How does VeChain (VET) work?

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INTRODUCTION

In this subsection of the Leo Finance VeChain Coin Guide, we investigate how VeChain works. To accomplish this task we will look at VeChain in four parts: Real-world technology; Cryptocurrency; the Platform; and, the Consensus mechanism.

VECHAIN'S REAL-WORLD TECHNOLOGY


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By combining IoT with blockchain technology, business can secure the information and maintain data integrity in a transparent manner; which if made compatible with existing Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and/or Warehouse Management Systems (WMS) can help enterprises automate processes and make them more efficient.

[VeChain101. Supply Chain Digitalization and VeChain: Why does IoT & Blockchain make sense for businesses?. (Accessed November 10, 2021).

Specifically, VeChain works by assigning various physical products unique identities by utilizing radio frequency identification (RFID), QR Codes, and/or near-field communication (NFC). Sensors record the identifiers broadcast by these technologies at each stage of supply chain progress and the information acquired is recorded and linked to the product's unique identity.

The Internet-of-Things (IoT) devices used in this process were designed by VeChain and manufactured by companies such as Bosch and Qualcomm. For a comprehensive examination of the various types and styles of devices used click here.

As the information gathered by these devices is entered into blockchain technology, the data so recorded cannot be modified in any way. Using the blockchain allows for totally truthful information concerning what conditions were present as the product moved through the supply chain. Should any problem arise (i.e. products are mis-delivered) the blockchain record is available to display exactly where the error occurred.

VECHAIN'S CRYPTOCURRENCY

VeChain originally issued tokens on the Ethereum blockchain then known as VEN. In 2018, VeChain released its own blockchain platform and rebranded itself as VeChainThor, now known as VET. The VET coin is the payment vehicle used in the VeChain ecosystem and is the coin available for investors.

VET can transfer value across the blockchain and trigger execution of smart contracts. The more VET coinage owned by an individual or entity, the higher rank in priority the individual or entity has to utilize VeChain's blockchain resources.

VeChain is a dual-currency ecosystem. The VET coin may be used to generate the second system token, known as VeThor or Thor Power (VTHO). The VET coin is used to store and transfer value and VTHO is used for blockchain transactions. So for a company to use VeChain's supply chain tracking system the company would have to pay VTHO in order to add information to VeChain's blockchain.

This dual coin design "is intended to isolate the price volatility of VET coin from the cost of computations on the network, allowing applications on VeChain to charge stable fees (since the VTHOR supply can be adjusted to maintain a stable price for transactions)" [Kraken. What is VeChain? (VET). (Accessed November 10, 2021).

VECHAIN'S PLATFORM

The platform used to accomplish all of the above is known as the VeChain Mainnet. The VeChain Mainnet may also be used by other blockchain projects to launch their own protocols and issue their own coin. It has been the expansion of the VeChain platform that has permitted VeChain to move beyond supply chain solutions allowing it to expand into other Decentralized Applications and Non-Fungible Tokens.

VECHAIN'S CONSENSUS MECHANISM

As a direct result of the very nature of VeChain's business, it is necessary for it's blockchain to deliver secure and timely consensus. To accomplish this VeChain has introduced a unique proprietary consensus mechanism known as Proof-of-Authority (PoA). This PoA mechanism was built intending to improve upon PoW, PoS, and DPoS consensus strategies. The PoA system uses less energy than the other mechanisms and does not require communication between nodes to reach consensus.

VeChain relies on 101 Authority Masternodes to reach consensus.

To be an Authority Masternode (AM), the individual or entity voluntarily discloses who they are (identity and reputation by extension) to the VeChain Foundation in exchange for the right to validate and produce blocks. It is their identities and reputations placed at stake that give all the AMs additional incentives to behave and keep the network secure. In VeChainThor, each AM has to go through a strict know-your-customer (KYC) procedure and satisfy the minimum requirements set by the Foundation.

[VeChain Docs. Proof of Authority. (Accessed November 10, 2021).

Accordingly, there are no anonymous nodes in the VeChain network. Both KYC and AML identification is required to validate blocks in this system. This follows the underlying design philosophy of the VeChain developers concerning governance to wit: "neither a total centralization nor a total decentralization would be the correct answer, but a compromise from and balance of both would" [Id.].

The last word on this consensus mechanism is that it exhibits both advantages and disadvantages.

While using a PoA mechanism helps process large transaction volumes rapidly, the disadvantage of its approach is that it relies on a central authority to check and authorize users who can take part in processing transactions.

[Kraken, supra.].

CONCLUSION

VeChain clearly demonstrates that as the blockchain matures, it is becoming much more than simply cryptocurrency. Platforms integrating blockchain with other developing technologies are expanding disruption of the status quo and increasing efficiency in the process.

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