$ELF (AELF): The Bull Case by March Zheng (rough draft)

$ELF (AELF): The Bull Case

With the recent slowdown in the crypto markets, developers finally have had some breathing room to catch up to all the hype. For investors, it gives us the time to take a step back and more carefully filter out the noise around us. If 2017 was the year blockchain as a concept became hot, then 2018 is the year that many of these projects start building out the technical foundations for the space to succeed.

The Problem: CryptoKitties

Most projects aiming to serve as the core protocol for DApp development append all activities of the network onto a single blockchain. With little off-chain solutions and not advanced on-chain solutions, a single blockchain can become congested easily. The crypto community saw this shortcoming play out when a consumer DApp, CryptoKitties, launched on the Ethereum blockchain in December 2017. Infura (consensys project) saw requests run through their nodes at spiked highs because of CryptoKitties:

( https://www.coindesk.com/loveable-digital-kittens-clogging-ethereums-blockchain/ ) https://media.consensys.net/the-inside-story-of-the-cryptokitties-congestion-crisis-499b35d119c c

At the CryptoKitties’s peak, the entire Ethereum blockchain was clogged with transactions. The network could not execute transactions and smart contracts fast enough to make room for new requests. In this kind of situation, gas prices rise, as transactions that pay miners more gas will be the ones that they include more quickly. For the majority of crypto kitties, the fees started

costing more than the actual assets. The fee for “birthing one cryptokitty” during the network congestion doubled from 0.001 ETH to 0.002 ETH on December 4th. There were 12,000 pending Ethereum transactions by the end of that day (ether scan source), many of which included ransactions and smart contracts that had nothing to do with CryptoKitties. All in all, it was a humbling reminder of early the technology still was, despite that the price of Ether continued to rise exponentially shortly after the CryptoKitties phenomenon.

It’s Not Just CryptoKitties

The decentralized exchange IDEX, the most used DApp on any protocol, has approximately 2,000 Daily Active Users (DAUs), miniscule when compared to traditional internet applications. A majority of crypto DApps are not mobilized yet, with only a few wallets and explorers easily functional on smartphones, such as Cipher, Toshi, and (add one more). To quote Naval Ravikant in his recent tweet , “The dirty secrets of blockchains: they don’t scale (yet), aren’t really decentralized, distribute wealth poorly, lack killer apps, and run on a controlled internet.”

In defense of blockchain protocols, consumer DApps are not used mainstream yet because of their poor user interfaces and lack of product-market fit. DApp governance has also not yet been solved. However, consumer DApps are also not the only use of blockchain, and will most likely not be the first type of DApp to attract significant use.

Enterprise DApps

Enterprise DApps are decentralized applications designed for corporations. There has already been traction in enterprise DApps on both public and private blockchains, from Hyperledger to JPMorgan’s Quorum (both private/permissioned) to the Enterprise Ethereum Alliance . Hyperledger hosts business blockchain frameworks, with currently 5 products in line: Burrow, Sawtooth, Fabric, Indy, and Iroha ( https://www.hyperledger.org/) , each for their own uses.

Source: Hyperledger

Business Blockchain Framework

Description

Burrow

Provides a modular blockchain client with a permissioned smart contract interpreter partially developed to the Ethereum Virtual Machine (EVM) specification. (blockchain client developed for competence with EVM specifications)

Fabric

An implementation of blockchain technology intended as a foundation for developing blockchain applications or solutions. (a template for blockchain applications and solutions)

Iroha

A blockchain framework designed for simple and easy incorporation into infrastructure projects requiring distributed ledger technology. (framework designed for legal integration among existing blockchain)

projects)

Sawtooth

A modular platform designed for building, deploying, and running versatile and scalable distributed ledgers (platform for running ledgers)

Indy

A distributed ledger that provides tools, libraries, and reusable components for creating and using independent, decentralized and digital identities (running digital identities on the ledgers)

Some of Hyperledger’s users include IBM, Cisco, and SAP. JP Morgan intends to use Quorum for building out an interbank payments platform alongside Australia/New Zealand Banking Group and Royal Bank of Canada.

