Erik Weijers, 2 months ago

What is VeChain?

What better use for blockchain technology than supply chains? Both are chains, right? Maybe that’s what the VeChain team thought to themselves when they launched in 2015. All jokes aside, the company has made strides in creating a platform for the currently siloed space of supply chain data for businesses. 

Since Ethereum is around, the use case of blockchain tech as a tool to track the movement of items through a supply chain, has been touted as a big deal. Why? Supply chain data for business processes are walled gardens across multiple stakeholders. This creates all kinds interface problems. How can everyone be sure they are looking at the same and correct data? How can they improve integration of financial and logistical services, without having to rely on one party?

Enter: VeChain: its blockchain creates tamper-proof records of origin, movement, and authenticity of goods. This can for example be very important for companies and customers who care about ethically and environmentally friendly sourced goods. 

The origin

VeChain was already around as a company before the invention of Ethereum or even Bitcoin. They made a pivot towards blockchain technology and launched in 2015. Their coin started trading in 2017. The company was founded by Sunny Lu, also co-founder of China's largest blockchain technology company, BitSE.

VeChain set itself the goal to build a solution that was more suited to running large-scale commercial decentralized applications. According to VeChain, they can move faster than Ethereum: when the market demands it, they can allow for quick and transparent protocol changes. This has of course the drawdown of being a more centralized ecosystem. 

Tagged with a chip

Imagine the journey of a medication package after it leaves the factory. A chip is tagged onto the package and so, each stage of the journey will be recorded on the VeChain blockchain. Why a blockchain and not a database? Because a database that is owned by any of the involved companies, is more at risk of tampering with. On VeChain, they can all have a peek of what is going on.

Domains where VeChain operates

A few domains that VeChain lists as prominent examples where they provide usage:

  • Sustainability and carbon management solutions
  • Transparent supply chain solutions
  • Smart agriculture solutions
  • Anti-counterfeiting and digitization for luxuries 

Focus on sustainability projects

In their tech roadmap for 2023, VeChain lists a carbon footprint explorer. This could have a place in local energy ecosystems. For example, a neighborhood with connected grid and solar panels, could share their energy. Data about who has produced how much, could be tokenized using smart contracts. These tokens could be exchanged for goods or services, which would incentivize people to generate more solar energy.

Proof-of-authority as consensus mechanism

Unlike Ethereum and most Layer 1’s, VeChain uses Proof-of-authority (PoA) as a consensus mechanism and not proof-of-stake. Whereas in Bitcoin and Ethereum miners/validators put up energy/hardware costs and capital respectively, in VeChain their ‘reputation is at stake’. That is because they are allowed to validate based on their identity: they are not anonymous. This makes the consensus mechanism more closely related to traditional finance than chains like Bitcoin or Ethereum. It is much less decentralized and permissionless.

Two tokens: VET and VTHO

The VeChain ecosystem uses two coins: VeChain Token (VET) and VeChainThor Energy (VTHO). The first coin, VET, is used to create the second token VTHO, and to make payments or remittances to other VeChain users. VTHO is used to settle transaction fees, and for example to cover smart contract development costs. VET is the coin that is mostly traded: it has been a top 50 coin for a long time, whereas VTHO is around 25 times smaller in terms of market cap. 

War chest for 2023 and beyond

In Q3 of 2022, the VeChain Foundation shared that it has a war chest of assets valued at $397 million as of Q3 2022, it can weather any crypto market storm. We'll see if it can generate enough activity to lift the coin price, which collapsed in the bear market of 2022.

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