What is Zilliqa and the ZIL Token?

Written by Ivan on Tech

August 19, 2021

Zilliqa seeks to deliver a secure, stable blockchain platform for large enterprises wishing to build decentralized applications (dApps). There’s nothing novel about that endeavor. However, Zilliqa is the first of its kind in one aspect – its built-in sharded architecture.

In this article, we’ll go over in-depth what Zilliqa is, the technical details, and some of the compelling advantages of Zilliqa’s platform. Tokenization and fractional ownership of real-world assets are some of the use cases Zilliqa provides. 

This sector shows incredible promise, and one crypto trader/analyst estimates it could tokenize $544 trillion worth of assets. Only time will tell if that prediction comes true. In the meantime, let’s dig deeper into Zilliqa to see how it works.

The Zilliqa Blockchain

Zilliqa is a decentralized blockchain that processes transactions via subdivided networks without a trusted, central authority. In addition, its architecture allows it to maintain decentralization as it grows.

It took a talented team of entrepreneurs, academics, and engineers hailing from the National University of Singapore to conceive Zilliqa. More importantly, when they launched the Mainnet in January 2019, Zilliqa became the world’s first public blockchain platform to implement sharding successfully. Since sharding plays such a key role in Zilliqa, let’s look more closely at it. 

What is Sharding?

Sharding isn’t a new concept. Its origins can be traced back to traditional database architecture, where it improved scalability and performance. Blockchain companies use sharding to get similar improvements which ultimately increases the transactions per second. 

What sharding does is split a blockchain’s network into smaller partitions, and these smaller partitions are called shards. More importantly, Zilliqa team members claim the honor of being the first to put the concept of blockchain sharding on an academic paper in 2015.

Blockchains and sharding can seem confusing at first. But if you want to become a blockchain developer, you’ll need to learn all about it. The best place to do that is Ivan on Tech Academy, so start your world-class blockchain education today!

Sharding and Ethereum 2.0

If you’ve been in the crypto space for a while, then you’re already aware of Ethereum’s scalability issues and high gas fees. These issues have diminished somewhat since the bull market’s peak. But once network usage kicks off again, higher transaction fees will return with a vengeance. 

That’s why a slew of layer-2 solutions like StarkWare and Optimism have sprung up along with sidechains such as Polygon (Matic). They’ve helped ease the congestion and bring transaction fees back to a palatable level until ETH 2.0 rolls out. 

Whether these layer-2 and sidechain solutions prove to be a temporary or permanent part of Ethereum’s ecosystem is yet to be seen. However, regardless of how it goes, sharding is set to be implemented as part of the Ethereum 2.0 upgrade in 2022.

While Ethereum users are still waiting, sharding is already a part of Zilliqa’s architecture. Zilliqa’s sharding solution allows their blockchain to scale linearly as the network’s size increases. Furthermore, since Zilliqa can handle a greater volume of transactions, it’s ideal for large enterprises.  

Zilliqa Offers Scalability, Security, and Decentralization

Most freelancers and independent contractors are familiar with the saying, “you can have it good, fast, or cheap – pick any two.” This “two-out-of-three” option is helpful when dealing with difficult clients who want it all. When a client becomes too demanding, the contractor can say, “I can do it fast and cheap, but it isn’t going to be good.” Or, they might say, “I can do it fast and good, but it’s not going to be cheap.” Any freelancer who offers their clients all three is likely to get “rekt” or, at best, get very little sleep at night.   

Likewise, blockchain solutions have typically offered their version of the two-out-of-three options, including scalability, security, or decentralization. In this regard, some blockchains sound like freelancers: “You can have them secure and decentralized, but they’re not going to be scalable.” 

Ethereum, DeFi, and the Binance Smart Chain

Let’s take Ethereum, for example. This blockchain is battle-tested, secure, and also decentralized. However, the latest manic phase of user activity exposed Ethereum’s scalability issues – especially within the realm of decentralized finance (DeFi). Yield farming became practically untenable for the average user with the network congestion and exorbitant fees. 

