Launched in 2019, Harmony is a sharded decentralized blockchain that uses a slightly modified version of the Proof of Stake protocol called Effective Proof of Stake or EPoS. The combination of Sharding and EPoS enables the Harmony network to offer block and transaction finality time of only 2.02 seconds which is nearly unparalleled among all the leading blockchain networks today. The average cost per transaction is $0.0001 which is also significantly low. The management, staking, and transactions on Harmony are enabled by the network’s native token, ONE. In addition to ONE, there are thousands of fungible and non-fungible tokens that run on the Harmony blockchain. Harmony’s mainnet runs Ethereum applications with 2-second transaction finality and 100 times lower fees. Harmony also incorporates a cross-chain feature called Horizon, which allows holders to move between ONE and the Ethereum network, meaning they can enjoy both the layer-1 network’s security and the layer-2 network’s efficiency.
What is Sharding?
Sharding is the process of reducing network congestion and increasing transactions per second by creating and adding new chains to the main blockchain, called “shards”. In Harmony, the Beacon chain is a shard chain that accepts the stakes of validators and distributes the stakes among them. The Beacon chain is also in charge of generating random numbers for Harmony’s distributed randomness generation protocol (DRG). Sharding applies on both the transaction and consensus layers and is supposed to improve the parallel processing capacity and consequently, enhance the performance of the entire Harmony ecosystem.
What is Effective Proof of Stake?
Unlike many other blockchains that use the Proof of Work consensus protocol to verify and create new blocks, including Bitcoin and Dogecoin, the Harmony blockchain is formed around what’s known as the Effective Proof of Stake protocol or EPoS. Before attempting to explain EPoS, let’s first establish what Proof of Stake actually is.
In PoS, nodes on the network become validators and stake some of their cryptocurrencies as collateral which is locked up, and then only a few of the validators are randomly selected to solve a math problem. Each block of transactions is only validated once all of the selected validators have solved the math problem. If validators create or confirm a fraudulent transaction, they are punished by losing some of their collateral. Blockchains such as Cardano and Solana are currently using the PoS protocol and Ethereum will soon migrate from Proof of Work to Proof of Stake.
In conventional Proof of Stake models, validators can be chosen by random selection, by social reputation and voting, or by the size of their stake. Staking protocols issue token rewards for every block the validators sign. In most systems, validators earn the rewards in direct proportion to the amount they stake. Some people argue that this system might result in the rich getting richer over time and the inevitable shift of the system towards centralization.
To address these challenges and secure its 4 shards, Harmony uses a modified version of PoS called Effective Proof of Stake or EPoS. In the EPoS protocol, validators are randomly assigned to one of the 4 shards and their staking reward is reduced if their stake gets too large. This will ensure that no single validator grows large enough to corrupt a shard.
There are also delegators who stake their ONE behind a validator in return for a portion of future block rewards and transaction fees. So once the validators are elected and assigned a shard, they create blocks and share the rewards with delegators. Harmony also benefits from the slashing protocol which allows the network to take away some or even all the coins of any validator who breaks the rules and might even eject them from the network completely. Unlike other PoS blockchains, Harmony doesn’t slash validators for downtime. The entry requirements for Harmony are also relatively low, with 10,000 ONEs being the minimum stake for validators and 1,000 ONEs for delegators. Annual returns for stakeholders are currently %10. With an end goal of creating a net-zero state, any ONE used to pay for transaction fees is burnt which counterbalances the ONE provided for block rewards.
What about %1 attacks?
We talked about Sharding and how it will improve the network’s ability to scale and handle more transactions per second. We also know that the Proof of Work protocol can be the target of a %51 attack if an individual miner or a mining group acquires enough hardware to take control of %51 or more of the total hash power of the blockchain network. This is unbelievably expensive and almost impossible for anyone to pull off, especially against giant networks such as Bitcoin and Ethereum. Now, if a PoW blockchain is sharded into 100 shards, for example, a hacker only needs %1 of the network’s total hash power to control a single shard, hence called a %1 attack. What makes PoS blockchains and by extension, the EPoS blockchains immune to such attacks is the randomness of selected validators. Since the selection process is not deterministic, no one can concentrate their hash power on a single shard to take control over it.
Harmony One wallets
Harmony used to support its own chrome extension wallet up until March 15, 2022. But according to Harmony’s official website, the focus of the Harmony development team has shifted away from the chrome extension wallet and they are working on developing a new non-custodial wallet. The chrome extension wallet is therefore no longer supported by Harmony, although available at users’ own risk. In the meantime, there are a number of trusted compatible wallets that you can store your Harmony tokens on, including CoinBase wallet, MetaMask, Mathwallet, and Guarda.
Harmony has realized the huge potential of working with the Ethereum blockchain, rather than competing with it. The Horizon Bridge allows users to exchange tokens, stablecoins, and NFTs, between Ethereum, Binance Smart Chain (BSC), and Harmony blockchains. By adopting the modified PoS mechanism called EPoS, Harmony claims to have solved the technical and safety issues regarding the conventional PoS protocol and promises more decentralization as time progresses. It will be interesting to speculate on the future of Harmony-Ethereum cooperation when the PoS-based Ethereum 2.0 is launched.