The original idea of Bitcoin, coming all the way from Satoshi Nakamoto’s whitepaper in 2008, is of a “purely peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to the other without going through an institution”. This is the vision that triggered the development of blockchain, cryptocurrencies and decentralized payment solutions.
And while some of the aspects of this vision were kept for a while, the evolution of cryptocurrency as a whole has made them drift apart from the original statement, and other factors – like the rise of a few exchanges and the lack of scalability in the most popular blockchains – are only contributing to the abandonment of the idea. But companies like Ferrum are ready to offer a solution, a way to go back to basics.
Issues of Today’s Landscape
The first great problem is the popularity of centralized exchanges. Users have traded decentralization for convenience, but the actual and potential issues that rise with this trade are too big to be ignored and are only worsened as userbases increase.
The first and worst issue is the availability of users’ private keys. In a centralized exchange, all of these keys are stored, which attracts potential attackers and puts each user’s funds at a great risk. Other issues include the high transaction fees most exchanges charge, the limitations they present towards new projects to list their tokens in their platform (some reaching fees of $1 million) and sacrificing privacy to perform transactions.
Of course, these exchanges offer features to make the trading experience as convenient and user-friendly as possible, but they are starting to shape themselves to look worryingly similar to traditional banks, with the aggregated risk of being in the scope of attacker from the whole world.
The solution some companies have raised are decentralized exchanges, as many were created in 2018 and are still operational. And while most of the community appreciates their efforts and vision, they are still originating certain problems that difficult their full adoption.
The main problem is that most of them run on the Ethereum Network, which means they can only support tokens under the ERC-20 protocol. This creates the problem of interoperability, as it limits the transactions that can be made to a single blockchain, completely defeating the point of cryptocurrency since it presents a boundary to the “peer-to-peer” aspect. Also, these exchanges are unable to offer high frequency trading because of the limitations of the Ethereum Network.
Another solution is to perform trading without an exchange, called “Over the Counter” trading (OTC), but these usually come with increased costs because of the need of lawyers, escrow services and other middlemen, each charging their own fees.
There are also limitations associated to ERC-20 tokens themselves, which is the protocol that most projects use to create their own tokens, and this overrepresentation makes the issues more difficult to tackle. The first problem was already mentioned: slow transaction rates in the Ethereum Network, with only 15 transactions per second, makes it almost impossible to scale globally. Then comes the fact that they are traded in a “second class” within the network, as they are generated by a special kind of smart contract with less priority.
Ferrum – A New Foundation
Given that most of these problems are too deep to build a solution on top of them, the Ferrum team is proposing a solution beneath the issues, acting as a new bottom layer of the entire environment and allowing for interoperability between different blockchains and exchanges, with seemingly instantaneous transactions and low fees.
Their main proposal is to offer a quick way to create proxy tokens for every asset in a user’s wallet, so they can perform quick trades between these proxy tokens, which hold the same value as the original asset. This also allows for users to digitize fiat currency and other assets, which may pave the way for micropayments and retail adoption via the network.
The key aspect of the conversion is the maintenance of original value, which is ensured by the requirement of proof of the value (v) that was locked or destroyed in the original network (N). Only then is the user allowed to create the equivalent value (v) in proxy Fe(N).
This Fe(N) token is what the user will be able to trade freely and quickly with other tokens within the Ferrum Network, thanks to it’s DAG (Directed Acyclic Graph) design, a non-linear alternative to blockchain in which every transaction holds the necessary data to confirm one or two other transactions (not all transactions validate every other transaction, reducing validation time).
Exporting proxy Fe tokens works in a similar way: the user orders the destruction of a value (v) of Fe(N) tokens, and once the network validates the destruction, tokens for v are unlocked in the external network N, which are later transferred to the address provided by the user. Of course, all of the above is covered by charging comparably low transaction fees via the Ferrum Token (FRM), which can be freely added by each user to give weight to their transaction.
But what makes the Ferrum Network attractive is the offer for a truly decentralized wallet, the UniFyre Wallet, where tokens and keys are also distributed among the nodes of the network, meaning that they are protected against focused attacks due to the availability of multiple backups. On top of that, Ferrum also offers services like the Sub-Zero cold wallet, which will not be connected to the network by any physical means and will only be able to communicate with its sister via QR codes, and their own decentralized exchange, Infinity DEX.
In an environment like today’s, a project as disruptive as Ferrum will face tough opposition from many powerhouses, especially exchanges, but if they find a way to truly promote their benefits to the userbase, the adoption of the Ferrum Network can be nearly imperceptible and unexpectedly fast, giving users a way to digitize their assets that’s more akin to the original approach of 11 years ago.