CommerceBlock has previously been reviewed by InCodeWeTrust, and as it is one of few ICOs coming out in 2017 and still having active development as well as real world commercial traction this calls for us to revisit the project and provide an update.
Recently the project has released a live sidechain for tokenized gold (DGLD) as an alternative to stable fiat coins. The token is backed by gold produced by MKS (Switzerland) AS (MKS Pamp) one of the world’s most trusted gold dealers.
The token is transferred is transferred on the first live implementation of the CommerceBlock Ocean sidechain, which is a private permissioned network of nodes, and the immutability is guaranteed by Mainstay (see below). The most interesting part for crypto investors who like to participate in the network is the 3rd party security monitoring through Guardnodes, which allows Guardnode operators to earn fees in the shape of the assets traded on the sidechain, in this case gold.
The function of the Guardnode(*) is to be an independent 3rd party monitoring entity of all transactions generated on the private sidechain, in order to make sure that no tampering is taking place before blocks are attested to the Bitcoin staychain (see description of Mainstay attestation below). In practice this means that a full record of the block history is kept by the Guardnode.
In essence, the Guardnode is providing a monitoring service to the sidechain (in this case gold token transaction network) and is being paid with the asset traded on the same sidechain (gold). Guardnode operators need to weight the cost of implementing and operating a Guardnode against the expected service fee received in form of gold tokens, where the latter is the depending on the transaction volume. In order to be eligible to participate as service providers, Guardnodes need to take part in a Dutch auction before the start of a new Service Period. The outcome of the auction determines the amount of CommerceBlock tokens (CBT) that needs to be staked by each participating Guardnode in order to receive a confirmation from the asset backed network on permission to provide the service.
The software necessary to run Guardnodes is fully open sourced and can be found in the CommerceBlock github CommerceBlock Documentation.
It is worth noting that that a virtually unlimited number of asset backed sidechains can be implemented with the CommerceBlock architecture, of which the MKS gold chain is the first. With every new asset backed sidechain the value of the network increases as well as the service fee income for participating Guardnode (one Guardnode can typically service multiple sidechains and one individual Guardnode operator can choose to run multiple nodes).
At the center of CommerceBlock’s technology is Mainstay, a protocol to enforce the immutability of asset backed sidechains.
To provide sidechains with the same level of immutability as Bitcoin, it is necessary to have a method that involves cryptographically binding these sidechains to the Bitcoin mainchain in such a way that the sidechain cannot be compromised without also simultaneously breaking the integrity of the Bitcoin mainchain. This means that for a fixed set of sidechain block signers, users of a sidechain do not need to trust these block signers to protect them from a double-spend attack: consensus on each federated sidechain is enforced by Bitcoin’s proof-of-work. In simple terms it means that Bitcoin immutability is guarantor for the security of the asset backed sidchain.
It becomes impossible to roll back or re-write the state of the sidechain without also rolling back the mainchain (Bitcoin in this case), which is effectively impossible due to the might of Bitcoin’s global proof of-work.
The sidechain may (and will) generate blocks more frequently but can only attest once per Bitcoin block (average every 10 minutes) by committing a hashes of sidechain block transactions.
As foreseen in our 2018 review of CommerceBlock, the project has delivered on its promise to become a leading provider of asset backed sidechain infrastructure, and has launched the first of its sidechain for a major client, PAMP, with its implementation of the gold backed token platform.
The project has been built on solid fundamentals with a highly competent team of ex Bitcoin core developers from Blockstream and elsewhere. It has differentiated itself in its approach by relying on product delivery and adoption by major real world clients, rather than the speculative marketing/exchange listing route taken by the majority of ICO projects before these run out of funds and seize to exist.
This has paid off as the CommerceBlock is now live with one of the world’s major gold producers utilizing its network, generating company revenue as well as providing great benefit to the CommerceBlock token holders.
We see major potential in CommerceBlock going forward as further asset backed sidechains will go live on the network and thus increasing the value for CommerceBlock token investors as well as token holders who are willing and able to operate Guardnodes.
Another interesting perspective to consider is the possibility of CommerceBlock partnering with a major lending platform, which would provide Guardnode operators with the choice to lend out their earned asset fees and receive interest, as opposed to immediately selling off on the spot market. We see indications that the CommerceBlock is looking to take steps in this direction and thus further increase the investment potential for token holders.
The CommerceBlock token model is unique in its staking model as token holders are not paid in CBT for providing the Guardnode service (which would create nothing but sell pressure for CBT), but in the actual real world asset these Guardnodes are tasked to monitor. We will of course continue to follow the project as it is one of the very few coming out as a winner from the 2017 ICO space.