February 2018

This is a long-form review and in-depth comparison of two interesting cryptocurrency tokens, VeChain Thor (VET) and WaltonChain (WTC).

VeChain and WaltonChain are both part of the emerging “utility token” paradigm, whereby the coin serves a specific use-case rather than acting as a general medium for the exchange and storage of value (as with Bitcoin or Litecoin). Although there is a sense in which “cash replacement” is a single use-case, cash is so broad-reaching that it’s becoming helpful to differentiate between these coin paradigms because their real-world applications will ultimately look and feel very different from one another.

Where the goal of first- and second-generation coins like BTC, LTC, Ripple or Monero is to allow users to buy a wide variety of different products in a secure, digital manner — hopefully one day enjoying the ubiquity that fiat currencies do today — utility tokens are focussed on powering and optimising a specific industry mechanism. In the case of WTC and VEN, that’s supply chain logistics and fulfilment (more on this in a moment). These are specialists, not generalists — they’re focussed on utilising the features of blockchain to solve a defined, industry-specific problem (hence the moniker “utility token”).

WTC and VEN aren’t angling to be the coin you use to buy bananas in your local corner shop — but in the future they may well help to ensure that your bananas are ripe, ethically sourced, safe to eat, and there on the shelf when you’re motherflipping hungry.

The problem

As economies around the world step back from the brink of the financial crisis, companies are facing up to a very different set of supply chain problems than they did at the depths of the economic downturn. A decade of depressed wages and austerity has bred savvier, less extravagant consumers. Ecommerce has steadily outstripped brick-and-mortar retail; net consumer spend has fallen and customer expectations are ever more digital-first, on-demand and research-empowered.

According to a recent study by PwC [1], 96% of Americans prefer shopping online for at least one product category — citing wider choice, better prices, quicker transactions and avoiding crowds as some of the compelling motivators. The same report highlights that in the UK, just 12% of toy sales took place in physical retail locations last Christmas. Meanwhile, price competition and product quality from global manufacturers continues to rise, and ever-increasing digital literacy means customers have access to more information than they ever have before — leading to new and complex consumer buying behaviours that don’t conform to the established rules.

Competition from global manufacturers of “genuine alternative” products is one thing to contend with — see Xiaomi’s increasing infiltration of the smartphone and tablet space, or GoPro hemorrhaging market share to generic “action cams” with 80% of the performance at 20% of the cost — and indeed such competition is often good for consumers provided adequate quality and safety controls are in place. But riding on the high reach and growth potential of the internet, the global cost of counterfeiting also hit a record high of $1.8 trillion last year [2], resulting in almost 4 million job losses according to the International Chamber of Commerce [3]. In one case study focusing on the online pharmaceutical sector, counterfeits claimed more than a third of the entire market (around $200 billion) [4].

It’s tough out there for suppliers, and fully two out of three interviewed by PwC expected things to get worse over the next five years. In a recent McKinsey study of 639 supply chain providers [5], the number one challenge was cited as containing and reducing operating costs — painting a picture of beleaguered suppliers focused more on weathering the storm than pursuing growth. McKinsey found that half of companies sampled have “limited or no” quantitative information about manufacturing and supply capacity; 41% “do not track per-customer supply chain to any useful level of detail”, and almost all respondents “collect and use much less detailed data than required to make astute supply chain decisions”. Suppliers are basically clinging to a rock in financial heavy seas, screaming “WHAT THE FUCK” into the storm while crates of goods float by.

So how can blockchain help?

WaltonChain and VeChain (soon to be rebranded VeChain Thor) take different approaches to the same goal: utilise the powerful, immutable data structures presented by blockchain to build next-generation management systems for supply chains.

Complex products like electronic goods may involve hundreds of different suppliers in a multi-tiered hierarchy of procurement, assembly, fulfilment, QC and audit trail functions. Complexity tends to scale difficulty upwards on an exponent curve — the more interconnected dependencies you have, the more one mistake ripples through the ecosystem. If you manufacture phones that utilise Qualcomm processors, your phones aren’t leaving the warehouse without those chips. It doesn’t matter if 99.99% of your supply chain hits target; without those chips, you don’t have a product. When you have a dozen or fifty or a hundred such points of critical failure, and all the components come from different suppliers in different countries talking different languages in different time zones with different laws and different business cultures and different priorities and with many customers and logistic chains of their own and you’ve probably never even met face to face, it starts to become a bit of a clusterfuck.

