The DeFi landscape has exploded in recent years with most of the action taking place on Ethereum. However as network usage has grown, Ethereum has struggled to scale.
The Qtum blockchain provides a scalable alternative with the DeFi capabilities of Ethereum and the security of Bitcoin.
What is Qtum?
Qtum (pronounced quantum) is a Decentralized Application (dApp) blockchain platform that combines the security of Bitcoin and the smart contract functionality of Ethereum. It is a scalable network designed for large scale usage with a high transaction throughput and low fees.
Qtum provides a scalable alternative that is Ethereum compatible and uses a Proof-of-Stake consensus mechanism. Qtum also uses the base code of Bitcoin which prevents double-spending. Qtum aims to attract large organizations and it has had partnerships with Amazon Web Services and Google Cloud Platform.
Qtum has a native token, QTUM. The QTUM token is used as a staking token in the consensus mechanism and to pay transaction fees on the Qtum network. QTUM also gives the holder voting rights to take part in the on-chain governance system.
Qtum was launched by Patrick Dai and the Qtum Foundation in 2017 with an Initial Coin Offering that raised $15 million. The ICO sold 51% of the issued 100 million QTUM, 29% was reserved for platform development and the remainder was distributed to investors and the founding team.
Like Bitcoin, tokens are minted with the mining of new blocks. Every four years the amount of tokens issued is halved to manage inflation and make the supply finite.
Qtum Use Case: Staking QTUM Tokens
Every blockchain has a way of processing and validating transactions and blocks securely called a consensus mechanism. Bitcoin and Ethereum currently use a Proof-of-Work consensus mechanism although Ethereum will be changing to Proof-of-Stake.
In Proof-of-Work (PoW) systems, nodes or miners have to solve complex mathematical problems using a huge amount of energy and specialized equipment to mine and validate transaction blocks. The resources needed has made it difficult to scale the throughput of these blockchains.
Rather than using the computation-intensive Proof-of-Work consensus mechanism, Qtum uses a form of Proof-Of-Stake. Proof-of-Stake (PoS) involves users staking or locking their tokens for a period of time as a guarantee to become validating nodes who ensure the security of the network.
Nodes can have their tokens burnt in the case of dishonest or malicious behavior. Nodes receive rewards for validating a block of transactions (block rewards).
Qtum uses a variation of PoS called Mutualized Proof-of-Stake. QTUM token holders stake their QTUM to be eligible to take part in the validation of blocks. Tokens must be staked for a period of time (2000 blocks) before the holder is eligible.
There is no minimum amount of tokens that need to be staked. Any QTUM coin holder can operate a node which encourages high user participation and increases the decentralization of the network. However, the probability of being chosen to validate a block and earning rewards is based on the amount of tokens staked.
Once a block is validated the block reward is issued which is a mix of newly minted QTUM tokens and gas fees paid in QTUM tokens. In this form of PoS, rewards are split between the node chosen and the nine previous nodes. This is a security feature designed to prevent the targeting of nodes by hackers.
The MPoS consensus mechanism allows the Qtum network to process a large amount of transactions and deal with scaling issues. QTUM token holders can participate in validating transactions and receive QTUM tokens in exchange as a reward.
Qtum Use Case: Smart Contracts and Gas Fees
Two of Qtum’s main selling points are its smart contract capability and network scalability. Qtum users benefit from the underlying security of the base code that is taken from Bitcoin but have access to the wide world of DeFi.
And unlike Bitcoin or Ethereum which have faced major network congestion issues, Qtum is designed to be scalable. The network can theoretically handle 70 transactions per second. The QTUM token is used to pay for transactions and access the DeFi services built onto the Qtum platform.
Qtum users and developers can create smart contracts on the Qtum network. They can be used to carry out transactions or agreements without a third party or to build Decentralized Applications (dApps). A dApp is essentially an application that interacts with the blockchain using smart contracts.