Amazon Web Services recently announced their blockchain frameworks for DApps on both Hyperledger and Ethereum. It is likely that enterprises interested in improving their bottom lines and overall business structure would act faster in adapting new technology than mainstream consumers who care more about user experience than the benefits of blockchain.

Due to the inherent tradeoff between scalability and centralization, permissioned blockchains promise to scale faster than public blockchains. Permissioned blockchains will not run into the problem of resource segregation, as each industry could simply create its own permissioned chain. Using unique Hyperledger chains, the health care and supply chain management industries can move their data infrastructure onto one blockchain. Same with Quorum and financial institutions. However, permissioned blockchains contradict the nature of the blockchain revolution: the decentralized revolution.

Permissioned chains are likely to play a prominent role in the future, but should permissioned chains dominate the blockchain ecosystem, the movement will have failed. We view the blockchain movement failing as highly improbable. Once a public blockchain can scale to meet enterprise standards, many corporations will be likely to use them to not only gain the advantages of private chains (better security and lower costs than the current status quo) but also to be transparent with their customers. They can even maintain transparency while maintaining privacy through innovations in cryptography such as Bulletproofs.

We believe that AELF is undervalued and could achieve scalability while maintaining decentralization and security. AELF seeks to achieve the resource segregation of a permissioned chain on a public blockchain, while solving issues caused by protocol interoperability.

Solving a Real World Scenario

A project that has gotten our attention in the last few months is AELF. As the founder roughly quotes, Aelf is the world’s first decentralized cloud computing platform which hosts smart contracts and meets commercial requirements for blockchains at the enterprise level.

In this article, we build our bull case for AELF under the premise that AELF will solve the resource segregation problem. To do this, we will explain AELF’s infrastructural design involving its mainchain and sidechains that delegate the burden of the blockchain efficiently. What is a lack of resource segregation? We think of it metaphorically as an automatic phone operator, except that it can only take one call at a time. More technically speaking, an efficient resource segregation model would mean that all types of smart contracts and opcodes can run on one blockchain simultaneously. No longer should one DApp be able to consumer a majority of a blockchain’s resources. Ethereum is using an alternative and similar approach to solve resource segregation, namely Plasma chains--we should compare Plasma to side chains. However, Eth is also transitioning to sharding and PoS, whereas AELF will rely on DPoS, making it a safer bet at a much smaller marketcap to achieve scalability. AELF doesn’t have the development that Ethereum or other gaining platforms like EOS have, but it is likely that developers, specifically those working for enterprises, will migrate to the protocols that work the best (check to see what languages can code on AELF). Building even a fully launched enterprise DApp on Ethereum would not prohibit that same team from switching to another protocol, other than a time cost that is likely under 1 month, if not a few weeks.

How will AELF scale?

Aelf has stated their intentions to become a central business district employed for various business scenarios. Their infrastructure composes of a self-evolving main chain and customizable side chain. These sidechains will fulfill requirements of various commercial applications, and in turn reduce data redundancy. The sidechain feature of Aelf is so promising because for handling commercial blockchain usage. Crypto Kitties could have been placed into the central Aelf “business district” as a side chain, where this side chain would have been optimized for high speed transaction and usage. The processing application of the game would have been much more efficient, making everyday consumer experience of the game higher in utility. It is almost equivalent to waiting for a game to load while someone is taking a phone call during the dial up era of the internet.

ChenZhuling provides a strong analogy for Aelf’s efficient side chain structure:

As to how the side chains are structured, on most blockchain platforms the cars (smart contracts) enter the highway (main chain) and can go off onto other roads (side chains), but Aelf’s highway (main chain) is completely different. One is for cars, another can be for buses, and another can be for motorcycles, etc. The roads are optimized for whatever is running on them. So the strength of our structure is that if one road is filled with traffic or very slow, the other roads are not affected by that road.”

Let's envision Aelf here on forth as a multi lane highway where cars (business projects) can ride on any part of the highway (business projects can deploy real world applications onto the

AELF blockchain). These roads are optmized for whatever “car” is running ontop of them. SO if one road is traffic heavy, that does not imply the other roads are. This is the beauty of parallel processing, where we see efficiency play out from that scenario.

