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What is VeChain | The Ultimate Beginner’s Guide

What is Vechain

VeChain is a blockchain-based management platform that tracks products through their supply chains. By securely recording components in a tamper-proof distributed ledger, VeChain simplifies the process of collecting, managing and sharing important product information with retailers, manufacturers and consumers. Transparency throughout the supply chain helps these key stakeholders certify the quality and authenticity of their products.

While supply chain management software exists, most companies currently have insufficient visibility and insight into their products at any given moment. The problem occurs in the analog gaps between systems and enterprises, resulting in fragmented pieces of data. These systems were designed for large vertically integrated companies with big but static supply chains, which are no longer relevant today.

In this article, we’ll explore VeChain’s features and demonstrate how supply chains can leverage blockchain technology to create greater market transparency. We’ll also look at VeChain’s new Thor update and discuss the advantages and disadvantages of the token, while covering the following topics:

VeChain (previously VEN now changing to VET) is a cryptocurrency token established by the VeChain Foundation. The VeChain Foundation is a non-profit entity established in Singapore in July 2017. The VeChain Foundation is committed to helping develop, construct, advocate and support VeChain’s work.

According to CoinMarketCap, the VeChain token is currently ranked the 16th most popular cryptocurrency with a market capitalization of $1.8 billion USD as of April 16, 2018.

Source: CoinMarketCap

As seen on VeChain’s website, the Singapore-based company is rolling out their blockchain-based management platform in the luxury goods industry, the agriculture industry, the food and pharmaceutical industries, along with municipal government agencies.

Apart from reducing or eliminating fraud, a blockchain-based management system can also improve inventory management, quickly identify issues in the supply chain, reduce delays, minimize courier costs, and most importantly, increase consumer and partner trust.

On a high-level, VeChain uses blockchain technology and the Internet of Things (IoT) to track and trace items throughout their life cycles. The Singapore-based company digitalizes assets by assigning products with unique identifiers using IoT technology.

Each item is equipped with a Radio Frequency Identification (RFID) tag with sensors, allowing it to be logged onto the public VeChain blockchain. Key stakeholders like manufacturers, supply chain partners, retailers and end consumers can therefore see and understand more about the product and how it has been handled throughout the supply chain.

There are several participants in the VeChain ecosystem:

  1. Enterprises that provide products and services to end-users to meet all needs
  2. Application Service Providers that provide application development and services for enterprises and users on the VeChain blockchain
  3. Smart Contract Service Providers that provide VeChain smart contract technology services to enterprises
  4. VeChain Network Node Providers that directly participate in the blockchain network and maintain a certain number of nodes to protect the overall network security
  5. VeChain Foundation which is responsible for the construction of the blockchain network, technology research and development, upgrade and maintenance, and other basic technical services
  6. End-users which receive the end product with additional information concerning its lifecycle

Source: VeChain’s Development Plan

If the DBE mentioned above represents the human body, the blockchain infrastructure is the skeleton. The application services are the muscles and organs and the blood circulating around are the VeChain tokens. The VeChain tokens therefore carry the value transfer function in the entire blockchain network.

Here is the lifecycle of a VeChain token:

  1. An end user purchases the VeChain Token (VET).
  2. VeChain Foundation receives the VeChain Token (VET) from each smart contract development and service provider to pay for the GAS needed to run the smart contract and maintain the operation of each business smart contract.
  3. Smart contract service providers use VeChain Token (VET) to pay for GAS and provide smart contract service of BaaS (Blockchain as a service).
  4. The application provider builds off of smart contract services and develops applications and products based on end-user’s needs in exchange for VeChain Token(VET) as corporate income.
  5. End-users can pay VeChain Token(VET) to obtain enterprise products and services.

As mentioned above, there is a specific process to develop the Unique identifiers used to digitize every item or asset. The digitization process occurs in three different stages:

  1. ID Creation: A random ID is generated using a sha256 function and hashed before being written into a NFC, QR Code or RFID tag(s) to be used for each product.
  2. Storage on the Blockchain: Tag(s) of the hashed VeChain ID are customized based on client’s needs and ‘activated’ during a testing process using ‘V-Operation’. Testing software can be used on both mobile and desktop. Upon activation, the ID is then written into Blockchain and replicated among all nodes.
  3. Transfer of Ownership:  VeChain enables authorization-based digital ownership management via Smart Contract whereas VeChain ID represents the ownership linked to an account with the key pairs combined with public key and private key.

In 2015, anti-counterfeiting controls cost fashion and luxury brands in Europe, $28.7 billion dollars, accounting for 9.7 percent of total sales.