QTUM: A Ticket to DeFi
Smart contracts and dApps are the backbone of the DeFi industry. Decentralized exchanges (DEXs), lending platforms, marketplaces and Decentralized Autonomous Organizations (DAOs) are examples of dApps that are found across the cryptocurrency landscape.
To use smart contracts or dApps on Qtum, every user must pay a transaction or “gas” fee in QTUM tokens. The fee is calculated by the estimated computational resources needed to execute the smart contract transaction. These gas fees go to the nodes validating the network in the MPoS consensus mechanism.
As the network is much more scalable than Ethereum, the gas fees are considerably lower. Qtum is also compatible with Ethereum and can migrate smart contracts to the Qtum blockchain from Ethereum.
QTUM token holders can access a wide range of DeFi services on both Ethereum and Qtum while only paying a small amount of QTUM tokens. Qtum already has a DEX, QiSwap and there are stablecoins like QuickCash built on to the platform as well as many other DeFi applications.
Qtum Use Case: Governance Using QTUM
Qtum uses a combination of off-chain and on-chain governance to avoid hard forks but still have a clear roadmap created by the Qtum team. The native token, QTUM, is used as a governance token and gives the holder voting rights on changing some of the blockchain parameters.
In off-chain governance discussions and decisions are made away from the blockchain using specific forums, portals or by the development team behind the blockchain.
While this helps a blockchain stick to a clear path, it can also lead to disagreements between the community and the team behind the blockchain. Sometimes a large section of the community will disagree with the plans for the network and a hard fork will occur.
In a hard fork, the blockchain essentially splits into two blockchains with different code. The original blockchain will continue along the planned road map but a portion will split off and become a new blockchain with different protocols and a new separate cryptocurrency.
Hard forks leads to market volatility and price crashes. This has happened to the Bitcoin blockchain several times; notably the Bitcoin Cash hard fork of 2017.
To avoid this, many blockchains have implemented on-chain decentralized governance. With on-chain governance, changes are not decided by a core group of developers.
Each token holder is able discuss proposals and cast votes and once a majority reaches a consensus the proposed change is implemented directly on to the code of the blockchain. This self-amending protocol allows for collective decisions and prevents hard forks.
The main drawback of this method is that a consensus may not be reached which can cause the platform to stagnate. Also many users do not take part in governance or else vote with the flow. This can lead to decisions being made by a central core group.
Qtum: A On-Chain and Off-Chain Governance Hybrid Model
Qtum has tried to tackle the problems faced by both governance models by combining them. QTUM token holders can vote on changes to some of the blockchain settings. This allows the block size, gas fees and other blockchain parameters to be changed on-chain without the risk of hard forks.
The on-chain governance system in Qtum is called the Decentralized Governance Protocol. Users can submit proposals for review and discussion and all token holders can vote on whether or not they support the change.
Voting rights are based on the amount of QTUM tokens held. If the proposed change is accepted, the DGP will implement these changes automatically without needing a hard fork.
Major code changes and more significant protocol decisions are carried out by the Qtum team. This may make the Qtum blockchain more attractive to enterprises who like the stability of a core team making decisions.
However, the average Qtum user may wish for a more decentralized system. There are many other blockchains out there which run a more decentralized and fully on-chain governance model and have grown a passionate community as a result. These include Decred, Tezos and THORChain.
QTUM Going Forward
The Qtum blockchain project has claimed to be the bridge between Bitcoin and Ethereum and has combined their blockchain technology. The Qtum Foundation has shown themselves to be passionate about improving and developing the Qtum network. There have been many scaling updates and network improvements made.
In May 2021 the Qtum Chain Foundation announced that their primary focus would be DeFi. This could potentially set Qtum up to be a major player in the growing DeFi landscape.
The QTUM token is used as a gas token similar to Ethereum and users can also generate income by staking their QTUM tokens. The coin is a governance token but with little scope in terms of what decisions the holder can partake in. While the token has decreased in value from its May 2021 high of $35 to around $6 at the time of writing, the Qtum network has some potential.