Ethereum is the most popular blockchain out there but scaling issues continue to plague the platform. Users have been faced with huge fees and long delays causing frustration and concerns over the future of the network.
The OMG Network was developed as a solution that allowed users to take part in the Ethereum Virtual Machine but with low fees and quick transaction times.
What is the OMG Network?
The OMG Network is an open-source, Layer 2 blockchain protocol built on top of the Ethereum blockchain. It is designed to provide scalability to the Ethereum network and create a platform for quick and cheap transactions. It essentially allows Ethereum transactions to be processed off the Ethereum network, speeding up the transaction time immensely.
Ethereum is one of the largest blockchain platforms currently in the market. With smart contract capability and DeFi services, it has quickly gained a large user base. However, as network usage has grown the Ethereum network has become extremely congested. This has resulted in high transaction fees and long delays.
The OMG Network is a scaling solution for the Ethereum blockchain. As a Layer-2 solution it uses Plasma technology to allow transactions to be processed on the OMG Network blockchain which frees up the Ethereum blockchain. It allows developers to make use of the Ethereum platform while being able to create scalable dApps. Users can take advantage of the lower fees and high transaction speeds.
The OMG Token
The OMG Network is powered by the native cryptocurrency, the OMG token. This ERC-20 token is used within the network as a staking coin and for transaction fees, similar to the gas fees of Ethereum. The token has a capped maximum supply of 140 million OMG tokens.
All tokens were minted at launch of the network with 65% of tokens going to investors in the Initial Coin Offering. 5% were airdropped to Ethereum users to attract users to the network. 10% were distributed amongst the OmiseGO team with the remaining 20% placed in the blockchain reserves.
The OMG Network (formerly OmiseGO) was founded in Thailand by Jun Hasegawa and Donnie Harinsut. One of its developers, Joseph Poon, developed Plasma alongside Vitalik Buterin, creator of Ethereum. Plasm is one of the core underlying technologies of the OMG Network blockchain.
OmiseGO held an Initial Coin Offering (ICO) in 2017 that raised $25 million. In 2020, Harmony was acquired by Genesis Block Ventures, a Hong Kong trading firm which allowed them to expand the network. The team behind OmiseGo rebranded into the OMG Foundation.
In 2021, the OMG Foundation and Enya announced a partnership to further develop Layer-2 scaling protocols for the Ethereum network and the blockchain industry. Enya is launching a new Layer-2 scaling solution to Ethereum called the Boba Network. This network will be the new focus of the OMG team and OMG tokens can be exchanged on a 1:1 basis. As a result, the OMG token will have little future use but can still be used within the OMG Plasma Network.
OMG Network Use Case: Transaction and dApps
Ethereum has become the chosen smart contract platform for many users. However with the surge in popularity, the network has faced huge congestion problems. Transactions on Ethereum are designed to go through in 10-20 seconds.
However, with high network usage there can become a backlog of transactions as the network cannot deal with the high traffic volume.Transactions can take hours or even days to settle.
Gas fees increase as the network faces a high demand. Users can pay a higher-priced gas fee to have their transaction cleared. This leads to huge spikes as users outbid each other to speed up their transactions. As a result, Ethereum users face long delays and high transaction costs.
The OMG Network provides a low cost and high speed solution to this problem. OMG can process thousands of transactions per second using Plasma technology and a Proof-of-Stake consensus mechanism.
Transaction fees are much lower than Ethereum and are paid in the native OMG token. Transactions can be carried out using any ERC-20 token but fees are always in OMG tokens. This means any user of the OMG platform must hold OMG tokens.
dApps on the OMG Platform
The OMG Network is extremely attractive to dApp (decentralized applications) developers who currently might not be able to afford the gas fees on Ethereum due to network congestion. dApp developers have recognised the need for scaling transactions as dApp usage grows. As more and more people use a popular dApp, unless the dApp and the network can deal with the traffic, the dApp may crash or be unusable.
This has lead to a growth in dApps created on the OMG platform as developers and users take advantage of the scaling capabilities and low costs. Developers who wish to create popular dApps will gravitate towards platforms which can handle the high transaction throughput needed.
OMG Network Use Case: Staking
The OMG token is used for staking on the OMG Network’s Proof-of-Stake consensus mechanism. OMG token holders have to stake a minimum amount of coins to become eligible to take part in verifying transactions. The staked tokens are locked for a period of time and users who withdraw their tokens early will have to wait an unbinding period.
Transactions on the OMG Network are handled using Plasma technology. This processes transactions on a child chain and then compresses transactions into bundles that are then confirmed on Ethereum and added to the Ethereum root chain.
This allows OMG to handle thousands of transactions per second. Gas fees are paid on the compressed transaction which lowers the cost of the transaction. Fees are kept at one-third of the Ethereum costs.
One Operator node adds blocks to the OMG Network blockchain. Any other users who have staked tokens are known as Watchers and they ensure honest behavior and monitor the system for malicious activity. They oversee the block production of the Operator node.
Stakers who act honestly are incentivized by OMG token rewards. Rewards stem from the transaction fees paid by any user on the network. Any malicious activity can be punished by burning staked tokens.
Transaction fees are distributed to Watchers proportionally based on the amount of OMG tokens staked. The more OMG tokens held the higher rewards a Watcher will receive.
OMG Network Use Case: The Boba Network
The OMG Foundation and its partner, Enya, have announced the launch of a new Layer-2 scaling solution for the Ethereum network. The Boba network will have its own native token BOBA which will be used for transaction fees and staking as in the OMG Network. It will also be used within the Boba DAO (Decentralized Autonomous Organization) as a governance token.
While the OMG Network blockchain will still be online, the OMG Foundation will be focusing on developing the new Boba Network. This has led to the OMG token decreasing in value as users start to migrate to the new network. Many users consider this to be the end of the OMG Network though there are always users who will continue to hold the coin.
To incentivize migration, the Boba Network airdropped BOBA tokens to any OMG token holders. They took a snapshot of token distribution on November 12, 2021 and gave holders BOBA tokens based on the amount of OMG tokens held.
The leadup to the snapshot saw a spike in the value of OMG as users were quick to capitalize on the possibility of earning free tokens. However after the airdrop the price has crashed.
The Future of OMG
The team behind OMG have decided to focus solely on the Boba Network currently. Time will see if the OMG Network blockchain remains useful or becomes a dead cryptocurrency. The OMG network has been successful as a scaling solution for Ethereum and the OMG token underpins the OMG ecosystem.
The OMG token is used for staking and gas fees within the OMG platform. OMG and Ethereum users have enjoyed faster and cheaper transactions within the Ethereum Virtual Machine.
However, the arrival of the Boba Network means the token may soon have little to no value. As many users migrate to the new Boba network, the value of the OMG token looks set to decrease.