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Elrond: How the Platform Works and What Beginners Need to Know

Cryptocurrencies are helping build a new digital economy centered around blockchain technology. Decentralization makes financial services accessible, fast, and confidential. The platforms that came first “sowed the seed” for the growth of a decentralized ecosystem, but were far from perfect. Newer crypto projects have focused on solving the main problems of legacy blockchains: low bandwidth and, as a result, low transaction speed, high fees, and poor network scalability.

Another problem facing distributed platforms is the lack of compatibility between blockchains, or in other words, lack of interoperability. Users can easily transfer and convert tokens within one platform, but to transfer tokens to another platform they are forced to use intermediaries (crypto exchanges).

Elrond (EGLD) is one platform that addresses these and other problems. This project will be discussed today in this article. Read on to find out what Elrond is, how the platform works, and what EGLD tokens are used for.

What is Elrond

This high throughput is achieved through sharding: the network is divided into several interconnected shards that can work in parallel to each other. This increases the performance and speed of transactions. The same principle is implemented in the ETH 2.0 update, but sharding is already working in Elrond.

Elrond is based on Secure Proof-of-Stake or SPoS consensus mechanism. The network is supported by validators, of which there are now more than 2169. There will be more information about who validators are and how they are chosen in Elrond in the next section. Any user can become network validators or delegate EGLD tokens issued on the Elrond blockchain, and this comes with a reward.

What is Proof-of-Stake

Although the goal is the same for both consensus algorithms, the methods for achieving them are different. PoS has several key differences:

  1. To add new blocks, you need to reserve a certain amount of coins instead of buying expensive equipment.
  2. Typically, coins are issued in advance and users are rewarded using fees that users pay for transactions.
  3. In PoS, validators cooperate with each other, rather than competing for the right to mine a new block.
  4. New blocks are added by validators, not miners. Therefore, the process is somewhat different from the usual PoW concept. This approach is not called mining but forging, since mining involves the production of new coins.

Who are validators

Typically, the validators that will process the next block are chosen pseudo-randomly, but the choice is influenced by several factors, such as the age of the stake, the state (health) of the node, and the amount of staked tokens. Therefore, the more coins a node has staked, the higher its chances of becoming a validator of a new block will be. But on the condition that the node works almost flawlessly. Otherwise, the validator will be charged with fines that can be hundreds or thousands of times higher than the reward, or they will fail. This is necessary to protect the network and make attacks unprofitable.

In the Elrond network, the network is divided into segments, the number of which depends on the number of validators. The blockchain is designed in such a way as to provide the required number of segments, depending on the need for transactions. Therefore, the network is designed for a drastic increase in transactions: in this case, new validators will be connected, and the blockchain will not be overloaded. Remember how during a certain period on the Ethereum platform due to the rapid growth commissions soared to dozens of dollars, and the transactions themselves were frozen for several hours or were canceled altogether?

To prevent this, Elrond uses the TargetShardLoad method, which aims to keep the shard loading no higher than 50%, taking into account possible spikes in activity. But at the same time the possibility of low congestion is excluded, otherwise maintaining the network will become unprofitable. Elrond also proposed an improved approach called SPoS node negotiation.

Secure Proof of Stake

Unlike classical PoS, the improved mechanism selects node operators in a truly random and unbiased manner. The new source is determined by signing the previous random source generated by the validator. For successful block additions, validators receive Elrond tokens (EGLD).

Where to buy EGLD

Furthermore, you can get EGLD on cryptocurrency exchanges or exchangers. Here is a list of exchanges where tokens are traded:

  • Binance;
  • OKEx;
  • Crypto.com;
  • Bithumb Global;
  • Bitfinex and others.

A complete list of crypto exchanges can be found on the coin page on CoinMarketCap.

Exchanges, unlike exchangers, allow you to buy EGLD tokens at market prices. Exchangers charge a commission, so the price is higher. Therefore, it is most profitable to exchange on exchanges.

Where to store Elrond (EGLD)

  • Elrond Wallet — the original wallet for EGLD;
  • Trust Wallet is a mobile multicurrency wallet with Binance Smart Chain (BSC) support.
  • Ledger Nano S/Nano X is a secure EGLD cold storage hardware wallet.

How to stake Elrond (EGLD)

But ordinary users can delegate tokens to validators, receiving income even from small amounts. Such staking is supported by almost all wallets in which you can store EGLD tokens. Delegates pay a commission to validators, so they get a little less. The commission is set by the validators themselves.

The minimum amount for delegation is 10 EGLD. In addition to the amounts, the profitability is also different: validators receive up to 36% per annum, while delegates receive only 29%. But the amount of income depends on other factors as well. Elrond has two types of delegation: Active and Waiting List Delegation.

The difference between Active and Waiting List Delegation

Currently, users cannot actively delegate because the Elrond network is full of delegator nodes. Therefore, the developers added a wait queue.

When delegating the Waiting List type, the reward is received by all participants who have taken the queue in proportion to the amount of delegated tokens, regardless of any factors. Waiting list delegates receive up to 20% per annum, but their rewards do not depend on the success of their validators.

From December 1, the amount of 5000 EGLDs is distributed to all participants every week on Mondays. If you delegated coins, then you need to keep tokens throughout the cycle. For example, if you withdraw tokens on Sunday, you will lose the reward completely, despite the fact that you were in the queue for the remaining six days. You need to withdraw coins only after distribution in order to receive a reward.

There is one more thing that delegates need to know: withdrawing their coins will not work right away. After the user has withdrawn coins or exited the waiting queue, they will have to wait 10 days before the EGLD tokens are returned to the wallet. As for the Waiting list, the unstaking process is instantaneous.

Elrond will soon have a Phase 3 release, which will alter the token delegation system. First, the number of total nodes will increase, and each validator will be able to stake over 2500 EGLD. Secondly, the delegation process itself will change, and the yield will decrease from 29% to ~20% per annum. In Phase 3, open delegation will be added to the platform, which will be implemented at the protocol level using system smart contracts.

Staking providers (validators) will determine what maximum amounts can be delegated to their users and what the service fee will be, which will allow adapting the conditions for staking for them, and staking will be possible through regular smart contracts, that is, non-systemic ones.

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