Harmony Crypto: A Smart Investment Decision?

Harmony (ONE) is a cryptocurrency that has been described as a good investment. ONE is the native token of the Harmony network, a blockchain infrastructure that aims to scale without sacrificing security and decentralisation. The network is powered by sharding, which establishes several separate groups of validators and allows them to approve transactions and new blocks simultaneously. This has led to an increase in transaction speed and a reduction in fees. However, ONE faces stiff competition from other cryptocurrencies, and its price has been volatile. As with any investment, there are risks involved, and it is important to do your own research before investing.

Harmony's sharding process

In the Harmony blockchain, each shard has its own set of validators that are randomly assigned. These validators communicate and reach consensus within their shard, as well as across shards in the case of cross-shard transactions. An epoch in the Harmony blockchain is a period during which the validator committees of shards remain unchanged. At the end of an epoch, a new validator committee is elected on the beacon chain, and all shards then enter the new epoch with the updated committee.

To ensure security and consensus across shards, Harmony employs a consensus protocol called Effective Proof-of-Stake (EPoS). This protocol helps reduce centralisation and increase transaction speeds by randomly assigning validators to shards and having them propose and validate blocks within their respective shards. This prevents double-spending and maintains the order of transactions.

Additionally, Harmony enhances its sharding mechanism with cross-linking, which involves creating checkpoints that connect shards and store them on the main chain. This ensures the integrity and consistency of the entire blockchain, as these cross-links serve as reference points for shard states.

ONE token's inflationary nature

The ONE token is an inflationary token, which means that its supply increases over time. This is in contrast to deflationary tokens, such as Bitcoin, where the supply decreases over time. Inflationary tokens are designed to encourage transactions, as the increase in supply leads to more tokens being available for use.

The ONE token is designed to be inflationary to encourage usage and transaction. As per its whitepaper, the Harmony protocol issues a constant annual reward of 441 million tokens. This is done to ensure that the network has enough funding to sustain itself and support its development. The relative effects of this issuance will decrease over time, with the number of tokens issued remaining the same but the overall supply increasing. For example, in 2022, the issuance of 441 million tokens represented a 3.35% increase in the total supply, while in 2030, it will represent a 2.64% increase.

The inflationary nature of the ONE token has been a topic of discussion among investors, with some arguing that it could lead to a decrease in the token's value over time. However, it's important to note that the Harmony protocol also has mechanisms in place to mitigate the potential negative effects of inflation. Firstly, staking rewards are offered to incentivize users to lock up their tokens, which reduces the circulating supply and can help to support the token's value. Additionally, the burning of tokens through transaction fees can also help to reduce the overall supply and maintain its value.

The inflationary model of the ONE token is also similar to that of fiat currencies, such as the US dollar, which has been inflating at a rate of about 2% per year. This familiarity with the model can be reassuring to investors, as it has been studied and observed for a long time. However, one of the main risks of inflationary tokens is the potential for runaway inflation and devaluation if the supply is not carefully managed.

Overall, while the ONE token is inflationary in nature, the effects of inflation are mitigated by the protocol's mechanisms and the potential for token burning. The inflationary model also encourages transactions and usage, which can be beneficial for the network's growth and adoption.

Competition from Cardano, Avalanche and Solana

When considering whether Harmony crypto is a good investment, it is important to acknowledge the competition it faces from Cardano, Avalanche, and Solana. These are all platforms for decentralised applications (dApps) and custom blockchain networks, and they pose a significant challenge to Harmony in the market.

Cardano is a proof-of-stake blockchain platform that aims to allow "changemakers, innovators, and visionaries" to bring about positive global change. It is one of the biggest blockchains to use a proof-of-stake consensus mechanism, which is less energy-intensive than the proof-of-work algorithm used by Bitcoin. Cardano also prides itself on its academic rigour, with all technology developed undergoing peer-reviewed research. This stability and durability help Cardano to stand out from the competition.

