Ontology — The Emperor’s New Blockchain

26.08.2018

TL;DR. Ecology:3. Technology:3. Decentralization:2. Valuation:1. Rating:2/10

Introduction

Ontology is a multifaceted blockchain with a broad focus on modular functionality such as decentralized identity, smart contracts, distributed data exchange, wallet- and asset management. Initial consensus algorithm of choice was delegated Byzantine Fault Tolerance (dBFT) which would have strictly modelled the blockchain after NEO, but according to a technical write-up by the team, the project developed a combination of PoS, BFT and what they call Verifiable Random Function (VRF); the combined algorithm is named VBFT and has similarities with NEO's dBFT. A few consensus nodes process transactions and make possible a high throughput. Ontology was initiated by Onchain, a company founded by Da Hongfei which is one of the NEO founders as well. Onchain's blockchain architecture DNA, which seems to bethe basis of what has been built for Ontology, is able to achieve 5 000 -10 000 transactions per second. Further proof of a deep connection between NEO and Ontology is the 'joint task force' setup to create standardized API's, to facilitate a shared smart contract ecosystem etc.

The distribution of the indivisible ONT token is a bit complicated, but this article clears up most of it. Curiously, no ICO was held. All ONT tokens were instead airdropped to mainly NEO holders and Ontology team members. Despite coinmarketcap.com showing a circulating supply of ~184M, the article itself defines the circulating supply to be 547.5M and the total supply to be 1B. 12% of ONT were allocated to the community, mainly through said airdrops before and after mainnet launch. 28% of ONT were allocated to co-builders, probably meaning the initial developers and founders, among others. The NEO Council (now the NEO Foundation) received 10% of all ONT, further implying the closeness of the projects. 25% of all ONT were allocated to what is called 'Ontology Ecosystem Development'. 10% of all ONT tokens were reserved for what the team calls the 'Technical Community'. The last 15% ONT were allocated to the Core Team.

ONT was initially a NEP-5 token (ERC20-like smart contract standard on the NEO public blockchain). On 19th of May 2018, the team addressed a NEP-5 injection vulnerability bug that could change the visible supply, but not the actual token supply. As mainnet launched on the 30th of June 2018, users received the native ONT tokens, and a second token, ONG, finally activated. The ONT/ONG have a similar relation with eachother as NEO/GAS. To each ONT a single ONG is attached, and it is slowly released to the ONT owner over the course of 18 years. ONG is seen as the utility token of the network, and is used to pay for on-chain services such as regular transactions. Neither ONT or ONG is ever burned; used ONG is returned continuously to mainly consensus nodes that maintain the network.

Ecology

Ontology has fallen in to the marketing trap when they announce future announcements just to get some hype going. This usually have a direct affect on price, opening up for obvious insider trading. The official subreddit is both active and mainly focused on price discussions. BD Ratings skimmed through multiple months of old posts, and very few are discussing anything of value, like how the token allocation effects dynamics of the VBFT consensus algorithm. In the few posts that actually discussed the massive allocation of tokens to the team or their associates, focus was only on the possibility of large sell-offs and not on the blockchain centralization attack surface.

Around 200 000 transactions have been conducted on mainnet so far, which averages around 3 000 per day. It is not very much considering the launch of mainnet probably initiates more than usual on-chain activity. At the same time, the whole cryptocurrency space is cold right now when it comes to active users (not technical development).

The closeness to NEO, and shared smart contract functionalities, is something quite positive for Ontology as that ecosystem is large and active.

Grade: 3

Reasons: Low on-chain activity, unprofessional 'marketing', price focused community.

Technology

Ontology is an open source project and show continuous progress on GitHub, manly from half a dozen contributors. The first update after mainnet launch described a growing Ontology team of 100 persons, and the total number of developers was later claimed to be 60. However, those might include developers for maintaining the webpage, building user interfaces etc. In any case the team is larger than your average blockchain project, and the mainnet launch on schedule indicates they have resources.

The technical collaboration with NEO is a positive thing for the blockchain. Any attack on the network can be more quickly thwarted with the help of NEO developers that know their way around the code base.

Just recently, Ontology hired NCC Group to audit the code base. Such expenses are well worth the investment and raises the overall professionalism of the project. On top of this, certain technical bounties are posted on the Ontology webpage as well.

Grade: 3

Reasons: Actively developed. Mainnet launched on time. Onchain probably provides pool of above-average expertise.

Decentralization

Multiple supporters have expressed concern over the level of centralization in Ontology. The philosophical bent has probably been inherited from NEO through the common founders, and is a serious issue. Only about 10% of all supply have been airdropped to the community, leaving close to 90% of tokens in the hand of the Ontology team, its founders and affiliates. The reason why this setup is such a bad idea is that the integrity of the consensus algorithm, VBFT, is dependent on the decentralization of ONT tokens. If too many tokens are controlled by a few people or organizations, it means these people have a considerable power over the consensus process by having the ability to control the consensus nodes. They can in other words censor transactions, blacklist accounts, push for hardforks without broad consensus etc.

Not only is the token allocation reality a large centralization bomb waiting to explode, but the consensus process is as well. The Ontology Foundation has to approve any ONT owner that wants to join the Triones Consensus System to become a consensus node candidate. Curiously, the team denies this in a later Q&A, but BD Ratings can't think of a way around the fact that the team's massive token control indirectly leads to the power of controlling consensus node operators. Additionally, the high threshold in terms of minimum staked ONT also excludes smaller stakeholders, resulting in a number of companiesbeing chosen to operate consensus nodes instead. A proposed solution is staking pools in the form of public smart contracts, and BD Rating will monitor that later on.

The centralization aspects are a bit puzzling as Ontology founder Li Jun earlier has shown that he understands that a blockchain is only needed when parties don't trust eachother.

Grade: 2

Reasons: ONT tokens mostly controlled by the Ontology team and associates.

Valuation

At time of writing, ONT is worth USD 2.45. Since no part of the total supply is vested over decades, all will obviously be included in a market cap calculation despite the screeches we hear coming from Ontology supporters. A total supply of 1B means the market is for now valuing all ONT to about USD 2.45B, which is a very high number considering almost everything we know about the project. Add to this the total value of all ONG, which at time of writing is USD 1.28B. This over valuation of more than USD 3.5B stands out in clearest contrast to the extreme centralization of the project. ONT owners are not in control of the properties of their own money.

Another valuation aspect from the extreme concentration of tokens in the hands of a few people is possible trading activities. Should they want to, they could sell large chunks of ONT, crashing the price considerably. This is also related to the fact that a small amount of circulating supply could artificially drive up prices in the short term, inviting further price volatility.

Grade: 1

Reasons: Insanely high valuation for something so centralized.