What is Harmony (ONE)?
Harmony (ONE) was launched in May 2019 as a part of Binance Launchpad’s Initial Exchange Offering (IEO). IEOs allow crypto tokens to be launched and sold under the supervision of a crypto exchange on behalf of the developing company. IEOs were introduced after audiences lost trust in Initial Coin Offerings (ICOs), which involved the launch and sales of tokens over the developing company’s own platform.
A layer-2 solution (built on top of the original blockchain), Harmony is an open blockchain running on the Ethereum network (layer 1). It promises high performance in 2 key areas – latency (processing lag) and cost.
Blockchain transactions are validated by a network of computers (nodes) scattered across the globe. After validation, a specific amount of data from transactions across the globe is bundled and added to the blockchain as a ‘block.’ Once a block is added, the data can neither be reversed nor be modified – a concept called ‘finality.’
Harmony boasts of 2-second finality, which means that a block is added to its blockchain within 2 seconds – very low latency. The same process on the Bitcoin blockchain takes 10 minutes and 12-14 seconds on the Ethereum blockchain – very high latency.
ONE is the native cryptocurrency of the Harmony blockchain. It is used for all transactions on the Harmony chain, including mining rewards, gas fees, transaction fees, and voting. (Voting between the nodes happens when key changes/upgrades are proposed on the blockchain.)
How does Harmony ensure higher throughput?
The Harmony blockchain uses a solution called ‘sharding’. Here smaller sub-chains called shards are built with their own processing capabilities and connected to the main Ethereum blockchain. Such an architecture decongests the main blockchain by moving all the processing to the shards.
The Harmony blockchain also uses the Fast Byzantine Fault Tolerance (FBFT) protocol to achieve high transaction speeds. This protocol helps 250 or more nodes to ‘arrive at a consensus’ (validate transactions) in less than 2 seconds, thus reaching blinding speeds.
Why is Harmony gaining traction?
Harmony has become so popular because it strives to address the problems at the heart of blockchain technologies.
Since each shard has its own processing power, it also has its own set of transaction validators (nodes). Multiple shards allow for parallel processing power and faster creation of blocks on the blockchain. Sharding allows Harmony to reach 2000 transactions per second (TPS) while the Bitcoin and Ethereum blockchains can reach only 5 TPS and 13 TPS, respectively.
Sharding allows Harmony to scale rapidly by growing horizontally, but since it remains connected to the main Ethereum blockchain, it retains the robust protocols that ensure high levels of security on the network. A large spread means more nodes on the network, thus ensuring greater decentralization on a highly secure platform.
The Bitcoin and Ethereum blockchains use the Proof-of-Work (PoW) ‘consensus mechanism’, which means that miners must dedicate vast computing capabilities to the blockchain to become nodes and validate transactions. This is because the PoW mechanism requires miners to execute complex mathematical calculations to decrypt transaction data for access and scrutiny. In return, miners receive rewards in the form of the blockchain’s native cryptocurrency. The use of vast computing capabilities makes the PoW consensus mechanism extremely energy-intensive and expensive.
Newer blockchains use the Proof-of-Stake (PoS) consensus mechanism, which requires miners to pledge a certain amount of cryptocurrency to the blockchain to qualify as a node. The higher the amount one pledge, the greater is the likelihood of becoming a node on the blockchain network. The Harmony blockchain uses the PoS mechanism, and since massive computing power is no longer required, it is highly energy-efficient.
Harmony has introduced a cross-chain interoperability bridge called Horizon, which allows assets to be exchanged between the layer 1 Ethereum blockchain and the layer 2 Harmony blockchain. This solution has also allowed Harmony to connect with the Binance blockchain, allowing the latter to reap the benefits of the former.
This also means that nodes on a different blockchain can validate transactions on the Harmony blockchain, thus also contributing to faster transaction speeds. It also becomes conducive for greater exchange of data between blockchains to speed the process up.
Since the Ethereum blockchain enables smart contracts, it serves as the perfect host to implement the exchange of Non-Fungible Tokens (NFTs). NFTs are digital tokens that have the ownership data of a virtual asset coded into them. Therefore, it is imperative that the transactions be carried out in a highly secure and efficient manner.
The layer 2 Harmony blockchain helps speed up NFT transactions whilst retaining the powerful security protocols of the Ethereum blockchain. Harmony has also announced recently that it is working on enabling NFT lending and NFT verification, among other features that it plans to roll out.
The Harmony ONE token is currently trading at $0.21 with a market capitalization of $2.5 billion. The ONE token derives its value from the fact that sharding on the blockchain creates more opportunities for developers to create innovative decentralized apps (or dApps) that execute the decisions made by smart contracts autonomously based on pre-set triggers.
Crypto investors must remember that any investment in crypto tokens must be backed by due diligence and intensive reading such that the underlying process and value drivers are understood.
