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VeChain is its own blockchain designed to improve enterprise supply chains. It originally was built atop the Ethereum blockchain in 2015 to bring transparency and authenticity to luxury goods provenance to reduce fraud and combat counterfeit products. However, with loftier goals in mind, VeChain conducted an ICO in 2017 and launched its own blockchain in 2018.
On its own blockchain, VeChain tracks physical real-world items by assigning each product a unique identity and using RFID sensors to track that item across the supply chain until it ultimately ends up with the merchant. The idea is that companies who use VeChain can be sure their products are handled correctly and not counterfeited.
With the launch of their own chain in 2018, VeChain migrated to its own public blockchain ecosystem, VeChain Thor, converting the former VEN tokens to VET and adding the VeChain ‘gas’ token VTHO. Thus, VeChain has evolved into a multi-coin enterprise-focused supply chain management and Internet of Things (IoT) ecosystem as opposed to a single project. The protocol is designed to be used across industries such as automotive, pharmaceutical, or agriculture in order to make the supply chain more efficient, transparent, and cost-effective. With VeChain, different companies along the supply chain can track items through every stage of production and delivery in real-time and verify the information. Over 30 companies within the Fortune 500 have live solutions running on VeChain including Walmart, BMW, LVMH, Renault, Deloitte, and PwC.
VET Strengths
- One of a select few crypto-projects that have actual adoption and product-market fit with major corporations like Walmart China, Pricewatercooper, PwC, Cointelegraph, BMW Group, LVMH, Moe?t, Hennessy, and Louis Vuitton
- A tenured product (5+ years) with a dedicated team that has shown the ability to evolve with the ecosystem and continue to improve and develop the product for users
VET Weaknesses
- A permissioned, KYC’d, centralized, and closed ecosystem of MasterNodes that offers none of the open, free-to-participate, permissionless characteristics of Bitcoin or Ethereum
- The VeChain Foundation is the ultimate authority and gatekeeper to the blockchain with the ability to change the monetary policy and other critical decisions
- VeChain was built for a large but very particular supply chain management use case, meaning there is essentially no reason a retail user needs the coin
VET Links
- Website
- White Paper 1.0
- White Paper 2.0
- GitHub
- Block explorer
- Telegram
Use Case
VeChain’s goal is attaining mass adoption in the supply chain, provenance, and traceability industry by providing value to normal business operations. VeChain technology has a wide array of uses across different types of industries but has a very obvious and immediate benefit within business supply chains. Different companies within the supply chain, from producers and distributors to couriers and merchants, can track items through every stage in real-time with the use of VeChain Identity Technology (VIDs), such as QR codes and RFID chips, to scan and identify products onto the blockchain. With asset digitization, VeChain allows manufacturers, supply chain partners, and even consumers to track the movement of products through the supply chain and determine the quality and authenticity of a product.
The VeChainThor blockchain platform is a public blockchain ecosystem intended for “mass business adoption.” VeChain was originally built on the Ethereum protocol but transitioned onto its own blockchain protocol, the VeChainThor, in 2018. At this time, the VEN token became the VET token. Transactions on decentralized applications occurring on VeChain’s blockchain will use VET. A second token, the VTHO, is used to power transactions on VeChain and is equal to the cost of conducting business or ‘gas’ on the Ethereum network.
The VeChain protocol is attempting to replicate the success of the Ethereum ecosystem with some tweaks to perceived “obstacles” around governance and scalability. Currently, there are several dApps on VeChain Thor (with negligible user counts as of Q1 2021) with the goal of mass business adoption of dApps. They intend to link the entire supply chain from manufacturers, wholesalers, distributors, and storefronts to the consumer with everyone having the ability to transparently access product data and status. They envision all aspects of the Internet of Things (IoT) riding on the backbone of VeChain Thor as well as improvements that will take Decentralized Finance (DeFi) out of its current status of merely trading/speculation.
