Aion Analysis – Moving Data Across Different Blockchains
One major problem the current crypto ecosystem faces is that blockchains are isolated from each other. It is impossible to exchange data, value, or information from one blockchain to another. This is problematic as, for instance, if an insurer creates a DApp on the Ethereum blockchain, it cannot transfer the insuree’s information to a network of hospitals running on another protocol.
Having one “blockchain” is not feasible as there is no one-size-fits-all solution; specific industries, with specific use-cases, need their own consensus mechanism, economic models, privacy schemes, and centralization levels. For instance, IoT solutions will require extremely low fees and high TPS throughputs, while supply chain blockchains would require less TPS but request higher decentralization. Also, there are needs for different blockchains for geographical reasons. In China, blockchains such as NEO or VeChain may have to be less decentralized than the ones developed in Canada, the US, or Europe.
Aion intends to solve this isolation problem by creating a networked and federated blockchain. The Aion protocol will enable the transfer of value and data between all Aion-compliant blockchains by utilizing bridges. In essence, Aion enables networks to communicate between each other, and any DApp to run on any blockchain within the network. For instance, by analyzing Bottos (click here to read our analysis), we realized that the protocol might face a problem with the creation of a network effect, and therefore to gather data. By being Aion-compliant, the Bottos blockchain would be able to run its DApp on the ETH blockchain. This would allow companies to obtain the data available on the Ethereum network without people having to actually go through the process of creating a new wallet, uploading new information, and more, on the Bottos blockchain.
However, the Aion network is not only about the transfer of value and connecting different blockchains together. First and foremost, Aion is a standalone platform, called Aion-1. Just as any other blockchain, Aion will be able to run smart contracts and DApps, and for that purpose, the team is developing its own Virtual Machine (VM).
Virtual Machines virtual “computers” within a system, enabling programs, and therefore also DApps, to run. Additionally, the VM enables the blockchain to understand programmable logic such as: “If this happens on blockchain A, then do that on blockchain B.” As of now, the Aion Virtual Machine is based on the Ethereum one (EVM), but is designed for increased efficiency and performance – enabling DApp builders to run their applications faster and cheaper than on the EVM.11
Secondly, the main competitive advantage of Aion in comparison to other protocols is that the platform will enable the connection between blockchains with the use of bridges and nodes (more on this later in the bridging protocol section). With the use of these bridges, any DApp on an Aion-compliant blockchain would be usable on any other blockchain part of the network, as would any other type of data such as information, tokens, and transactions.
Imagine that all South Korean hospitals are linked within the ICON blockchain, but the insurer’s DApp is working on the Ethereum blockchain. In this scenario, with the infrastructure of current blockchain, there is no possibility to pass the insuree’s information to the hospital. However, using the Aion network and its bridging protocol, the information would be able to flow freely between those two entities.
Another example is in regard to the possibility of future passport digitalization, used to avoid duplication and fraud. Each country may decide to use its own blockchain, to be certain that no information is leaked, nor usable by other parties. China might decide to operate on the NEO platform, Korea on ICON, Canada on Ethereum, and Germany on its private blockchain – causing a problem at border controls. Again, using the Aion protocol, governments could build DApps which would be able to communicate across all these blockchains – enabling the efficient and quick transfer of traveler’s information.
Thirdly, Aion is a scaling solution. According to Aion’s CEO, there are two ways to solve blockchain’s scaling issues. The first one is to improve in-house infrastructure, which is the direction taken by HPB (click here to read our analysis) which introduces a hardware-software architecture mix, while the second, which is the path taken by Aion, is to offload a given blockchain by sending transactions to other ones, and put the end state of the transaction on the main blockchain – offloading all the processing of transactions from the main blockchain to another one.
The CryptoKitties saga illustrates blockchain congestion issues well, as it rendered the Ethereum blockchain essentially unusable for a few days. Using this system, people can use the most efficient (or cheapest) blockchain for processing data, and send the final state of the transaction to the blockchain of their choice.
Last but not least, Aion helps with the creation of customizable private and public blockchains; with their own consensus mechanism, economic model, and most importantly, with the interoperability characteristics of Aion-1 compliant blockchains. What we like about this is that private blockchains, who may suffer from being isolated from a larger network, will be able to use the Aion network as well as keeping their levels of centralization.
