Have you ever walked around the streets of SoHo?
If you’ve never visited New York City, there’s everything you would expect - the good and the bad. The bright lights, and the big buildings, but also the muggers and the grifters.
What is Vechain?
VeChain is an enterprise blockchain that allows businesses to track their products and merchadise as it moves through their supply chain.
The downtown area of SoHo is one of the best shopping districts in the world, but with the glamorous fashion shows and boutique stores also come the, well, not so boutique stores. And by “not so boutique” I mean guys handing out flyers, trying to pass off their clearly fake Louis Vuitton bags to the pedestrian tourists who have spent all day eyeing the real versions in stores, but deciding that they’re too expensive.
And the real ones are too expensive, which means the guys selling the replicas on the streets can sometimes make good money from the counterfeit bags.
But now imagine that you’re Louis Vuitton walking down that same street.
Sorry, not that you’re the Louis Vuitton. Imagine you represent the company Louis Vuitton. I’ll explain how this ties in to Vechain in a minute.
You walk down the street in SoHo watching a guy with dozens of fake bags laid out on a blanket acting like they’re the same ones that you make a lot of money selling. They’re clearly ripping you off, and it’s costing your company money, but what can you really do about it?
To paraphrase a saying you can hear all over the internet, VeChain fixes this. At its most basic, you can think of VeChain as a supply chain solution on a blockchain. What’s a supply chain solution? It authenticates and tracks goods that travel around the world with many different stops to end up in the hands of consumers.
And it’s not just Louis Vuitton or other luxury brands that can benefit from this. Any company that wants to keep track of everything it manufactures and sells can use a solution like this. In fact, BMW is using VeChain today to track and prevent odometer fraud. Walmart uses VeChain to track some of their food supply. This isn’t the full potential, though.
For example, what if pharmaceutical companies could track the drugs they make all the way to the consumer to make sure there is no skimming, stealing, or leaking? What if consumers could track where their food comes from to make sure it’s always safe to eat?
In short, VeChain is an enterprise level blockchain solution that helps companies track products from manufacturer to consumer, ensuring quality and helping companies pinpoint any issues or discrepancies.
Out with the old, in with the new
So VeChain tracks stuff going from one place to another, so what?
You might even be wondering, “why can’t companies do this without VeChain? We already have the internet.” True! Supply chains have been managed using RFID (radio frequency identification,) NFC (near field communication) technology and QR codes connected to databases for years. These methods are still used by VeChain, but are used slightly differently.
The old methods like RFID are still used, but are now integrated into a system that utilizes two things:
- IoT (internet of things) which basically means that at different points in the supply chain, devices are connected to the internet to make sure that they have done what they needed to (for example, the retailer marks that all goods in a shipment are accounted for.) They then transmit this information over, you guessed it -
- The VeChain blockchain! This information is stored in the blockchain, where it stays forever and anybody can verify it.
If this sounds like mumbo jumbo to you, it’s because VeChain is a solution for businesses, not for specific people. It’s tracking, automating, and accounting for a massive amount of important data that you and other consumers probably don’t care about, but big companies do. This doesn’t mean you can’t invest in it, or even find a use of the technology for yourself, though.
This new method emphasizes the integrity of the data, a key feature for luxury brands who lose billions to counterfeiting, and food companies that need to pinpoint exactly where supply chain issues occur. If you already know about crypto and understand how a blockchain works, the advantage should be clear. Blockchains aren’t just data storage systems like old ones, they ensure that the data can’t be manipulated, erased, or tampered with once it is in a block.
The advantage of VeChain over old supply chain solutions is similar to the advantage that Bitcoin has over other digital ledgers. VeChain, however, works differently from Bitcoin or other cryptocurrencies. There’s a lot to sort out here, so let’s start by defining the VeChain ecosystem.
By itself, VeChain is just a blockchain. In fact, when Sonny Lu (former CIO of Louis Vuitton in China, coincidentally) launched it in 2015, it simply used the Ethereum blockchain. To understand how certain projects can use other blockchains, read our explanation on the difference between coins and tokens.
Back then, VeChain was represented by VEN (just like Apple Computers uses AAPL on the stock exchange.) But in June 2018, VeChain transitioned to its own blockchain so that it wasn’t limited by Ethereum’s capabilities, and this transition carried with it some important changes.
- VeChain is now represented by VET, a token that lets people actually use the VeChain blockchain. Just like using the Bitcoin network would require you to send or receive BTC, using VeChain’s blockchain requires using VET tokens. These tokens function basically like many other cryptocurrencies.
- Here’s the confusing part - VeChain also uses another token - VTHO. This might seem complicated, but we’re going to make the difference really clear here: VET is the stuff you’re actually transferring. VTHO is what you use to facilitate a transaction. VET is the car, VTHO is the gas, just like they have gas in Ethereum.
- According to Peter Zhou, the chief scientist at VeChain, VTHO is used to make sure that VeChain does not suffer from extreme volatility, like many other cryptocurrencies. Because they use only one as the medium of exchange (VET) and use the other (VTHO) to pay for the transactions, and VTHO can be adjusted by the VeChain Foundation, they can make sure that the companies which rely on it can maintain stable transaction fees.
What Consensus Model does VeChain use?
VeChain is also interesting because of the model they use to achieve consensus. Because a blockchain is decentralized, you have many nodes, or different people or organizations, that try to achieve consensus, making sure that nobody cheats or tries to double spend money. In Bitcoin, they use a proof of work (PoW) mechanism, and many altcoins use a proof of stake (PoS) mechanism. We have separate videos on each of these, and I highly recommend watching them if you want to understand how VeChain works.
In a proof of stake system, you can protect the value of a coin by making sure that the people making decisions about it are the ones who actually hold the coin. In VeChain, they use a variation of proof of stake called proof of authority. Instead of “staking,” or proving who has the most of the coin in order to make decisions, the VeChain Foundation chooses which nodes are certified “authorities,” hence the name proof of authority. This means that the coin is actually quite centralized, however due to the nature of B2B operations, many companies are okay with this.
For an enterprise level system, this makes a lot of sense. These huge companies which are relying on the VeChain blockchain to be accurate want to make sure that it is in good hands. So the VeChain Foundation chooses the nodes that end up actually producing blocks which are added to the blockchain, although nodes are obligated to stake at least 25 million VET. This also makes sense - they want the nodes they give authority to have a real interest in the defense of the blockchain.
The History of Vechain
Although VeChain was only started in 2015, it has since inked deals with PricewaterhouseCoopers, the Chinese government, and has explored options with car behemoth BMW. But critics point to its struggle during the COVID-19 pandemic as evidence that it’s not read for the big stage.
During a supply chain crisis, we would expect new technologies like VeChain to benefit, but companies actually have taken a slightly more conservative approach, resorting to older systems and scaling back experimental new projects.
There is also speculation that VeChain’s blockchain may be useful, but that their token may never take off, due to its specific use cases, unlike something like Bitcoin or Ethereum which has a very broad range of use cases.
Regardless of where this project ends up, the idea is certainly there, and supply chain management may be in for a complete transformation due to blockchain technology - whether it’s VeChain, or something else that is waiting in the mind of an engineer right now.
Thanks for watching, we hope you enjoyed this video, we really hope you learned something, and most of all…we hope to see you in the next video!