Waltonchain — An Unlikely Winner

01.05.2018

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

Introduction

(Update 2018-11-01: Please see the semi-annual ratings review of Waltonchain here.)

Walton is short for "Wisdom alters label, trade organization and network". Walton is also derived from Charlie Walton, the American inventor of RFID (Radio Frequency Identification) technology. Waltonchain is essentially trying to combine the properties of a blockchain with the RFID technology to function as a tamper proof network for Internet of Things.

Waltoncoin (WTC), the token of Waltonchain, was until recently an ERC20 token, but now has its own blockchain with Proof of Work (PoW) and Proof of Stake Trust (PoST). The Proof of Work will initially be done with CPU and GPU mining followed by ASIC mining, and is categorized as being a special version of the X11 algorithm by Dash developer Evan Duffield. The Proof of Stake Trust algorithm is essentially master nodes with a reputation system, where nodes with high reputation have a higher chance of creating a new block. With low cost RFID tag chips and RFID tag readers, Waltonchain aims to make certain types of products tamper proof, ensuring counterfeit products do not enter the supply chain to ultimately reach defrauded customers. The team is also developing related software. It hopes to establish mass production of RFID chips in 2019.

Waltonchain held a pre-sale first through their webpage. The maximum amount contributed per investor was limited in order to have less concentrated wealth in the ecosystem. Later on, a regular ERC20 ICO was held, distributing more tokens.

There will never be more than 100M WTC in existence. Prior to the mainnet launch, 24.8M tokens were tradable while around 45.2M were controlled by the team/foundation, and the last 30M are mineable on mainnet. 5000 WTC are needed for creating a normal master node, and complimentary PoW mining is needed to get all the benefits when running such a node.

Ecology

Waltonchain has an active community on Reddit among other places. Since the team is from Korea and China, no doubt those communities are active as well on other platforms. The team has held several AMA's on Reddit, and has continuous development updates on Medium. The communication has drawn criticism however of not being specific enough with regards to mainnet launch, deadlines, and airdrops among other things.

Looking at the official block explorer, there is extremely low on-chain activity. It seems almost no-one is using Waltoncoin at the moment.

Waltonchain seems to have a lot going on in terms of private collaboration with larger institutions and companies, mainly in China. These companies and institutions explore what is called child chains - private blockchains connected to the Waltonchain parent chain. All collaboration and real world application builds a stronger ecology. In an AMA on Reddit, the team stated that companies such as Tries, Joeone, SMEN etc. managed to increase their yield rate by 1.2%, stock turnover by 5.8%, distribution efficiency by almost 100% and inventory efficiency by almost 200%. It is not mentioned however whether this is on average, or clearly how it relates to the Waltonchain mainnet which by time of this AMA was not even launched.

In a recent AMA, the team mentioned that Waltoncoin would be in the top 4 cryptocurrencies in the future. This is a strange thing to predict and opens up for resentful investors should that promise not be fulfilled. The same tendencies are present in the project whitepaper where a section of the Waltonchain investment value opens up for unnecessary regulatory risks. Having sales pitches in a white paper may be the thing that swings the regulation pendulum to a security label. Also on the Waltonchain webpage is a section on why the WTC token will appreciate.

In another AMA, the team mentions a future rebranding. For BD Ratings this is a signal that the technical product itself is not enough to drive large scale adoption. As part of yet another marketing effort, Waltonchain held a Valentine's Day campaign where participants could win free WTC tokens. The campaign ended in a PR disaster as it turned out the team chose themselves as winner. They seem to have forgot to change twitter handle as they posted as the supposedly happy winner.

As mainnet launched on the 31st of March, the Waltonchain team announced on that day that GPU mining would work as well. Prior to launch, it was communicated on multiple occasions that only CPU mining would work, for example here. Consequently, many miners prepared in vain and were left to wonder what prompted the breach of promise. Also, it is obvious that inside information with regard to this issue could have been beneficial to those who could prepare for both CPU and GPU mining.

Grade: 3/10

Reasons: Seemingly strong corporate collaboration, active community, low on-chain activity, unnecessary marketing efforts like rebranding.

Technology

There are indications that the Waltonchain mainnet is using an Ethereum code base, but it has not been verified how much of a clone it really is. It is quite striking that nowhere on its subreddit or webpage is it stated in detail exactly what kind of code base is used. Since a version of the Dash X11 consensus algorithm is used for PoW mining, the Bitcoin codebase immediately came to mind. However, Solidity is apparently used so BD Ratings concludes Waltonchain mainnet is some kind of fork of Ethereum. The main reason of confusion is that Waltonchain is closed source. In the whitepaper, Ethereum is mentioned only two times, and neither of those are descriptions on how Waltonchain is built.

The PoW X11 algorithm uses 11 hashing algorithms and is utilized by a number of cryptocurrencies where Dash is the most well-known. It has been in use for quite long time so in that regard it is somewhat battle tested against misaligned incentives and technical failures.

In the first AMA thread published on the Waltonchain subreddit, the team specifies differences between Waltonchain and Ethereum, and that Waltonchain can obtain a 5 times transaction processing throughput. This has not been verified and BD Ratings would want an explanation on how this increase is possible without centralizing aspects of the network.

In the Waltonchain whitepaper they call the consensus algorithm Proof of Stake Trust (PoST). The Trust part is some kind of quality judgement made on nodes based on business ecology involvement. This judgement can increase the chance of a node creating the next block and subsequently getting the block reward. What may seem like a good idea initially must be carefully vetted as it very well may introduce centralization in the network, where some entity has the power to judge nodes.

Finally, BD Ratings recognizes that Waltonchain seems strong in the RFID field, which represents a tangible bridge between real world utility and Waltonchain usage.

Grade: 3/10

Reasons: Closed source, not clear with regards to code base, RFID technology competence.

Decentralization

The team keeps code closed source but promises to make it more public in the future. The result is that it introduces a need for trust in the team, which is unnecessary and bad. Having closed source code for a cryptocurrency client is strictly counter to the whole idea of a permissionless and trustless network. Related to this is also the lack of improvement proposal structure like Bitcoin BIPs or Ethereum EIPs. Waltonchain decides the roadmap and what features are good enough for the public chain.

In one of the team's AMA on the Waltonchain subreddit, a question is asked about money laundering and the fact that WTC tokens can be sent cross-border. The team's answer is to recognize the problem of money laundering and that prevention must be standardized in the transaction stage. This is somewhat puzzling as to how that control-mechanism should function in practice. Any whitelist/blacklist check integrated in Waltonchain software would be a massive attack vector from the Chinese state.

Out of the total coin supply, a large part is controlled by the team/foundation. Since they also run Guardian Master Nodes and most probably were better prepared for mainnet mining, it is not unthinkable that they end up controlling even more of the supply. For a PoW and PoS hybrid system, token concentration can create unwanted situations where a few actors hold a lot of power over the future of the chain.

Grade: 2/10

Reasons: Centralization of token wealth, client is closed source.

Valuation

Grade: 2/10

Reasons: With total supply accounted for, the valuation reaches over USD 1B which is very high for a closed source project with presumably forked code base. The valuation is substantially lower than VeChain - a well-known project also focused on reducing counterfeit activities in the supply chain. A revision of the whole rating will be conducted once the Waltonchain code is made public.