Avalanche, on the other hand, is a direct rival to Ethereum, aiming to unseat it as the most popular blockchain for smart contracts. Avalanche has a unique architecture, consisting of three individual blockchains, each with a distinct purpose. This allows Avalanche to have a higher transaction output of up to 6,500 transactions per second, without compromising scalability. Avalanche also has its own consensus mechanism, which does not rely on one leader to process transactions, allowing for immediate finalisation and improved speed.

Solana is another high-speed layer-one blockchain that supports decentralised applications. It is not clear exactly what makes Solana stand out from the competition, but an analyst at Capital.com, Mikhail Karkhalev, has acknowledged that it is one of the market leaders in the dApps platform space, alongside Ethereum and Cardano.

With such strong competition, it will be challenging for Harmony to displace these established platforms from their positions. However, it is worth noting that Harmony has been recognised as an "interesting project" with the potential to find its audience and help grow some promising projects. Ultimately, whether Harmony is a good investment depends on individual circumstances and risk tolerance, and it is important to carefully research and understand the risks involved before making any investment decisions.

Cross-chain capabilities

Harmony's cross-chain capabilities are a key feature of its blockchain infrastructure. The network's ability to share data across multiple blockchain networks, regardless of whether they run on a proof-of-stake or proof-of-work governance system, is a significant advantage. This is achieved by enabling nodes on other networks to validate transactions.

In late November 2021, Harmony launched a bridge called Horizon, facilitating cross-chain interoperability with Ethereum. This feature allows for the transfer of assets between the two networks, with potential applications in cross-border payments and the easier exchange of cryptocurrencies. Harmony has also established bridges with other chains, including Binance.

The Harmony-Binance bridge is a decentralised exchange with 100+ BNB assets. It is a smart-routed bridge with Binance as its trading partner. When tokens are sent from the Harmony Chain to the Binance Chain, they are locked on the Harmony Chain via a smart contract, and an equivalent number of tokens are minted on the Binance Chain. This process is facilitated by bridge validators, who act as event relayers, and a multi-signature system, where multiple validators approve transactions.

Harmony's cross-chain capabilities also extend to other chains. The Iris Bridge, for example, is a fully permissionless, trustless, and decentralised bridge for all ERC20 tokens, employing an Ethereum light client on Harmony using Solidity. Additionally, there are plans to build bridges with Bitcoin-like blockchains, such as exploring collaborations with the Keep network to bring tBTC/hBTC support to the Harmony network.

The cross-chain capabilities of Harmony open up interesting possibilities for non-fungible tokens (NFTs). With lower gas fees, the network may be more appealing to creators who want to mint NFTs. Furthermore, Harmony has pointed out that while bridging NFTs between networks may initially be expensive, subsequent transactions will be cheaper.

Potential for NFTs

Harmony (ONE) is a cryptocurrency and blockchain network that aims to improve interoperability between multiple blockchains. It is a layer-2 protocol built on Ethereum that seeks to help decentralised applications (dApps) scale up by offering faster and cheaper settlements.

Harmony has huge potential for non-fungible tokens (NFTs). Its cross-chain capabilities, enabled by its sharding technology, allow for the transfer of NFTs between different blockchains. This means that content creators and collectors can mint and collect NFTs at a lower cost, as the high gas fees associated with Ethereum are avoided.

In November 2021, Harmony introduced a cross-chain NFT bridge to enable the transfer of ERC721/ERC1155 tokens between Ethereum and Harmony and vice versa. This bridge also assists native Harmony NFTs, allowing artists to mint their first batch of NFTs on the Harmony blockchain.

Harmony's low gas fees make it an appealing platform for NFT creators. Additionally, the ability to bridge NFTs between networks may be initially expensive, but subsequent transactions will be cheaper.

The potential for NFTs on Harmony is further enhanced by its high transaction processing speed. As of November 2021, Harmony was processing 2,000 transactions per second, comparable to Visa, with ambitions to reach 10 million transactions per second in the long term. This scalability, coupled with decentralisation and security, could enable the blockchain to support large decentralised exchanges, large payment rails, and "internet-of-things transactions".

While ONE faces stiff competition from other layer-2 blockchains, its innovative sharding technology, transaction speeds, and low fees make it a compelling option for NFT creators and collectors.

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