Welcome to this weeks Just The Metrics

Hey Crypto Friend,

I hope this finds you well and that we can sweeten your Sunday with

Just The Metrics - your newsletter with the latest updates from the Cryptoverse, Crypto Metrics, L1 Comparisons, and all about Cardano.

This week we will dig into Elrond and answer the question:

Is Elrond a solid L1?

Side fact: the ticker of Elrond is EGLD, standing for eGOLD.

But is this what Elrond really is? 🤔

Curious?

Ok, let's dig in!

Elrond

An Fundamental Analysis based on the Blockchain Trilemma

Just The Metrics

Your Weekly Newsletter explaining Layer 1 Blockchain Metrics. So that you save hours of research 😉

The Background

The Team

First, if you wonder about the name and might think: "This seems familiar from a famous book and movie trilogy". 🤔 Yes, you are right, Elrond is named after a character in Lord of the Rings.

So who is the core team behind Elrond?

• Elrond is built by a team of entrepreneurs - Beniamin Mincu, Lucian Todea & Lucian Mincu - along with 13 engineers and researchers who have worked at various tech companies, such as Microsoft, Google, Intel, and NTT DATA, and have experience working with blockchain platforms.

The ICO

• Elrond had an Early Token Distribution which initially issued tokens under the ERD ticker on both the Ethereum and Binance DEX blockchains. A total of 20 billion ERD was initially distributed on Jul. 4, 2019, which is now equal to 20 million EGLD.

• In June 2019, Elrond closed a private investment round, raising $1.9 million from Binance Labs, Electric Capital, NGC Partners, Maven 11, and Woodstock.

• In July 2019 Elrond raises $3.25 million with a crowd sale round.

The Consensus Mechanism

• Elrond uses a Proof-of-Stake (PoS) variation it calls Secure Proof-of-Stake (SPoS).

• SPoS is effectively partitioning the blockchain and account state into multiple shards, handled in parallel by different participating validators.

• It can maintain a high level of security and eliminate computational waste with random consensus group selection.

• Like other PoS methods, SPoS selects validator nodes for consensus based on the number of native tokens staked (in this case, EGLD) by their operators.

• Additionally, each validator has an individual rating score that is taken into account

The Accounting Model

• Elrond uses an account-based model.

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So, once we have understood the general setup, let's look at our well-known Assessment Framework comparing Elrond to Cardano and their performance in the 3 dimensions of the blockchain trilemma.

1. Decentralisation

2. Scalability

3. Security

So here is the Blockchain Trilemma as Assessment Framework

Let's take a look at certain metrics of Elrond that determine its degree of

• Security

• Scalability &

• Decentralization

General Decentralization Metrics:

Initial Token Distribution

• Elrond had an initial Token distribution with a combined 68% going towards insiders and the foundation.

• 25% was allocated to retail investors through an initial exchange offering (IEO) through Binance Launchpad in July 2019.

• 7% was allocated to Ecosystem rewards.

The number of individual staked wallets & staking ratio:

• Elrond has 136,441 unique staked wallets with a staking ratio of 62%.

• In this metric, Elrond is lagging way behind Cardano in this metric. The number of individual staked wallets ranges somewhere between the numbers shown by Cosmos and NEAR Protocol.

Permissioned vs Permissionless Mode (Yes/No):

• Elrond has no permissioned modes.

The total number of active validator nodes/relay nodes/stake pools:

• Active Validator nodes: 3200. With this high amount of active validators participating in the network, Elrond is approaching the validator distribution range of top-ranked blockchain networks.

• Around 1058 entities are operating the 3200 nodes.

• Currently, there are 800 nodes per shard and metachain with a total number of 3200.

• The level of validator distribution is almost at the same level as Cardano.

• But like every metric, it should not be viewed in isolation. You have to overlap this metric with the initial token distribution.

• At the end of the day, in a PoS system, power lies in the person who has the most stake in the system, and for Elrond, insiders hold the most stake in the system.

Factors Enabling Decentralization:

Size of a full node: 

• We could not find any source pointing towards the current size Elrond blockchain.

Minimum hardware & connectivity requirements for running a validator node:

• CPU: 4 x dedicated/physical CPUs, either Intel or AMD

• RAM: 8 GB RAM

• Storage: 200 GB SSD

• Connectivity: 100 Mbit/s always-on internet connection, at least 4 TB/month data plan

• Monetary requirement: Each node needs to stake a minimum of 2500 EGLD (USD 143000) to become a Validator

These are relatively high system requirements for running a validator node, which goes against the ethos of inclusive accountability.

General Security Metrics:

Cost of 51% attacks:

• For an attacker to control 51% of the Elrond Network, it will cost over 693 million USD, not factoring in the price appreciation that will occur with a buyer trying to purchase that much EGLD.

Vulnerability to denial-of-service (DoS) and distributed denial-of-service (DDoS) attacks:

• Since it's mainnet launch July 2020, Elrond has neither shown any severe vulnerabilities nor suffered any severe attacks.

Propagation network types (a peer-to-peer propagation network or a relay propagation)

• Elrond network is based on relay node propagation.

• The relay nodes are known as observer nodes which propagate the transaction throughout the network.

Factors Enabling Security:

Full Node/Partial Node Ratio:

• Considering the high requirements to run a validator node and the high throughput of the chain, the size of Elrond blockchain must be increasing rapidly day by day.

• This makes it more and more difficult for regular users to host a full node, resulting in a low full node-to-partial node ratio.

Client Diversity:

• Elrond has clients including Rust, Go

General Scalability Metrics:

Transaction throughput:

• Elrond can process upwards of 15,000 transactions per second, at a cost of only one cent per transaction.

• To put Elrond’s throughput in perspective: the Bitcoin network can confirm an average of 7 transactions per second (TPS);

Transaction latency & finality time:

• In the case of Elrond, transaction finality can be divided into intra- and cross-shard finality.

• Intra-shard transaction finality is around 27 seconds.

• Cross-shard transactions may take up to 51 sec to finalize.

Active Layer 2s (rollups/state channels):

• There are no active rollups or state channels in the Elrond ecosystem.

• Elrond introduces a state sharding scheme called Adaptive State Sharding, which is a dynamic model that allows the network to adapt to demand changes.

• It was designed from the ground up and is combining network sharding, transaction sharding and state sharding.

• Elrond focuses on linear scalability, meaning that the scalability of the network is designed to grow with the number of shards (and nodes) in the network.

Factors Enabling Scalability:

Status of data availability that enables rollups:

• Theoretically, it should be possible to implement rollups on Elrond.

So what does now the overall verdict look like:

Decentralization: low-moderate.

Security: High

Scalability: High

• With its adaptive state sharding and secure proof of stake protocols, Elrond brings an exciting approach to blockchain scalability, featuring very high transaction speeds and throughput numbers.

• Elrond does a great job in deploying a very high number of validator nodes and building a secure network, but in a PoS-based blockchain, the influence over the system ultimately lies in the hands of stakeholders.

• The initial token distribution of Elrond is very centralized, which gives a few people an overwhelming influence over the system.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.