The Bridging Protocol:
The figure below shows a bird-eye view of the network, with Aion-1 at its center. Interchain transactions are created on a source blockchain and then, with the help of the so-called bridges, processed by nodes, to finally reach the target blockchain. Bridges are decentralized communication protocols that sit at the intersection of two networks – facilitating communication between one other, and each node can be considered a little blockchain as they will each have their own consensus mechanism. Lastly, at the end of the spectrum, we have other blockchains which have to be Aion-compliant to be part of the Aion network.
Ref: Aion’s whitepaper.
The system of bridges enables the burning and minting of tokens across different blockchains. Bridges connect the blockchain to nodes, with the nodes functioning with a different consensus mechanism than the one on the Aion-1 blockchain. The system works as follows: A bridge connects blockchain A to a node, and the node can witness the transactions occurring on blockchain B. Once the node agrees that a transaction on blockchain B occurred, it signals to blockchain A that the transaction took place and gives the state of the transaction on network A.
Different bridges (thus nodes) might connect blockchain A to blockchain B; there is no limitation regarding the number of connections. Anyone can set up a node and decide on its features in terms of fees and security. It will be at the discretion of the user to decide which bridge to take depending on the fees proposed, the reputation of the node, the speed at which the transactions are processed, etc.
Lastly, to be part of the network, blockchains (or any other entities such as oracles, databases, etc.), will need to implement a set of requirements. Those requirements exist to make sure that the blockchain has the ability to recognize interchain transactions and can be read by the nodes.
The proof of concept will be the transfer of the Aion ERC-20 tokens from the Ethereum blockchain to the “real Aion token” on the Aion-1 blockchain during the mainnet launch. This will be a crucial step towards demonstrating that the system works.
Team and Partnerships:
Matthew Spoke, the CEO, started his blockchain adventure at Deloitte in 2014, and later founded Nuco, a blockchain-based enterprise solution, where he realized that the isolation of various blockchains is affecting the industry and businesses’s adoption. Matthew is also a board member of the EEA (Ethereum Enterprise Alliance), enabling him to have insights into the business needs of companies and concerns regarding technology.
The other core members of Aion have the same background as Matthew, mainly coming from Deloitte and working at Nuco. Therefore, rather than focusing on individuals, we will take a look at one of Nuco’s projects. One of their on-going projects is with the NGX natural gas exchange owned by the TMX group – the group owns many exchange markets ranging from equities to commodities, and has among its portfolio the Toronto Stock Exchange. Nuco provided the group with an infrastructure that executes smart contracts at every level of the gas supply chain, enabling management to pinpoint any point of failure across the system in seconds rather than in days. Another partnership Nuco has is with MOOG, a manufacturer of goods used in the space industry and in the military, which decided to use the Aion-customized blockchain to develop its own network.22
Aion also is a founding member of the Interoperability Alliance, alongside Wanchain and ICON (see our analysis here), and has partnerships with other blockchain projects such as Singularity.net, Bancor, Sonm, and ETP Metaverse – meaning that all these platforms will be able to transfer data between each other relatively soon after the mainnet launch.33 It is worth mentioning that ICON and Wanchain are developing “interoperability features” as well; however, not to the same extent as Aion, as 1) WanChain focuses on token exchange and asset liquidity, and 2) ICON, enables smart contracts within its ecosystem to communicate between each other.
The Aion token will mainly be used as fuel within the network (as on any other blockchain). The token will be needed to transfer data from point A to point B, either within Aion-1 or across other blockchains.
However, what the token brings in addition to what we currently see in the ecosystem, is that staking tokens will be required to be able to create bridging nodes and that the token will also be needed to create new blockchains. In the future, the team will enable other blockchains to be secured by Aion-1 nodes if they pay a fee in Aion tokens, and the Aion token will also be needed to access computing resources as the Aion-1 blockchain which will provide the ability to charge for computational power.
With 80% of DApps running on the Ethereum blockchain, the fact that the team aims at building a bridging protocol between these two platforms at first is promising. As we saw, the Ethereum network suffers from scalability issues; therefore, projects such as ICOs or DApps might decide (or be obliged) to process their transactions on the Aion-1 blockchain and provide the final state of the transaction on the Ethereum blockchain. If the team manages to connect the Aion blockchain with Ethereum, the platform would gain a high momentum in term of marketing and have a strong first-mover advantage – leading to other platforms trying to become compliant with the Aion blockchain, to have the possibility of transacting with Ethereum.