Source: VeChain’s Development Plan

VeChain aims to reduce anti-counterfeiting costs by allowing customers to track and verify luxury clothing or apparel. The blockchain-based management platform plans to verify the authenticity of a product through an IoT encrypted chip embedded into the product. The chip records the logistics of the product on the blockchain network which allows consumers to simply scan the product and identify its authenticity.

In 2014, Michigan State University estimated that food fraud cost the global food industry $30 to 40 billion every year. Unfortunately, this is just the economic cost. Food fraud can lead to serious health risks and damage companies’ brands and reputations. Blockchain technology can however, bring a safe and reliable solution to the problem.

VeChain has built a successful tracking platform to track liquor products from the start of the process, even when the liquor is in an overseas winery. Each detail about a bottle of red wine is marked and recorded, allowing the company to use smart contracts to track the wine’s life cycle from warehouse, to distribution centers, to different sales channels and stores.

Source: VeChain’s Development Plan

Like luxury fashion goods, high-end wines are equipped with IoT chips so consumers can identify and track the information of wine through an in store touch screen or the customer’s smartphone.

Source: VeChain’s Development Plan

VeChain is also working with the dairy industry, since dairy food safety comes with stricter regulations. Milk fraud is one of the most serious issues facing the dairy industry, especially in 2008 when 300,000 babies were ill and six died from the melamine food fraud.

VeChain will help the industry by providing “farm information, including fertilizer management, an audit for the feed supplier, the health conditions of the livestock, the drug use on the cow, and environment report” as well as the milk’s storage conditions, production reference number, and the people responsible for handling the product in the supply chain. These measures help ensure food safety from the source.

Source: VeChain’s Development Plan

While VeChain aims to solve problems within niche industries, VeChain’s blockchain-based management platform can also be applied to the general supply chain industry.

Source: VeChain’s Development Plan

The problems in the supply chain industry include:

  • The difficulty of tracking cross-region supply chains
  • A lack of transparency between different supply chains
  • Data security vulnerabilities in different enterprise of supply chain
  • Problems with money flow due to bad timeliness

VeChain is solving these problems by providing Baas (Blockchain-as-a-Service) service to K+N, one of the largest freight forwarders to track and manage products from international brands. While this is only one major brand, it’s definitely a positive start for the fairly new company.

The Chinese market is facing issues concerning small scale agriculture, uneven product quality, lack of safety level of the product, low productivity, and environment pollution.

VeChain is trying to change the existing model by using technology like the Blockchain Cloud project, IoT technology, agricultural planting process management, big data and artificial intelligence to separate different agricultural practices and verify those that are green and organic. VeChain is currently working with PwC, China Unicorn and Liaoning Academy of Agricultural sciences on the project.

Source: VeChain’s Development Plan

Toward the end of 2017, VeChain announced an update known as “VeChain Apotheosis Part II: THOR Power Forged,” in a Medium blogpost explaining the foundation’s rebranding from VeChain to VeChain Thor (VET).

As mentioned on VeChain’s subreddit, “This apotheosis is not a day, a logo, or an economic model but rather it is a full revamp from a private blockchain to a qualified decentralized application platform servicing public applications, on a decentralized ledger, capable of evolving how the world defines business ecosystem.”

The rebranding which launched February, 26, 2018 saw VeChain evolving from a blockchain-based management platform for the supply chain industry into a decentralized application platform like Ethereum.

The platform has two different tokens:

  1. VeChain Tokens (VET) – A smart payment currency used in the VeChain blockchain ecosystem.
  2. Thor Power (THOR) A token to perform smart contracts and run applications on the THOR blockchain. It is similar to the way NEO utilizes GAS. VET holders are rewarded with THOR and can use THOR to perform smart contracts as well as run applications on blockchain. Nodes on the VeChain blockchain also receive THOR as a reward for maintaining the network.

There is a certain requirement for the amount of VET required to become a node. The three different types of nodes in VeChain Thor ecosystem include:

  • Strength Nodes (minimum 10,000 VET)
  • Thunder Nodes (minimum 50,000 VET)
  • Mjolnir Masternodes (minimum 150,000 VET)
  • Thrudheim Masternodes (minimum 250,000 VET).

The system also rewards end users with daily THOR rewards. The base generation rate of THOR is 0.00042 THOR per VET per day. The rate is adjustable by the VeChain Foundation based on network usage.

Although many blockchains are dependent on miners in Proof-of-Work or those who hold the coins in Proof-of-Stake, VeChain uses a completely different system called Proof-of-Authority (PoA).