A blockchain is just a distributed database. A supply chain is just a distributed assembly line.

When every stage of that assembly line is stored in an immutable, public ledger, suddenly you have transparency and traceability at every stage of the journey. You know where your goods are, where they came from, whether they’ve paid import duties and whether they’re the same goods you started with.

You have no single point of failure, so records can’t be lost or corrupted or falsified. You have visibility of the complete chain and you can be certain of its integrity, where currently it’s fragmented between the records of multiple carriers, brokers, shippers, suppliers, vendors and insurers and often those records don’t even agree with one another.

Tie in smart contracts from a coin like Cardano or Etherium and you have deliveries that are paid automatically and disputes that resolve themselves. Leverage the public nature of the blockchain and you have a marketplace where shippers can post consignments and carriers can dynamically bid for them based on their current shipping lanes, load and fleet availability.

The promise of blockchain is freer, more transparent global trade, at a lower cost and with greater reliability than current networks. That’s pretty compelling in an industry valued at $8.1 trillion worldwide [6]. Megacorporations from UPS [7] to Wallmark [8] to Maersk (the world’s largest container shipping company) [9] are coming out bullish on blockchain logistics, and it’s not difficult to see why.

The Tokens

WaltonChain is named after Charlie Walton, the inventor of RFID (Radio Frequency Identification). RFID uses radio waves to read small amounts of information stored on a chip or “tag” attached to an object, similarly to how a barcode scanner uses light to pick out bars and gaps between them. Around 2,000 characters can typically be stored on a tag, which is usually ample for version management, origin tracking, tax codes and so forth.

RFID isn’t a new technology — it was first proposed in the 1940s and gained widespread adoption by the 1970s — but it does still have advantages despite its age. It doesn’t require line-of-sight like barcodes or QR codes; tags can be read from distances of a few feet away, permitting scanning of crated goods in transit. Read times are typically in the tens of milliseconds (where barcodes and QR codes are north of 500ms). Conventional RFID therefore lends itself to supply chain optimisation already, but a huge part of WTC’s appeal is that they have a hardware arm that has filed several patents for innovative RFID chips, developed over what the team say is “a number of years”. While patents are forthcoming, details are scant — but the chips are claimed to be able to write directly to the blockchain without requiring an “application layer”. We’ll talk about why that’s important in a moment.

VeChain started back in 2015, so it’s fairly well established by blockchain standards. They’ve clearly been busy, having already built partnerships with some serious international powerhouses including PwC, Kuehne & Nagel, China Unicom, DNV GL, Renault and even the Chinese Government. VeChain, unlike Walton, doesn’t utilise proprietary hardware. Instead, it allows suppliers to utilise one or many of wide range of existing standards — QR (Quick Response) codes, NFC (Near Field Contact) tags, RFID and even plain old barcodes in flavours from standard EAN and UPC through interleaved datamatrices and 2D stacked codes like PDF417.

On the one hand, catering to a wide range of standards ought to drive rapid adoption and substantially ease growing pains.

Where WTC relies on convincing many suppliers to unify under a single standard, VEN’s approach is to be a single blockchain that integrates with many standards. Considering the layers of due diligence, risk aversion and general inertia that are inherent in most corporate decision trees, permitting companies to use familiar standards and not requiring exotic new hardware should inspire confidence — and may be part of what’s helping VEN to win these hero partnerships early in the game.

On the other hand, that hardware layer does make WTC much harder to copy.

There’s little to prevent someone with sufficient resources from “fast following” VEN if they do begin gain mass adoption — for example, Amazon; the world’s most expert logisticians. Amazon build their own pick and pack machines because off-the-shelf models aren’t quite efficient enough and utilise machine-learning-driven computer vision techniques to optimise foot traffic paths around the warehouse to shave a couple of seconds off a pick. Better believe they’re watching this space.

There are other reasons WTC’s hardware layer is important beyond the competitive value of unique intellectual property. VEN is a pure-play software platform that users will interact with via an “API” (application programming interface). An API is essentially a set of instructions as to how to talk to the software and write new entries to the ledger, or query and modify existing ones. An API provides a single, centralised point of contact for the software platform, meaning it could be argued that VEN sacrifices part of the advantage of a distributed ledger — decentralisation.

Some of VEN’s detractors contend that where there’s a centralised intermediate (the API), the system can’t be truly trustless. In a hypothetical situation where VEN’s API is compromised by hostile actors, the whole blockchain could in theory be compromised. Walton has stated that their chips will be able to write directly to the WTC blockchain without an intermediary application layer — removing the single point of failure presented by an API, and meaning that if one chip is hacked then only one chip is compromised due to each having a unique ID. That’s really one of the core strengths of a decentralised network.

