What is Tron (TRX)?
The Tron network has been in the spotlight in 2019, following the acquisition of BitTorrent for $120 million. The native TRX token’s was stunning at the end of 2017, which has created a strong hype behind this project led by Justin Sun and his team. Coinhouse is looking at the architecture of the Tron network and its new flagship project: the BitTorrent Token.
Tron, still high in the cryptocurrency marketcap
Tron is a Chinese project aiming to be a “fourth generation” blockchain, offering a platform for the deployment of decentralised applications via smart contracts. If this sounds familiar to you, it’s because Tron was inspired by Ethereum’s value proposition to build its network. Initially created as an ERC-20 token, a native token called Odyssey was launched in June 2018.
Ultimately, Tron’s purpose is to provide free content and storage distributed through the Blockchain, and to give back control of the data to content creators who often face compensation challenges with centralised platforms like Youtube.
Justin Sun claims that the Tron blockchain is 80 times faster than Ethereum’s with more than 1200 transactions per second, but this information has not been actually verified by external testers at this time.
A problem of trust which is recurrent since Tron had made a lot of headlines in October 2018 following the announcement of a partnership with Baidu, a major player in the Chinese Internet and the most visited website in China. Verification made, it was only for Tron to use Baidu’s cloud network for its development, and absolutely not a partnership.
How does Tron work?
Tron was inspired by the platform EOS in choosing its consensus mechanism: DPoS, for Delegated Proof-of-Stake. Part of the crypto community accused the White Paper in English of being a plagiarism of FileCoin and IPFS projects, some talking about possible scam, even if the original is in Chinese.
Regarding block creation, the Tron mechanism is as follows:
- 127 representatives are elected by TRX holders
- Among them, 27 super-representatives mine the blocks, once again elected by the holders
- To vote, a sequestered TRX corresponds to a TP, meaning a vote
- Voting takes place every six hours
- A new block is mined every three seconds
- The elected representatives share “vote rewards” of about 16 TRX per block, or 168 192 000 TRX per year, divided proportionally between representatives and super-representatives in proportion to the number of votes received
- The super-representatives also share a “block reward” of 32 TRX per block, or 336,384,000 TRX per year
- The Tron Foundation is sharing the rewards until January 1, 2021, having placed 33 billion of TRX in escrow for this purpose. Thereafter, the protocol will be responsible for the monetary issuance.
Of course, this very lucrative mechanism is especially lucrative for large TRX holders. Knowing that the 100 richest addresses hold nearly 40% of the money supply, it is clear that a closed circle of large investors can very easily vote for themselves or their relatives as representatives. These people therefore easily increase their share in the network by capturing the entire monetary issue, to the detriment of the average investor who suffers from the decisions of these actors.
The Tron mechanism is especially lucrative for large TRX holders, knowing that the 100 richest addresses hold nearly 40% of the money supply
This system considerably reduces the robustness of the network: a small number of people, possibly knowing each other, have almost a total control over it, and choose who can join their closed circle. These representatives are identifiable, therefore manipulable and vulnerable. As a conclusion, it is definitely not an optimal “decentralised” system.
An Ethereum competitor?
The architecture choices are in fact the opposite of Ethereum: while Tron implements a less secure and fair network for small investors to promote the capacity and speed of transactions, Ethereum makes the choice of better economic incentives for anyone wishing to help secure the network by promoting the emergence of a large number of nodes.
The choice of robustness associated with decentralisation led Ethereum to develop overlays on the main blockchain in order to compensate for the limits of the network. There is no question of that for Tron at this time.
Tron, a seducing marketing
However, Tron is a successful marketing story. The teams were able to find visibility in this highly competitive environment. Arrived late in the ecosystem, Tron was able to draw inspiration from existing projects in order to save R&D costs.
By drawing inspiration from open source code, Tron was able to integrate the development of smart contracts into Solidity and the EOS consensus model, among others, at a lower cost. Funds could therefore be allocated to other sectors, in particular for the development of an active community and lobbying.
In a nutshell, the Tron project seems to have an active community. The number of contributors and contributions to the code on Github are numerous and the dapp.radar site records a significant use of Tron Dapps. However, it is difficult to determine whether a community has actually adopted the use of Tron on a daily basis or whether they are artificial volumes.
What about the BitTorrent Token?
The BitTorrent Token (BTT) is now a key element of the Tron ecosystem. The teams acquired BitTorrent, Inc. for $120 million in June 2018 to build a network economy supported by the Tron Blockchain and the BTT token.
BitTorrent is a protocol for peer-to-peer file exchange. All you have to do is run a software to be able to share files with people interested in these files around the world. Often used to exchange copyrighted files illegally, this technology can also be used to exchange legal, but very large, files.
However, the economic incentive to participate in the BitTorrent network is low. Once the file is downloaded, the only interest in staying connected and risking criminal punishment is kindness of spirit.
Through the BitTorent Token, the Tron Foundation wants to create an economy behind torrent file sharing. With the introduction of the BitTorrent Speed extension, users looking for a file will then be able to pay those who share the files.
Service providers will naturally emerge to constantly provide a large database of popular and accessible files, paid for via BitTorrent Speed and the BitTorrent Token. For more information on how the system works, please refer to the White Paper.
We can question the economic model based on charging people who use a system precisely for nothing. But if the project succeeds, it is not certain that the Tron blockchain will have the capacity to manage the transactions of such an economy. A former BitTorrent executive explains that the emergence of a torrent economy would require hundreds of thousands of transactions per second and that it is impossible for the Tron blockchain to satisfy this demand.
Knowing that almost all BitTorrent traffic concerns illegal files, we may also wonder about the sustainability of such an economy, as the authorities have an interest in identifying and attacking the providers of these services.
Finally, the distribution model of the 990 billion BTT tokens pushes once again for the purchase of TRX and greatly favours large owners. Only 17% of the tokens were sold during a public ICO on January 2019. 10.1% are subject to a monthly airdrop to TRX holders over 6 years, and the amount distributed increases each year, creating an economic incentive to keep large amounts of TRX or even buy more. The rest is the subject of an unspecified allocation between the BitTorrent Foundation and its team, the Tron Foundation, Tron’s initial investors, and still “gifts” for people installing BitTorrent Speed software for the first time.
The hype around Tron seems to be the result of a good marketing managed by a handful of players driven by a strong economic incentive. The platform’s DPoS consensus model tends to enrich this same closed circle of investors at the expense of small investors, for whom it is very difficult to capture part of the system’s monetary issuance. The only incentive for these small investors remains speculation on the evolution of the TRX price, which is once again more interesing for big players.
The BitTorrent Token project also seems to be the result of effective marketing thinking, but hiding technical and economic difficulties that the Tron blockchain is not yet able to overcome.