The VeChain network is maintained by 101 Authority Masternodes. These are the only full nodes on the VeChainThor blockchain that are authorized to validate and produce blocks. Enterprise users, blockchain development teams, business development ambassadors, community contributors, academic research partners are examples of the type of organizations that will be designated as an Authority Masternode, because they can make significant contributions to the VeChain Foundation and community.

According to the VeChain website, “The PoA consensus allows us to have a higher scalability for the VeChainThor blockchain than PoW blockchain. Based on our test, the maximum TPS could be 10,000 transactions per second.”

VeChain has a future development roadmap on its Q&A page for stakeholders to view.

The VeChain team has completed many new modifications and improvements with later versions since VeChain’s original Version 1.0.

  • Version 3.0 began in May 2017 and is set to launch in the 2nd quarter of 2018. Version 3.0 is updated with Rust-restructuring and has other updates or VeChain Token (VET) related services including VET wallet, gas exchange, audit service.
  • Version 4.0 is set to go live at the end of 2018. As mentioned in their website they plan to “achieve [a] commercial ecological environment system integration platform, integrating moreso with IoT and specific industrial blockchain cloud.”

  • Enhance Trust along the supply chain: Removes the need for trust between parties among transactions
  • Quality Control: Helps companies maintain consistent product standards in the supply chain
  • Automated process of tracking products: Helps logistical partners simplify product tracking. Tracking products no longer becomes a manual process
  • Provides transparent and symmetrical information: Allows companies to have a clear insight and sufficient visibility into their products at any given point in time
  • Semi-centralized model: Governance structure is a decentralized system through centralized channels. Completely decentralized models can be slow and inefficient when it comes to governance
  • Competent Team: Sunny Lu, CEO of VeChain has extensive experience in IT and Information System projects for luxury brands. He was also previously CIO of Louis Vuitton China. All key members of management have significant experience in the field of IT assurance.
  • Clear Roadmap: VeChain has a very clear future direction and have grown rapidly  over the past few years. They started with 4 key cases and now have over 180. VeChain also has a global implementation network of 111 nodes with offices in Hong Kong, China, Singapore, and France.
  • Strong Partnerships: VeChain has partnered with many different companies including PwC, one of the world’s Big 4 accounting firms and DNV GL, a $20 billion dollar energy giant. Other partnerships include Microsoft, Viseo, and Renault. The Chinese government has also chosen VeChain as the blockchain technology partner of the government of Gui’an.

  • Extreme fast growth: VeChain is growing extremely fast which can be a big risk without proper guidance
  • Not completely decentralized: Proof of Authority principle relies on 101 nodes to validate transactions. The system is therefore not completely decentralized and can run into issues if a few nodes go corrupt
  • Centralization of governance: VeChain has a Board of Steering committee which makes the public blockchain more private and centralized than other platforms like Ethereum
  • Extremely broad: Since VeChain is working with many different industries and rolling out the new VeChain Thor update, it could very hard for the team to deliver good results for every niche. It may have been better for the VeChain team to start with a smaller niche and then branch out to larger ones.

While VeChain (VEN) has become (VET) after the Thor update, many exchanges have not made this update. For this section, we will refer to the Vechain token as (VEN/VET)

Buying VeChain (VEN/VET) from your bank account requires a 2-step process. The most common and recommended approach is to buy Bitcoin (BTC) or Ethereum (ETH) from an exchange that accepts deposits from a debit/credit card or bank account. Most exchanges like Coinbase and Gemini allow you to buy BTC or ETH.

Afterwards, you need to transfer your recently purchased cryptocurrencies to a marketplace that sells VeChain (VEN/VET) in exchange for BTC or ETH. There are many supporting exchanges that support VeChain (VEN/VET). Examples include Binance, Bithumb, Huobi, and Gate.io

For more information, you can refer to our more in-depth guide on ‘How to buy VeChain.’

VeChain Tokens (VET) can be stored in any ERC20 wallet.

The most popular choice for the VeChain community is MyEtherWallet which is known for high level of community trust. The online wallet also works in conjunction with some offline hardware wallets such as Ledger Nano S or Trezor – in case you are looking for an extra layer of security. Offline hardware wallets are secure and suitable for storing a significant amount of VET.

On the other hand, if it is not worth it to transfer out, you can keep VET on the exchanges such as Binance. Along with the rebranding event, VeChain is planning to release its own wallet in Quarter 2, 2018 so that users can get THOR rewards.

VeChain’s $1.8 billion USD market capitalization shows that there is significant demand and growth in the market. Their vision and goals are without a doubt very ambitious. Although it’s uncertain what the future of VeChain will look like, it’s development plan definitely brings excitement to the cryptocurrency community. While these goals will take time, 2018 will be an exciting year for VeChain, especially with the new VeChain Thor update.

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