Technical infrastructure (parallel processing)

We now move to how Aelf’s technical infrastructure will handle this scenario. We must recall that the structural design of any blockchain is what enables their given capacity or scalability. Technically, Aelf sees their infrastructure as a main chain and side scenario. They make the distinction that their blockchain’s architecture is not a hierarchical structure but rather parallel processing entities. The main chain, with DPOS as the built in consensus mechanism, will not host the transactions directly but act as an observer to ensure the side chains are correctly indexed. To frame this example under an analogy again, we should see Aelf’s architecture as ONE road but with Multiple lanes. Traditional parallel processing units in blockchains envision the main chain as the “main road” and the side chains as “side roads”. From a high level perspective, nodes in AELF are categorized according to their roles. Standard service performances by these nodes are open sourced and work through DPOS to reach consensus on the main chance. The delegated mining nodes will protect side chains and share the same consensus as the main chain (explain how). Sidechans running on DPOS will run efficiently as a result of the cloud computing structure. Currently, all transactions need to be confirmed by every single node in a network, which essentially means that the system is as fast as the slowest node. This is where the cloud computing structure is so powerful, because each node is made up of a cluster of PCs that allows simultaneous processing of resources and jobs.

In Aelf’s current development phase,
- And then refence linux as a result u can run those scanrios

Consensus Mechanism (combining side chains and parallel processing)

Aelf envisions itself as a multi-chain cloud computing blockchain platform. This framework is designed for everyday consumer blockchain usage scenario. For this vision to be fully realized, then the protocol’s consensus mechanism is a critical component to the recipe. The underlying foundations for ensuring a blockchain’s relative decentralization is the idea of having a consensus mechanism. All distributed systems with a blockchain framework employ a consensus mechanism. Without one, all nodes in the system cannot come to agreement on a data’s value on top of a blockchain in a decentralized manner. Bitcoin’s consensus mechanism, Proof of Work (POW), was arguably the world’s first successful decentralized network. Bitcoin Miners are nodes on the network that race to fulfill a proof on the network, ensuring that these transactions are valid. This mechanism is competitive in nature, as separate actors are all competing to fulfill the same goal. For cooperative based consensus, every node in a distributed system acts as a voter. The total number of voters is fixed, and the majority needs to agree on the value of the data. Both competitive and cooperative mechanisms may suffer from scalability issues, as each node/voter needs to be known and validated by every other node. AELF seeks to implement a new narrative for consensus mechanism, in the name of Delegated

Proof of Stake). In DPOS, imagine now that all those voters in the original cooperative model vote upon a delegated set of individuals, and in turn these voted upon individuals confirm the blockchain. A structure like this ensures that scalability is not violated, and that faster latency can be confirmed by the individuals where all voters vote upon. This system brings together the best aspects of the competitive framework, where an individual remains delegated only by vote of the entire network. The individual is incentivized towards good behavior in the network. DPOS remains cooperative as all voters are voting for the best delegates to keep the system secure and efficient. Essentially, DPOS as a consensus mechanism employs a multi-chain structure. Each of the delegated nodes are actually running on cluster of computers instead of one. Recall that each node in the AELF system is a computer cluster network (e.g., cloud network) instead of a singular computer. Through this, Aelf’s consensus mechanism empowers network participants with higher cloud computing capability. And this is exactly where Aelf’s token utility comes in, as AELF token holders can always vote for what other delegated nodes they want to choose in the system. Some may argue that DPOS is too centralized in nature as it amplifies the power of the delegates in the ecosystem. Founder Chen Zhuling explains that they tackle this concern by adding delegate 2n+1 mining Node features along with the native DPOS.

“We start with 17 delegated nodes at the beginning, and for the spirit of decentralization we want to increase the number of nodes and also as the ecosystem grows. That’s why our plan right now is every year, we add another 2 additional nodes in the system. This is our way to stabilize the system and create more competition among the nodes. Of course, this may not go on indefinitely for the next hundred years so that’s exactly why we have on chain governance. Maybe after 5 years, we ask ourselves do we need to keep on adding nodes or maintain the same number? We are choosing the one we believe is the right solution for now”

For all public blockchains, a native token is essential for facilitating the transfer of value. And this is exactly where Aelf’s token utility comes in. Similar to how Ether is designed for the Ethereum network, Aelf is the token that smart contracts will use for services, maximizing computing power, and setting up side chains. The main chain, which also runs DPOS, will have delegated mining nodes capable of protecting the whole system.

