What is OmiseGO? | The Ultimate Beginner’s Guide
In this beginner’s guide, we will dive into the following topics:
- What is OmiseGO?
- OmiseGO Team and History
- Features of OmiseGO
- Proof of Stake (PoS)
- Buying and Storing OMG
OmiseGo is a project started by Omise, a Thai company that created one of Southeast Asia’s leading payment gateway services similar to US based platforms like Zelle, Paypal and Venmo. From its establishment in 2015, OmiseGO and its team of blockchain developers have been working with the Ethereum community to solve a number of perceived financial coordination problems prevalent in the world’s payment processors.
OmiseGO, often identified by its native currency, OMG, is an ERC20 token. ERC stands for Ethereum Request for Comments and the 20 is the proposal ID number. What this means is that OmiseGO is essentially a blockchain within a blockchain as it piggybacks on the Ethereum network.
OMG makes use of the Ethereum network for its operating processes, but it is also developing a symbiotic relationship with the network by acting as a scaling solution. Scaling is Ethereum’s biggest challenge at the time of this writing.
The primary function of the OMG network is to act as a decentralized exchange (DEX) platform. The OMG DEX is a publicly distributed system that enables peer-to-peer transactions that are not limited to OMG tokens. The DEX is secured by Ethereum and built to enable payments, trades, and other financial transactions in both crypto and fiat currencies.
Despite originating under a for-profit company, neither Omise nor OmiseGO will ever own or hold undue influence over the network. Decentralization is the key goal of this project and its creators.
OmiseGO was first started in 2015 by Jun Hasegawa and Donnie Harinsut, the founders of Omise, a peer-to-peer payment system introduced in 2013, in Bangkok, Thailand. With a strong background in traditional payment networks, the two were able to identify weaknesses that newly introduced blockchain technologies would be able to solve.
Between 2015 and 2017, the Omise Blockchain Lab carried out significant research and development on the OmiseGO system. In 2017, the team decided to undergo an initial coin offering (ICO) with a goal of raising $25 million dollars.
Typically in an ICO, a project will have pre-mined tokens available for sale to distribute the currency to the market so that it can be immediately used or traded. Since OMG is an ERC20 token, it is not mined like other cryptocurrencies, like Bitcoin. OMG tokens were created all at once and distributed as follows:
- 65.1% of OMG were sold in the ICO
- 5% were airdropped to individuals with a certain amount of ETH in their wallets
- 20% were held in reserve by a smart contract function for OmiseGO to be used for future project costs
- 9.9% were reserved for team members and key contributors who led to actual project implementations. These funds are locked in a smart contract for 1 year.
This distribution of tokens quickly reached the $25 million fundraising mark with little marketing or fanfare. It is estimated that the team could have earned over $100 million had they taken a more aggressive marketing strategy. OmiseGO had this to say about that fact:
“We wanted as many people as possible to be able to participate, without taking more money than we thought we needed. We thought we needed $25 million to create and launch the network, and we felt that taking more than that would be irresponsible. We wanted people to buy in because they believed in the long-term vision, so we intentionally did no marketing or promotion, including not offering discounts to incentivize people to buy more tokens” – OmiseGO Official Guide
In addition to the day-to-day team of developers, OmiseGO has prominent advisors in two of the co-founders of Ethereum: Vitalik Buterin and Gavin Wood. OMG is the only coin/token to be openly backed by Buterin. His thoughts are summed up in this tweet:
Omise has also been recognized by Thai Prime Minister Prayut Chan-o-cha and has received endorsement by the Bank of Thailand and the Thai Ministry of Finance.
OmiseGO is one of Ethereum’s most promising decentralized applications, or DAPPs, and consists of several layers. The most important aspects of OMG are the decentralized exchange (DEX), white-label wallet software development kit (SDK), and OMG’s scalability mechanism.
The DEX of OMG is a scalable publicly distributed proof of stake blockchain. We’ll cover proof of stake in greater depth later in this guide, but in short, proof of stake is a consensus validation system that allows those holding tokens to vote on transactions to determine their validity. OMG stakeholders collectively make decisions on how the DEX operates regarding its fees and operating functions.