There are very few projects of this magnitude, e.g. entire ecosystems, that are being pushed forward in the crypto/blockchain space. VeChain is similar to the Hyperledger project but with the addition of fungible tokens for transactions as well as gas. VeChain’s disadvantage, when compared to Hyperledger, is that unlike Hyperledger, there is no private or permissible blockchain making all company data stored on Thor publicly available.
While VeChain sees itself as ensuring the quality of goods and preventing counterfeiting by tagging and following each item throughout the entire supply chain, some businesses may hesitate because of the public aspect of shared data. The history of blockchain has relied on transparency, while companies have relied on privacy.
Technology
VeChain uses a “Proof of Authority” consensus model to ensure that future developments are aligned with the vision of The VeChain Foundation. In a Proof of Authority (PoA) network, the transactions and blocks are validated by pre-approved, verifiable, openly-public accounts known as validators. In the case of VeChain, the blockchain is maintained by 101 Authority Masternodes (AM). AMs are geographically-dispersed servers that keep a complete copy of the blockchain and are always connected to the network. They are required for the pre-approval of new VeChain entities and also to produce blocks on the VeChainThor blockchain. These AMs run the VeChain code which allows them to attest blocks and process transactions.
VeChain could be more accurately described as a distributed LEDGER technology. While they do implement blockchain and smart contracts like other cryptocurrencies, block production lies in the hand of 101 Authority Masternodes and what VeChain calls "Proof of Authority” (PoA).
These AMs not only have significant holdings of VET (must maintain 25 million VET balance) but have also had their identities verified by the VeChain Foundation to pass KYC regulations to become an AM.
PoA's advantages are that once a node has been "authorized" it has an equal chance to publish a block (and gain 30% of the transaction fees as a reward). This means that an AM with 100 million VET has the same opportunity as an AM just meeting the 25 million VET threshold.
While the whitepaper claims this has the advantages of reducing time to consensus (and thereby making use of network bandwidth more efficient/increasing transactions per second), it is not decentralized in the same way Bitcoin is decentralized.
The advantages of this system, over alternatives like Proof of Work (PoW) or Proof of Stake (PoS), are that it can rely on a limited number of block validators making it a highly scalable system with faster validation and easier to govern. VeChainThor is a PoA network in which one of the 101 pre-selected validators (Authority Masternodes) is “randomly” selected to propagate the next block.
However, there are significant tradeoffs when using a Proof of Authority based consensus algorithm. A PoA system lacks the open, permissionless, decentralized, and pseudonymous nature of typical blockchains like Bitcoin and Ethereum. In contrast to PoW, PoA blockchain have only a limited number of validators, which are pre-selected by the foundation. A PoA network is extraordinarily centralized similar to a big company or government, requiring large amounts of trust in the entity behind the project. VeChain has foregone decentralization and an open, permissionless network in order to meet its objectives. PoA does not enable the building of a blockchain that is protected from censorship and blacklisting as other consensus mechanisms allow. A limited number of identified validators can freely cooperate to censor particular types of transactions based on the identity of the user or the purpose of the transaction.
The only precautions a PoA network takes towards negating malicious activity are vetting participants before being accepted into the network and the reputational risk that would follow should any entity act maliciously. However, the risk of damaging the reputation does not necessarily keep a person from participating in nefarious actions. The size of the gains that can be gathered with a reputation-destroying event can be more valuable than the reputation within the community.
While PoA’s identities are publicly known, the risk for third-party manipulation remains. VeChain is taking measures to address the issues of a PoA system by developing a “PoA 2.0” consensus system by adding oversight to the validation nodes. This new consensus mechanism is called VeChain PoA 2.0 SURFACE (Secure Use-case-adaptive Relatively Fork-free Approach of Chain Extension). In this new system, when a new block is created, additional time is used in communication, transmitting, and validating the data. By optimizing the amount of time spent in transmitting data to Masternodes, transactions per second (TPS) and bandwidth efficiencies can be made.
This includes the delayed validation of a block. Rather than validating a block in the consensus round in which it was generated (as in other networks), validation of the block takes place in the subsequent round. This allows the network to transmit and validate blocks simultaneously and in parallel.
