Quarkchain, MultiVAC, Dfinity, and Algorand

Adoption rate within the sharding technology sector has been slow, which could cause drag on the project’s growth

Conclusion

In conclusion, Picolo Research presents a ‘Buy’ and 4.5 stars rating on Elrond. The project is seeking to scale the limitations of blockchain through adaptive state sharding technology while maintaining features of decentralization, security and fairness. Initial test results have shown an average throughput of 1000x increase over existing solutions at low transaction costs.

Overall, for the reasons listed, Picolo highlights several reasons that affirm our rating:

Great design architecture of Adaptive state sharding and SPoS that lowers latency, bootstrapping, and storage costs

Strong differentiating factors with shard pruning, cross chain interoperability that is EVM compliant, and low network latency of 5s

Testnet throughput achieved 65k peak TPS with 3.5k TPS per shard, which is one of the highest amongst its peers on per shard basis

Great deal structure with low hard cap and initial market cap, reflecting significant potential upside

Technical review reveals a novel architecture with a high possibility of success in code implementation

Not withstanding the above, Picolo acknowledges several concerns of Elrond. Strong competition within the sharding sector could stump the platform’s growth rate in adoption. The project’s moderate number of partnerships compared to its peers, with a lower proportion of funds allocated to business and marketing plans and little mention of these in the roadmap, further adds to the aforementioned concern.

However, our communications with the team have clarified that lower marketing budget will not compromise their growth plans as their strong relationships have helped to reduce costs and that greater emphasis is given to operations as that is their immediate focus. In addition, the team also mentioned that several partnerships pipelines are already in place and are working with a PR company to push their communication and marketing efforts further, concurrently releasing a report on the developments within this area shortly. Therefore this mitigates the weaknesses and our concerns to a large extent.

Overall, in light of the preceding, Picolo Research affirms a ‘Buy’ rating on Elrond.