The real-world impact of this remains to be seen. It’s disingenuous to suggest that VeChain’s data structure is flawed because it has an API — the network still employs a “consensus mechanism” like every other crypto, meaning the truth of each transaction is verified by comparing it to the rest of the blockchain and seeing whether the results “add up”. Transactions that don’t are dumped.

A primitive example of a consensus mechanism is counting the amount of money in a shop till. We start with £20 in the till.

- You buy something for £5 and give me a £10 note.

- I put your £10 in;

- I give you £5 change;

- If everything has gone correctly there’s £25 in the till at the end.

I can check the transactions that have gone before by comparing the “database” (the amount of money in the till and the receipts for all my sales) to an expected consensus value. This works great so long as I trust the cashier to count the money and report the value of each sale correctly — my “source of truth” is dependent on one person, meaning it’s centralised and only as strong as the integrity of that one actor (banks, anyone?).

So I might decide it’s safer to have two or three cashiers working alongside one another who all need to agree on how much there is and how much there should be — in other words, achieve consensus. If one of them is a thief or just bad at maths (a “bad actor”) their answer should stand out from the others and notify me that there’s a problem. I can reject their answer in favour of the consensus achieved by my two honest cashiers, and potentially think about calling in network security to do something about my bad apple.

Now imagine a shop with a thousand cashiers, or a million — the only way to falsify the record would be to get enough bad actors into the shop to outweigh the honest ones, and make it look like they’re the ones who are lying (AKA a “51% attack”). That’s how decentralisation helps to secure the network.

Many consensus methods exist and there’s a raging debate over which are best for each application. This is a serious rabbit hole and something I’ll deep-dive into in another post, but here’s the headline:

The classic method is “proof of work” (PoW), where the correct answer is “mined” by participants in the network. Mining is essentially guessing at answers until you get one that adds up. You then earn a small reward for being the first to correctly balance the books, and we move on to the next transaction. This method is more than 20 years old, meaning it’s simultaneously tried-and-tested and starting to show its age. It’s computationally and energy intense and doesn’t scale particularly well — anyone who’s sent Bitcoin since the boom has felt the sharp end of that. As I write in 2018 several networks (including Etherium) are proposing to move to “proof of stake” (PoS), which arguable offers far greater transaction throughput at less cost but comes with its own set of trade-offs. Supposedly, only Cardano claims a PoS algorithm that is demonstrably secure thus far (again, very much a rabbit hole).

VEN utilises a “proof-of-authority” (PoA) system, where the “cashiers” are assigned trust scores based on their past record and financial stake in the network, amongst other factors. It’s a bit like valuing the opinion of long-serving employees with shares in your shop marginally more than those of new starters. Everyone gets a say, but a past record of telling the truth means your opinion carries a little more weight. That way you don’t just need to smuggle in 51% bad cashiers to falsify the cash in the till — you really have to somehow corrupt the employee of the year, who’s a part-owner and gets dividends and has worked there since time immemorial and walks the owner’s dog for them every lunchtime.

You may have heard the (possibly mythical) origin of the term “skin in the game” — that ancient Roman architects were forced to stand under the bridges they built while the keystone was placed and the supports removed. They had a very fucking material incentive to check their math and make sure that bridge stood firm. That’s the same rationale that drives proof-of-authority consensus.

WTC utilises “proof-of-stake-and-trust” (PoST), which is a hybrid of the proof-of-stake models that coins like Etherium and Cardano propose to soon adopt, and a “reputation” system much like proof-of-authority. It’s essentially proof-of-stake, but your contribution to the PoS algorithm is weighted based on a trust score that you accrue over time spent in the network. They’re relatively similar approaches and it’s really very difficult to say if either will be notably more effective at this early stage. The key differences will start to appear after VEN rebrands to VeChain Thor (VET).

VEN’s rebrand essentially means doubling down on the proof-of-authority system. VEN will be renamed “VET” (VeToken) and will start to generate an asset called Thor (THOR) when held for a time in an appropriate wallet. By holding tokens in these wallets users can “stake” them, meaning their tokens contribute to the Proof of Authority calculations needed to secure and verify the network. As a reward for doing this, users will be paid regular dividends in THOR tokens. The THOR token in turn can be spent to power smart contracts and run applications (dApps) on the VeChain blockchain. If you’re familiar with NEO and GAS, it’s a very similar idea.