This predicament opened the door for Binance to develop the Binance Smart Chain (BSC) and its resident protocols like PancakeSwap. These new offerings enticed yield farmers who couldn’t afford the high fees on DeFi protocols. BSC was successful in offering security and scalability (low transaction fees) but not decentralization. Some might question how secure BSC is, but no one asks whether or not it’s centralized.

The point being, it’s tough for a blockchain to pull off the trifecta of scalability, security, and decentralization. Moreover, this lack of scalability in legacy blockchains continues to boost transaction fees. 

Zilliqa’s scalability features keep gas fees low, however. So, let’s take a deeper look at its architecture.

Are you ready to take a deep dive into these topics? If so, enroll at Ivan on Tech Academy, take the Ethereum 101 course, or get started in decentralized finance with the DeFi 101 class. 

Zilliqa’s Architecture and Sharding

Sharding helps Zilliqa scale to meet the needs of its growing ecosystem. However, as mentioned, sharding is not merely an add-on feature. It’s at Zilliqa’s core. 

So, unlike some of the other legacy blockchains that can’t pull off the trifecta, Zilliqa claims its architecture maintains a healthy balance between security, decentralization, and scalability. The team further claims that Zilliqa can process thousands of transactions per second, meaning they aim to rival the speeds of VISA and MasterCard. 

Zilliqa and Network Sharding 

Sharding takes various forms, such as transaction sharding, computational sharding, and network sharding. This article will only look at Zilliqa’s network sharding, which divides the network into smaller groups of nodes, each of which is called a shard. Furthermore, sharding is what makes parallel processing possible. 

To understand how this works, we’ll use a simple example. Let’s say there are 1,000 nodes. By dividing the network into ten shards, each shard can contain 100 nodes. If each shard processes ten transactions per second, the shards combined can process 100 transactions per second. 

This example uses 100 nodes to simplify the math, but in reality, each shard would need to contain more than 100 nodes to prevent “Sybil” attacks which we’ll explain below. For now, understand that sharded architecture allows parallel processing of transactions, enabling Zilliqa’s throughput to increase linearly along with network demands.

How Zilliqa Prevents Sybil Attacks

Sharding sounds simple in theory but is not so easy to put into practice. For one thing, the network must withstand Sybil attacks. In a Sybil attack, malicious nodes try to compromise the system by negatively influencing the decision-making process from the majority of nodes.

Zilliqa is a public blockchain, and to function correctly; it needs a sufficient number of nodes. However, being public means opening itself up to the possibility of malicious node intrusions.

Let’s go back to our example of 1,000 nodes on the network. If we want ten shards to contain 100 nodes each, who decides which nodes go to which shard? Zilliqa team members can’t control these sets of nodes because they could go rogue and cluster malicious nodes into a single shard hypothetically.

Next, we need to consider shard size, which plays a critical role in system security. If the shard size is too small, it’s easier for attackers to seize control. In our example, a shard size of 100 would be too small and therefore insecure. On the other hand, with 600 nodes, the attack probability drops to one-in-a-million. That’s why Zilliqa requires a minimum shard size of 600 nodes.

Zilliqa’s PoW Consensus Mechanism

Nobody wants malicious nodes deciding which transactions get accepted or rejected on the network, and there are various ways to discourage Sybil attacks. One way is to require a large deposit as collateral to become a node. Another way is to use a “Proof-of-Work” (PoW) consensus mechanism to solve a complex computational task. 

PoW makes it difficult for abusers to span multiple nodes. Therefore, Zilliqa has opted for PoW. Every node wishing to join the Zilliqa network must first perform a PoW. Existing nodes then validate and authorize the node to join the network. So, in essence, PoW serves as a ticket to entry, and only valid ticket holders can join the network. 

To be more specific, Zilliqa elects a set of nodes called the DS committee based on PoW. Next, Zilliqa uses a “first-in-first-out” (FIFO) method to push out one DS member and replace them with a new member. The new node that solves the PoW quickest gets into the committee. This procedure keeps the DS committee size fixed at any given time. 

After the DS committee election, it initiates the sharding process and randomly assigns each node to a specific shard. 