As a PoA consensus system, the network is highly scalable, but sacrifices decentralization to achieve high throughput. It is built on proven blockchain technology and innovations including the use of seven types of smart contracts and several APIs to ease third-party development of dApps. VeChain Thor is a modified version of Ethereum’s codebase optimized for scalable enterprise solutions in a trusted environment. Thor is the main base layer for data exchange, key management, and state storage.
There are smart contracts for regulating authority, gas, gas payers, governance, block queries, reward information, and accounts. These smart contracts are built-in and shipped with the Thor source code and are implemented natively in Go rather than in Solidity for efficiency. However, the VeChainThor blockchain currently supports Solidity as the programming language for developing its smart contracts.
The permissioned-blockchain is capable of handling 10,000+ transactions per second from the data collected by sensors in the real world. VeChain designs and manufactures its own physical sensors that can read and publish data to the VeChainThor blockchain. VeChain IDs are assigned digital identities created with a SHA256 hash and tracked with NFC, RFID, and QR codes. Only the hash value of the raw data is stored on-chain and can only be accessed by permissioned entities. Raw data is stored in a decentralized data encryption storage solution developed by VeChain.
Vulnerabilities
While VeChain's list of impressive partnerships suggests that enterprise clients feel comfortable in the level of security VeChain provides, are there any glaring vulnerabilities?
A good sign is constant and transparent code development which can be seen at any time via the project’s Github. Additionally, VeChain has integrated standards like Rosetta, an open standard to give developers powerful APIs to interact with blockchains.
Various aspects of VeChain are being updated on different timelines while the development documents and more "stable" parts of the project may have been last updated months or even weeks ago. According to the official blog, updates sync2, the flagship wallet, were implemented in February 2021.
Santiment shows a steady waxing and waning of activity in line with the expected output of two developers spearheading the majority of Github commits in the project (mentioned in the Governance section).
VET developer activity (purple) vs. price (green). Image credit: Santiment
When it comes to more technical vulnerabilities (e.g. 51% attacks), there seems to be little concern from the community. Since VeChain uses the previously mentioned PoA consensus algorithm, there is no hash rate (and by extension, hash rate distribution/concentration). There are 101 Authority Masternodes, all with an equal chance of minting the next block. All authority nodes are randomly ordered and selected to charge a block. This helps eliminate the possibility of predicting which accounting nodes in advance will produce work for the chain, theoretically removing the ability to launch a network attack.
Furthermore, all AM's must go through a rigorous interview process, pass KYC regulations, own sufficient collateral, as well as prove they can maintain a minimum server performance according to these specifications.
So while there is nothing hard-coded in PoA that prevents rogue actors, it's in every actor's best economic interest to behave accordingly (similar to how expensive it is to 51% Bitcoin).
VeChain acknowledges that economic incentives are not enough and are testing some algorithmic models to be implemented in PoA 2.0 that algorithmically mitigate these kinds of rogue actor events.
Spam is economically discouraged as transactions require VTHO (similar to gas for ETH transactions) and you must be holding VET to generate VTHO. Each VET you hold generates a daily amount of VTHO and as transactions increase, VTHO costs would increase, making it very expensive to artificially flood the blockchain with transactions for a sustained period of time.
A bug bounty program is available, offering anywhere from $3,000 to $10,000 per bug reported.
Additionally, it should be noted VeChain was originally an ERC-20 token prior to launching its own blockchain. Code from Ethereum was borrowed with even the VeChain genesis block offering homage to Ethereum. Various NFT and tokenization VeChain Improvement Protocols (VIP) have also taken inspiration from Ethereum. Therefore, VeChain may share some security concerns that overlap with Ethereum.
In a one-off event in December 2019, an attacker stole 1.16 billion VET tokens from the VeChain Foundation. In statements following the theft, the VeChain Foundation stated that a “buyback address” was targeted and attributed the success of the hack to their own negligence and inadequate security practices.
