Zilliqa Fundamental Review
Zilliqa appeared on the cryptocurrency scene, December 2017 when it launched its ICO.
This project was met with a decent amount of hype and hit its fundraising goal of $22 million.
Much of the hype associated with this project was due to its promise to introduce the concept of ‘sharding’ to the blockchain in order to enhance scalability.
More specifics about sharding can be found in the Zilliqa whitepaper:
Excerpts worth noting as they pertain to sharding and the premise of $ZIL (cash tag for Zilliqa):
- “A new blockchain platform that is designed to scale in transaction rates. As the number of miners in $ZIL increases, its transaction rates are expected to increase as well.”
- “Specifically, $ZIL’s design allows its transaction rates to roughly double with every few hundred nodes that are added to its network.”
- “The cornerstone in Zilliqa’s design is the idea of sharding — dividing the mining network into smaller consensus groups called shards each capable of processing transactions in parallel.”
This obviously takes from the traditional usage of ‘sharding’ in computing/network, specifically as it pertains to database systems.
Below is a graphic that depicts the concept:
In a nutshell, sharding is similar to the concept of ‘partitioning’ a disk. As the pictures imply, this is a form of horizontal scaling:
Efficacy of Sharding in the Manner that $ZIL Proposes
In order to assess the potential efficacy of sharding as it pertains to scaling the blockchain (i.e., by allowing more more TX/s), we must first dig into the mining process for $ZIL, since the whitepaper states that sharding is predicated on miners on the protocol.
Reference source for covering mining:
Zilliqa is a promising project out of South Korea, that has the potential to be one of the most dominant, widely-used cryptocurrencies. Its blockchain platform boasts of high throughput capabilities via a process known as sharding. With this method, an impressive 2800 transactions per second can be processed, which is several times more than Bitcoin or even Ethereum.
From the excerpt below, one can immediately see that mining on Zilliqa is uniquely different than with other, traditional PoW protocols (i.e., Bitcoin, Litecoin, Monero, etc.):
Technical information regarding the process of mining for Zilliqa can be found here:
Zilliqa is the world’s first high-throughput public blockchain platform – designed to scale to thousands of transactions per second. – Zilliqa/Zilliqa
Mining in a Nutshell for Zilliqa
The above graphic from the Zilliqa GitHub depicts the architecture of the mining setup for the protocol.
As seen above, the ‘sharding’ occurs within each DS block (via TX Block).
Rather than there being an ‘arms race’ (like what one would see in Bitcoin) to join the network, there is competition to join the network itself.
The network can be joined in two facets, which are:
- As a “DS node”
- As a “shard node”
Since the difficulty is adjusted based on the number of PoW submissions, $ZIL does not work on the Poisson distribution in the same way that Bitcoin does, but this does not appear to be an issue (yet) for the network.
This competition is won via PoW. What’s notable is the fact that the Ethash algorithm is used (same hashing algorithm that Ethereum uses), so many of the same principles that are applicable to Ethereum mining apply here as well.
However, the mining for Zilliqa is almost ‘for show’ because it is not for a block reward, but rather for eligibility to participate in a block. Since it is presumed that all those that are able to obtain mining equipment could become eligible for joining the network, the ‘zero sum’ game that exists for Bitcoin miners is not present for this protocol.
Hence, there is no importance or emphasis on hash rate.
Reasons why Zilliqa Does Not Fulfill PoW Mining in Essence (And is Perhaps a Backdoor Means of Implementing PoS)
While there is an element of Proof of Work, it does not contain all of the requisite elements of Proof of Work that one would expect from Bitcoin.
As shown above, in order to facilitate the actual sharding of the network, as $ZIL proposes, they must first “elect a group of nodes called directory service (DS) nodes.”
“The DS nodes form a DS committee. The election of DS nodes is based on a proof-of-work puzzle that we refer to as PoW. The algorithm for PoW is given in Algorithm 1.”
Thus, while the election of the nodes may be based on Proof of Work (and not in a way that follows a true Poisson distribution in any sense or even a Bernoulli’s probabilistic chance), nodes are selected and then those nodes govern the consensus protocol itself (i.e., deciding what is included in a chain) via a PoS Byzantine Fault Tolerance-style validation of the network.
As with most BFT-based protocols, >2/3 of nodes must be in “agreement” for consensus to be reached. If not, adjustments will be made until consensus is reached.
Conclusion Based on the Technical Makeup of the Protocol
While the idea of sharding for blockchain is interesting (if not extremely complex), one aspect of the protocol’s architectural scaling plans that seems to be unaddressed is the propagation of all of this information to the network.
A major impediment to scaling is the bandwidth of the network. From reading through the whitepaper, it does not seem that this issue has been sufficiently addressed.
This is a bit ironic since one of the core reasons for sharding, in a traditional sense, is to lighten the node on each of the nodes — horizontally scaling the infrastructure.
However, in the sense that Zilliqa has established sharding, this will only allow the protocol to scale vertically, rather than horizontally. Which will increase its capacity to produce work but not its capacity to accept work, which is a big difference.
And if you do not have both elements accounted for, then the “scaling problem” that is inherent in blockchain has not been adequately addressed.
Thus, if one is investing in Zilliqa under the assumption that it is the “ultimate solution”, then they should be wary of this potential impediment in the future.
The Positive About Zilliqa From a Technical Standpoint
The whitepaper is beautifully written. What is written is internally valid in terms of the logic presented and it appears that the idea itself is actually justified by the technical explanations that are explained.
Optics on the Code
The majority of the cryptocurrecy space has an overall favorable view of the Zilliqa protocol and the concept of sharding.
What was discussed in this review goes significantly deeper than what any outside source will do and it is unlikely that 99% of people in the cryptocurrency space will actually take the time to actually run a $ZIL testnet and stress it with different conditions to see what it can and cannot handle (which is critical because most of the projects in this space have not been stressed like Bitcoin).
In either case. Zilliqa will do fine when it comes to this aspect of the project.
Zilliqa Price Fundamentals
- The price is still down over 90% from its all time high, which is significant but not the worst performer in the crypto space by any means. However, it is lagging behind Bitcoin, Litecoin, Monero, Decred, and a host of other Proof of Work cryptocurrencies at the time of writing, which is a cause for concern because this may indicate that the market does not necessarily value Zilliqa on par with those cryptocurrencies yet.
- The month over month ROI for Zilliqa has been looking really good for 1 month, 3 month & 6 month intervals (31.36%, 20.18%, and 39.93%, respectively).
Overall, the price action is not necessarily remarkable and it is not outperforming the entire markets like Binance Coin is, for example. The fact that it has had significant positive price action over the past few months is a major indicator that it is still seen as a very viable cryptocurrency community.
However, when looking at the performance of other prominent cryptocurrencies (i.e., top 10 marketcap cryptocurrencies), Zilliqa’s ROI over the past three months is lagging behind significantly.
Below are some examples of the performance of coins over the last 3 months:
Bitcoin = +127.45%
Ethereum = +95.26%
Litecoin = +133.41%
Bitcoin Cash = +162.57%
As evidenced above, Zilliqa is nowhere near the top PoW coins (in terms of exposure and market capitalization) in the cryptocurrency space, which was noted earlier.