Additionally, Aion already has companies who have agreed to develop their own network using the Aion blockchain building feature such as MOOG and all of Nuco’s clients being Aion-compliant from the start. Having an already established company behind the project, with clients and know-how in the ecosystem, is highly positive in regards to the viability of the project.
One downside we see, with the risk of the protocol not being feasible, is that blockchains find a way to solve their scaling issues and that a bigger protocol such as the Ethereum blockchain itself, creates their own system to communicate across blockchains; however, if Aion solves this problem first, developers on the Ethereum protocol might decide to focus on more urgent matters.
There is also the question of the competition. For example, ARK seems to be attempting to solve many of the same issues that Aion is; including a core mainnet, an ArkVM (including “SmartBridges” which will connect blockchains together), and also other features such as a so-called “Point. Click. Blockchain” system which will allow anyone to quickly set up SmartBridge-enabled blockchains. The Ark project appears to be focusing almost entirely on the development of tech so far, so may lag behind in terms of partnerships, but they nonetheless seems to be a solid competitor in the same space that Aion is targeting.
Aion is currently valued at $285 million (after a pump orchestrated by the release of the latest Palm Beach Report). The token has a total supply of 465,934,857 and has released approximately 23% of its total supply as of the time of writing. 305 million tokens are locked up for a period of 3 years – demonstrating that the team is aligned with the project’s success. However, there is another downside for investors, as the team implemented a so-called TPS, an Aion airdrop for stakers, which releases approximately 3 million tokens to the market every month (6.25% of the total supply). Meaning that not to lose money, the token project has to appreciate at a minimum of 6.26% per month to be profitable.44
When comparing Aion against other infrastructure projects, with most valued at above $1 billion dollars, Aion is close to the bottom (currently placed 49th in terms of market cap), despite all the positives surrounding the project. The fact that Aion is underhyped is, in our opinion, due to the fact that Aion is not as easily marketable as other projects and that the team doesn’t try to increase token prices by releasing partnerships, doing announcements of announcements, etc. Moreover, the problem which Aion intends to solve requires a deeper understanding of the whole ecosystem.
For now, the team doesn’t spend much time on marketing and prefers to host meet-ups (such as the one in South Africa just a week ago) to find developers and enthusiasts to build on top of the project. To us, Aion has all the characteristics to be a cornerstone of the ecosystem, and once the project will be deployed, the project should start gaining some traction.
Aion will develop in three phases. The first one focuses on creating the bridging infrastructure and the release of the mainnet, coming by the end of March. The second phase regards the deployment of the Aion Virtual Machine with its own proof of work protocol, and the third phase will see the infrastructure being fully completed. The transfer of Aion tokens from the Ethereum blockchain to the Aion one – the proof of concept – will be a critical moment for the company, as if it doesn’t succeed, the technicalities will appear doomed from the get-go.
Infrastructure projects are generally projects we are bullish on, as without the right infrastructure, DApps and all the promises offered by blockchain technology are not possible. Additionally, the fact that the Aion blockchain is aiming at building infrastructure for businesses is positive to us, as we see BaaS (Blockchain-as-a-Service) becoming a norm before consumer applications become mainstream.
Whoever finds a way to connect different blockchains together first will have a massive first-mover advantage, as most blockchains will likely try to be compliant with that one as soon as possible – creating a massive network effect of compliant blockchains, with other similar projects left behind. However, as of now, we cannot be sure that the project is feasible, and we will have to wait for the proof of concept to occur before being completely sure regarding Aion’s destiny. Nevertheless, given the quality of the team, its vision, and the partnerships already in place in the eco-system, we have ourselves taken a position in Aion.
Disclaimer: We are long Aion.
As always, this is not financial advice. This article is based on personal opinion, and we invite everyone to read Aion’s white paper, available on their official webpage, before investing. Do your own research, and consult a financial advisor if needed.
(1) Aion’s Medium, Introducing the FastVM. Retrieved from: https://blog.aion.network/aionfastvm-c5ccd1628da0
(2) Aion’s Medium, MOOG and Aion partnership announcement. Retrieved from: https://blog.aion.network/moogaionpartnership-6d37ce15b2fd
(3) ETP Metaverse’s Medium, Aion and Metaverse partner on cross chain digital assets and oracles. Retrieved from: https://medium.com/@mvs_org/aion-and-metaverse-partner-on-cross-chain-digital-assets-and-oracles-10552cd4c00c
(4) Aion’s Medium, Initial Release of Aion TPS. Retrieved from: https://blog.aion.network/initialtrsrelease-97f1df8eb06