Chen zhuling in an terview with blockchain News Korea references a great example:
“ There are many asvantages to the cloud compting network system. An easy way to think of it is to imagine a room full of ten smart people trying to solve a math problem as opposed to one smart person trying to solve the same problem. However, just because there are ten smart peole working n solving that math problem doesn’t mean that it will be solved ten times faster.”

“So what we developed is a parallel processing alogrithim. What it does is split the difficult math problem into pieces and sitribute them to the nodes or “smart people” in order to efficiently reduce the processing time to solve the math problem. Eventually, this is to make it as efficient as possible for those cars (smart contracts) on the road to run as smoothly as possible”

“ http://www.blockchainnews.co.kr/news/view.php?idx=954z ”

This design also ensures that each side chain falls under the security that the main chain provides. As the core infrastructure for facilitating consensus ontop of AELF is DPOS, AELF token is used as a staking mechanism for the whole system. There is a financial incentive to properly secure the system. Referencing Aelf’s node upgrades, the project realizes that any disruptive technology cannot be perfect from the beginning. Holding Aelf tokens gives actors power in choosing the direction that Aelf will have in the future. This relates us back to aelf’s multi-chain parallel processing system that invokes cross chain communication and self-evolving governance. The innovations related to our focus on resource segregation are scalade nodes on clusters of computers and the parallel processing factor for max utilization of processing power. These developments along with independent side chains build on Aelf’s ability to resource segregate smart contracts.

Competitors

Aelf’s formal initial design is a cluster-based parallel architecture. As we been mentioning throughout this article, this AELF highway is technically representative of parallel processing. ETH- plasma/Sharding
EOS- parallel transactions with DPOS

NEO - trinity/

Conclusion

The blockchain vision has been sold, and we are currently in the building out and installation phases of the industry. Features such as protocol standards, interoperabiliy, economic models, and scalability need to be solved in this phase. Real world scenarios is what AELF hopes to provide with their services. AELF will enable shared databases and different blockchains to communicate directly with one another. AELF will be an enabler to a killer feature of the blockchain industry, which is a new protocol for solving resource segregation. No business would like to be disturbed by other businesses if they are running on the same protocol. Trades in the futures market would probably not want to be interfered by traffic from Black Friday. Lets be clear that the key obstacle preventing blockchain technology from being applied in real use cases is the initial design of blockchain itself. Aelf is currently on course in its development schedule, with their parallel processing and multi side chain capabilities set to be built out in the first half of 2018. Based in Singapore, Aelf foundation serves as the governance entity for Aelf. A non-profit entity, Aelf foundation’s primary goal is to promote Aelf’s technology. This in turn will help establish Aelf as the go to protocol for consumer enterprises wishing to implement blockchain technology for their respective applications. Singapore is known for hosting projects that follow a strict adherence to its regulatory and legal compliance framework).

If development keeps pace, we should start seeing the formulation of real business scenarios early 2019.

Here are some following real world scenarios:

Visiting doctors for a prescription in the future will be a piece of cake. If the doctor is running their prescription database on Aelf’s protocol, that information can automatically be sent to the chemist if they host their own native blockchain on the Aelf protocol! Two blockchains are working together on Aelf’s protocol!

If a decentralized social media platform is running on Aelf’s protocol, then users of the platform can rest assure that their consumer experience will not be affected by other platforms on Aelf’s protocol. Aelf’s interoperability capabilities guarantees this.

If a blockchain enterprise solution is seeking a protocol that will help facilitate native transactions, then Aelf can act as the central business district for these transactions to be carried out in a decentralized and scalable manner.

Smart houses in the future will know when basic chores around the house need to be taken care off. If a house runs out of food, a nearby market with a built in blockchain can be notified by your smart house’s blockchain and ensure that payments and delivery lists are fulfilled! Both blockchain solutions may be running on the AELF protocol.

Early adopters of the AELF token are key actors in on chain governance. AELF is developing an ecosystem that will eventually transition into its very own private economy. A good onchain governance model helps fulfill the economic models that the AELF tokens are designed for.

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