Any amount of VET will generate dividends when held in an appropriate wallet (reportedly 0.00042 THOR per VET per day), but there will also be hierarchy where users can stake more coins to run “nodes” that are like the trusted employees in our shop analogy. Operators of these nodes are paid extra rewards from a separate pool of THOR tokens owned by the VeChain foundation, and set aside for activities that help the project — not just rewarding node operators, but also for funding research projects and subsidising bleeding -edge adoption. Node options start at 10,000 VET.

This dividend structure provides a token economy where those who contribute to network integrity are rewarded and those who just want to use it without too much technical overhead (most likely corporate customers) can straight up pay to do so by purchasing Thor. It’s a nice symbiosis model and one that seems to have helped NEO to grow.

The distinction between PoA and PoST consensus is still fairly superficial, though — WaltonChain’s consensus methodology also utilises both reputation and staking, and there are plans for a trusted node system starting at 5,000 WTC. The WaltonChain team have somewhat confusingly stated [10] that a portion of the coins will also be mined — something that normally refers to completing proof-of-work hashes rather than dividends paid for staking. It’s not clear whether there will be a network lane that utilises PoS for some other purpose (e.g. a paid fast lane) or whether they’re referring to it as mining because they plan to “mint” the rewards for staking — i.e. print new WTC tokens to pay the rewards. Minted rewards are slated for some currencies already such as Stellar Lumens (XLM), but they introduce a new and complex dynamic to the token economy in the form of inflation. VeChain’s plans seem clearer in this space at the time of writing but staking WTC is clearly going to have its perks as well.

The same could be said about so many facets of these two coins. Both VeChain and WaltonChain are currently ERC-20 tokens, meaning they both run on the Etherium blockchain for the time being. Both plan to launch their own mainnets (their own blockchains) at some point in 2018. Both plan to rebrand, although Ven’s is out in the open and Walton are keeping their cards close their chest. In fact, WTC and VEN both just seem like excellent projects with enormous promise. The space is certainly large enough for the two to co-exist, and probably several more besides. Both have fantastic teams and both are rapidly recruiting influential partners — and crucially among them are many that are participating in real-world pilots rather than serving abstract advisory roles.

Of all cyrptocurrencies currently under development these coins seem likely to see some of the highest real-world, day-to-day utility if they deliver on their promises. They solve a real-world problem and they do so by utilising the inherent core strengths of blockchain, not shoe-horning it in as clickbait because it’s highly topical (we’re looking at you, Dentacoin). If you’re only considering one project, your choice really boils down to which you think is the better competitive advantage: WTC’s hardware patents, or VEN’s one-size-fits all approach to integration.

If you’ve found this article helpful, please consider supporting the author by sending WTC, VEN or ETH to the addresses below. I currently write this content in the evenings after work and I would love to be able to spend more time on this project.

Pls send cryptos so my girlfriend doesn’t leave me.

WTC: 0x8e560ab63210b708211d817d187398a3b52231ec

VEN / VET: 0x8e560ab63210b708211d817d187398a3b52231ec

ETH: 0x8e560ab63210b708211d817d187398a3b52231ec

BTC: 1HZDe19pwKcz2uhDTVMtxE6iDinbRHicjN

References:

1. https://www.pwc.com/gx/en/industries/retail-consumer/total-retail/total-retail-categories.html

2. https://industrytoday.com/article/global-cost-of-counterfeiting-is-1-8-trillion1-according-to-new-netnames-report/

3. https://iccwbo.org/publication/economic-impacts-counterfeiting-piracy-report-prepared-bascap-inta/

4. http://sophiccapital.com/wpcontent/uploads/2014/10/Download-Full-Counterfeiting-Report-Here.pdf

5. https://www.mckinsey.com/business-functions/operations/our-insights/the-challenges-ahead-for-supply-chains-mckinsey-global-survey-results

6. https://www.transparencymarketresearch.com/logistics-market.html

7. https://techcrunch.com/2017/12/15/ups-bets-on-blockchain-as-the-future-of-the-trillion-dollar-shipping-industry/

8. https://www.nytimes.com/2017/03/04/business/dealbook/blockchain-ibm-bitcoin.html

9. https://www.maersk.com/press/press-release-archive/maersk-and-ibm-to-form-joint-venture

10. https://medium.com/@Waltonchain_EN/waltonchain-february-q-a-4779eb30d3d8