Ethereum has gained a place as the dominant DeFi chain globally. However, many users have been priced out of the blockchain due to high fees and network congestion.
Harmony has positioned itself as an innovative blockchain capable of handling the high traffic of the cryptocurrency landscape today.
What is Harmony?
Harmony is an open-source, highly scalable blockchain platform for building decentralized applications (dApps). It is a Layer-1 chain built on top of the Ethereum blockchain. It is designed to tackle the current scalability issues that Ethereum is facing, using sharding and a unique Effective Proof-of-Stake consensus mechanism.
Ethereum has seen huge growth in network usage and dApps on its network. However with this success, the Ethereum network has become congested and transactions can face long delays before they settle. There can be high gas fees depending on market value and congestion and users who wish to speed up the transaction must pay higher fees. This has led to some people being hesitant to use the network until it has better scalability.
Harmony has focused on becoming a scalable and secure platform for dApps and transactions with Ethereum interoperability. To achieve scalability, Harmony uses sharding, a technique which allows the blockchain to process multiple transactions in parallel. This vastly decreases the amount of time it takes to produce and verify a block.
What is the ONE Token?
The native token, ONE, underpins the Harmony ecosystem. The ONE coin is used within the Effective Proof-of-Stake consensus mechanism and governance. It is also used to pay transaction fees and provide an option for fast and efficient payments.
There is a maximum supply of 12.6 billion tokens. 441 million tokens are issued annually but the emissions rate will decrease to zero as network usage grows. This is designed to deal with any inflationary issues.
Harmony was developed in 2018 by Stephen Tse (founder of Spotsetter and with experience working at Google, Apple and Microsoft). The EVM-compatible blockchain was launched the following year in 2019.
Harmony had an initial seeding round in 2018 that raised $18.3 million and distributed 22.4% of the total supply. The project also had an Initial Exchange Offering (IEO) on Binance that raised $5 million and issued 12.5% of the token supply. 16% of tokens went to the development team.
Harmony Use Case: Staking
When designing the consensus mechanism, Harmony wanted to provide for network growth by making the system scalable. This means having the ability to process a huge volume of transactions quickly and efficiently.
While Ethereum has seen huge growth as a platform it is currently limited by its ability to scale. The network has become congested with transaction validation taking hours or even days to clear. This is due to transactions being processed one-by-one and the consensus method used to validate blocks.
Harmony combines sharding technology with a unique variation of the Proof-of-Stake (PoS) consensus algorithm to streamline the consensus process and enable the network to handle a large amount of transactions. Harmony uses a consensus mechanism called Effective Proof-of-Stake (EPoS).
With EPoS, ONE token holders stake their tokens for the opportunity to propose and confirm blocks. To become a validator or a node, a user must stake a minimum of 10,000 ONE. Assignment of nodes is carried out randomly with a higher probability of being chosen the more tokens staked. There can be up to 1,600 nodes running on the network.
Rewards are divided evenly amongst the nodes rather than based on the amount staked. This is to avoid centralization of rewards and resources in a handful of nodes. Malicious or dishonest validating results in a portion of the staked tokens being burnt as a disincentive. Inactive validators will also be removed from the network.
Users who do not have the required tokens or resources to run a node can delegate their tokens to a validator’s pool. They can receive a portion of the block rewards in return. This allows every ONE token holder to partake in the staking process and earn ONE tokens as rewards.
Harmony uses a technique called sharding which partitions a blockchain into sections that process transactions in parallel. Harmony runs four shards and the nodes are separated into the four shards. This means rather than every node having to process all the transactions, four sets of nodes can validate blocks concurrently. Harmony can handle a high transaction throughput this way.
Most sharding techniques are used on Proof-of-Work blockchains and as such are much more energy intensive than Harmony and have scaling issues. The combination of EPoS and sharding increases the scaling of the network and the speed at which rewards can be earned. Over 35% of ONE tokens are staked due to the incentives provided by the Harmony network.
Harmony Use Case: Transaction Fees
The Harmony network uses ONE tokens to power the transactions on the platform. Users pay a small fee in ONE tokens to conduct business on the network. This is similar to the gas fee in Ethereum but is kept much lower by the lack of network congestion and the scalability of the blockchain.
Fees can be as low as 0.000000001 ONE as a result. According to Harmony, average transactions cost 0.000021 ONE or about $0.000001. These tokens are then burnt. As network usage grows it will eventually equal the amount of tokens issued which can manage inflation in the network.
Harmony Use Case: Payments Using ONE Token
Harmony has designed itself to be a viable option for secure, fast and cheap transactions. With many blockchain networks transaction times can be lengthy due to the consensus mechanisms used. Bitcoin is one of the slowest and a transaction can take between 10 minutes to almost an hour to process. Ethereum can take 15 minutes to several hours due to network congestion.
In comparison, Harmony transactions take only a few seconds and fees are much lower. Many businesses and individuals who wish to use cryptocurrency may find using ONE tokens for transactions attractive as they will not have to wait for their transaction to settle.
Harmony can also be an alternative to fiat currency-based transactions. Traditional banking institutions are limited by location and bureaucracy. To send money using banks can take days and incur high fees.
If you wish to send $10,000 to someone across the globe on a weekend or bank holiday, this can take days and the banks on either side may charge highly for the transaction. Doing this using ONE tokens would result in the transaction clearing within seconds and the fees incurred would be extremely low.
Ease of Transactions
For many people globally their primary access to the internet is through mobile. Online traditional banking and much of the internet traffic conducted by mobile. This can make it hard for users to access cryptocurrency features as they are often only desktop accessible.
Harmony plans to made online transactions easier with their mobile wallet, 1Wallet. This allows users with little crypto experience to send transfers easily and through their phone. Users can buy ONE tokens using credit cards providing an entry point into the world of cryptocurrency.
Harmony Use Case: Governance
Harmony has a governance system where ONE token holders can submit proposals and vote on network changes. Any token holder who has staked tokens to become a validator can take part in governance. Voting power is equal to the amount of ONE tokens staked.
Any validators elected to take part in processing transactions can create and submit proposals. Both elected validators or other validators who have staked tokens can vote on these proposals.
Proposals are open for viewing and discussion for 7 days after which the voting period starts. This period lasts for 14 days and once 66% of all tokens staked have taken part the vote is considered successful.
Users who do not have enough tokens to stake as a validator and take part directly in governance can delegate their tokens and voting power to a node they agree with. This allows all token holders to have some power in deciding the direction of the Harmony network.
Harmony and the ONE Token
By focusing on the scaling issues Ethereum faces while working within the Ethereum Virtual Machine, Harmony has attracted a solid user base of new investors and Ethereum users. Harmony is also one of the first PoS blockchains to utilize sharding securely and effectively. It has become an attractive platform for creating decentralized applications that need a robust and scalable network.
The ONE token can be used easily and cheaply to transfer money online and pay for goods and services. ONE token holders can earn more tokens by participating in staking. ONE tokens can also be used to take part in the governance of the platform. While the user base is smaller than Ethereum, Harmony positions itself as complementary to the blockchain rather than as competition.