The DEX will be able to interact with Bitcoin or other similar blockchain platforms through clearing houses and smart contracts built into the system’s architecture. This enables complex transactions such as fiat to cryptocurrency or cryptocurrency to other digital property. These processes are often carried by traditional systems, but their limitations can lead to slow and sometimes insecure transactions. An example would be when you try to deposit fiat currency onto a cryptocurrency exchange. Often this is a function that can take several days to complete. The DEX would be able to carry out such examples nearly instantaneously and with adequate security.
The white-label wallet software development kit, or SDK, is essentially a vehicle that users of the OMG network will need to participate in the system. The SDK is the top layer of the system’s code that can be built directly on top of by its users. It is the goal of OMG to simplify the creation of new digital wallets to the point where the average user can set up their own SDK with no developer support. The standardized features of the SDK mean that users can interact with the network in a uniform manner, creating a user-friendly interface to transact on the DEX.
As stated earlier, the primary goal of OmiseGO is to operate as a scaling solution for financial transactions on the Ethereum network. To that end, OMG is designed for compatibility with Ethereum’s Plasma architecture. Plasma is a framework for building DAPPs that are scalable in a way that single layer blockchains are not. The idea for Plasma was introduced by the creator of Lightning Network, Joseph Poon, and Ethereum’s Vitalik Buterin.
Put in its simplest terms, Plasma operates by allowing “child chains” to operate on top of the main blockchain, communicating with the main chain through smart contract parameters. Only tiny packets of data recorded on these child chains are validated by the main chain, meaning the smaller computational chains are performing most of the legwork on the system, while the main chain merely holds it all in place and keeps it validated.
Plasma not only increases the amount and complexity of transactions on the network, but it also adds network security functions by making the way for proof of stake validation on-chain.
Ethereum, like most other blockchains is operated using a proof of work (PoW) consensus system that requires miners or validators to contribute individual computing power to mine blocks of transactions. This is going to change though, as Ethereum, partly thanks to OmiseGO, will soon be switching to a proof of stake (PoS) system. Proof of stake systems require network validators to stake their tokens to verify transactions on the chain. Basically, a staker would deposit their tokens into the secure network, and then their connected hardware would vote on the validity of transactions.
Stakers validating transactions in good faith will be rewarded with transaction fees. Stakers operating in bad faith or trying to improperly validate network operations will be penalized for poor behavior. The penalty can take the form of hard or soft slashing. In a soft slashing scenario, a staker would be denied the returns earned in the form of transaction fees. Hard slashing would result in the loss of all staked tokens.
PoS is often viewed as a more secure system compared to other validating methods since financial incentives are present to reward proper use and punish improper use. Because of this, it would be deemed not worth it to tamper with the network because you would be paying money in a failed attempt to disrupt the blockchain.
Another reason PoS is being championed by OmiseGO and some of the industry’s leading developers is the computing power and energy savings compared to PoW. Stakers on a PoS network just need to deposit their tokens into the system instead of running energy intensive hardware that completes the mining tasks of PoW systems.
OmiseGO is an actively traded cryptocurrency with trading pairs listed on several international exchanges. Simply make an account on an exchange of your choosing, Binance for example, and select a trading pair such as OMG/ETH or OMG/BTC. If you are not holding any other cryptocurrencies, you may need to first exchange fiat for ETH or BTC on an exchange such as Coinbase or Gemini.
Once you have your OMG tokens you need to safely store it as it is not wise to leave tokens on an exchange. There have been security issues with this in the past. You can see a step-by-step guide on how to buy OmiseGO here.
Since OMG is an ERC20 token, it can be stored on Ethereum based wallets including Mist, Parity, or MyEtherWallet. You can also purchase a hardware wallet, such as those produced by Ledger or Trezor, for an extra level of security.
Although OmiseGO is one of the more ambitious projects in the cryptocurrency industry, it is also one of the most promising. Scalability is such a massive roadblock in this sphere of technology and OMG is tackling it head on. It has a spectacular team with a clear set of goals listed on their roadmap. They also have significant support from Ethereum developers and its robust community. Whatever the future holds for OmiseGO there are plenty of people watching and cheering them on.