Zilliqa and Practical Byzantine Fault Tolerance (PBFT) 

As crucial as network sharding is, it can’t deliver high transaction throughput standalone. Throughput levels also depend on how fast the shards can agree on sets of transactions and propose the next block. Therefore, an efficient consensus protocol is a must. 

Zilliqa employs PBFT for consensus within each shard. When using PBFT, all the nodes within a shard get sequentially ordered with a primary node and backup nodes. Additionally, each round of PBFT undergoes three phases:

1. Pre-prepare phase – The primary node sends a “pre-prepare” message announcing the next record for group agreement. 

2. Prepare phase – After receiving the pre-prepare message, each node validates the record’s correctness and transmits a “prepare” message to the others.

3. Commit phase – Upon receiving the super majority’s prepare messages, each node multicasts a commit message to the rest of the nodes. Lastly, every node must wait for the super majority’s commit messages to ensure that enough nodes agree to the validity of the leader’s proposed record.

In summary, after these phases, the honest nodes will either accept or reject the record.

PBFT Leaders

PBFT depends upon a leader to start the sequence of phases and will only proceed further when a sufficient majority exists. In the unfortunate case where a malicious leader manages to insert himself, PBFT offers a protocol to remove and replace him. 

Other Benefits of PBFT

PBFT is beneficial as it can leverage Zilliqa’s small shard size and offer transaction finality. Without getting too deep into this feature, the result is a low energy footprint which is helpful due to the recent criticism of Bitcoin’s PoW mechanism for its wasteful energy consumption. Since Zilliqa uses PBFT for consensus and only uses PoW to establish node identities and prevent Sybil attacks, it’s not as computationally intensive as Bitcoin.

Zilliqa and the Scilla Language

Smart contracts routinely handle hundreds of millions of dollars worth of digital assets, especially in DeFi. So, developers must write them with security as a priority. 

Smart contract auditing is also a necessary (but often omitted) step before launching a project. But, even with audits, DeFi protocols still get hacked with alarming frequency. Hardly surprising when you consider the amount of money flowing across these networks. It naturally attracts the most sophisticated hackers. 

To address this issue, Zilliqa relies on application-level security provided by “Scilla.” Scilla is their “safe-by-design” smart contract language that addresses some known security vulnerabilities that still plague other programming languages. With Scilla, developers can write safe contracts from the start.

So, what sets Zilliqa apart from all the other blockchains? The team believes their blockchain is unique because of its built-in sharding feature, the way it balances scalability, security, and decentralization, and their Scilla programming language.

Zilliqa’s Use Cases

Tokenization and fractional ownership are already in play for Zilliqa. These options give investors a broader range of opportunities such as tokenized real estate, art, wine, or other luxury goods like vintage cars. After all, how many of us could afford to buy a Ferrari 250 GTO by ourselves? Broken into fractional bits, however, smaller percentage ownership opportunities can become a reality for the average investor. 

Ferrari 250 GTO

Zilliqa’s team announced they were working on a joint venture with Hg Exchange in January 2019. The Hg Exchange is Southeast Asia’s first member-driven private securities exchange. This exchange can offer fractional ownership of tokenized assets to its investment community with Zilliqa’s underlying blockchain infrastructure. 

Zilliqa and Hg Exchange

Here’s how they work together: Hg Exchange’s security tokens run on the Zilliqa blockchain. Smart contracts coded in Scilla mint burn and transfer these tokens on behalf of Hg Exchange. What’s more interesting is their choice of a rather peculiar asset – whisky! It may sound strange at first, but rare whisky is growing in popularity as an investment vehicle. That’s because of scarcity – rare casks of whisky increase in value with each bottle consumed. 

Such are the wonders of tokenization and fractional ownership. However, if rare casks of whisky aren’t your thing, you can still get involved with Zilliqa by investing in their ZIL token. Or, if you’re interested in becoming a long-term holder or a decision-maker in their ecosystem, gZIL is their governance token. You can also visit their site for a list of compatible wallets to store ZIL safely. 

If you’re ready to become a blockchain developer, or if you simply want to educate yourself further on some of the topics we covered, make sure to visit Ivan on Tech Academy and check out the list of courses. An excellent place to start is Crypto for Beginners.

Author MindFrac

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