What is VeChain: A Guide for Beginners | Binance.US

Binance.US Staff -

Among the many blockchain projects, coins, and tokens competing for attention in the crypto space, VeChain is one that’s increasingly attracting notice. But what is VeChain, really?

In this article, we’ll cover what makes VeChain unique, its practical applications, and what you should consider when making a decision to buy.

Table of contents

What is VeChain’s history?

Although many crypto holders may not have a large degree of familiarity with it due to its unique focus, the VeChain project dates back to 2015, making it one of the earlier blockchain-based companies.

VeChain was founded by Sunny Lu. Lu formerly worked at Louis Vuitton China as Chief Information Officer — the executive who oversees technology and processes within the company to deliver better outcomes.

At its inception, VeChain was a subsidiary of another (now-defunct) blockchain company called Bitse. VeChain was also originally developed on a fork of the Ethereum blockchain. By 2018, however, VeChain had transitioned to its own blockchain called VeChainThor.

Today VeChain is generating an increasing amount of buzz for its enterprise applications and the impressive partners the project has attracted.

How does VeChain work?

VeChain exists at the intersection of crypto and the Internet of Things (IoT).

But to get a thorough understanding of VeChain’s intended applications, you first need to have a handle on some crypto basics.

The blockchain

A fundamental feature of blockchain technology is guaranteeing the accuracy of data by recording and distributing it in a permanent, irreversible way.

You can think of a blockchain as being something like a paper ledger where transactions are written down in special, indelible ink that can’t be erased or written over. When one page of the ledger fills up, a new page begins stapled to the previous one.

The blockchain stores data in “blocks” (like the pages) and after each block is filled, a new one, permanently linked to the previous one, begins.

But a real paper ledger has to be stored somewhere. This means it could be lost or destroyed. Copies can be made, but then if the copies are updated separately, they must be checked against each other and reconciled.

The difference between a blockchain and a traditional ledger is that a blockchain is a distributed record, not maintained or stored in one centralized place. All participants have access to the data and can add data without being able to alter or corrupt existing data.

Smart contracts

Smart contracts are a way of applying the security and distributed nature of blockchain technology to practical processes.

A contract, in the traditional sense, is an agreement between two parties to deliver certain goods or services by a certain date in exchange for a certain amount of compensation. A traditional contract is a legal document and must be enforced through legal means.

Many contracts can be thought of as “if/then” statements: If predefined condition X happens (such as goods delivered), then Y happens (payment is sent). In this way, contracts are logically similar to many software programs.

Smart contracts may or may not be part of a legal agreement in the same way as a traditional contract. They’re a way of automating transactions or interactions between parties using predefined conditions.

Smart contracts are often used to buy, sell, or trade crypto assets. Applying the security of blockchain technology means that smart contracts can also be used to securely automate many other types of processes.

What is VeChain for?

Now that we understand the nature of the blockchain and smart contracts, we can answer the question, “What is VeChain for?”

The goal of VeChain is to apply blockchain and smart contract technology to the challenges of supply chain management — challenges its founder Sonny Lu would have been all too familiar with as a CIO.

In short, supply chain management boils down to getting the right goods where they need to be, when they need to be there, and seeing where they are at every stage of the journey in between.

VeChain aims to simplify these challenges and provide greater security and transparency for all stakeholders.

For example, used in combination with smart chips or Radio Frequency Identification (RFID) tags and sensors, VeChain could be used to make sure that medicine or groceries are always stored at the proper temperature on their way to store shelves.

Another application could be ensuring the authenticity of designer fashion products, helping protect brands and consumers from counterfeits.

Potentially, VeChain could be used in many other applications where secure, trusted data must be automatically generated and stored in order to negotiate fair transactions.

What makes VeChain different?

Several characteristics make VeChain stand out among the many new cryptocurrencies and blockchain projects on the market.

Unique focus

The secure, distributed nature of blockchain technology means that it has a host of potential applications. However, many of these applications remain theoretical.

VeChain’s focus on using the blockchain to provide supply chain management solutions is unique and based on real problems and real needs for businesses in many different industries.

Consensus mechanism

All blockchain systems require a consensus mechanism — a way for all of the parts of the distributed “ledger” to verify data and ensure they’re in agreement with each other.

The two most well-known consensus mechanisms are proof-of-work and proof-of-stake. However, VeChain doesn’t use either of these.

Instead, VeChain uses a system called proof-of-authority. In this system, known validators called Authority Masternodes, who disclose their identity, go through a know-your-customer process and meet other requirements set by the VeChain Foundation to confirm transitions.

Two-token system

The VeChain project uses two distinct crypto tokens: VeChain (VET) and VeChainThor (VTHO). This is to prevent transaction costs from being affected by token price volatility so that VeChain is more suitable for business use.

VET is used as a way to transfer value within the VeChain ecosystem. On the other hand, VTHO is used for transaction fees and is generated as a reward for running proof-of-authority nodes.

Both VET and VTHO can be traded on cryptocurrency platforms, like Binance.US. Users can also earn VTHO by staking VET in their crypto wallets.

Who is VeChain partnered with?

In the past few years, VeChain has announced several high-profile partnerships, which has helped generate the high level of buzz surrounding the project.

The global professional services auditing firm PricewaterhouseCoopers has announced it will use VeChain blockchain-powered solutions for its clients, which include the likes of Ford, IBM, and Dell.

In 2018, VeChain joined car manufacturer BMW’s “StartUp Garage,” a program where BMW works with promising companies developing technologies with automotive industry applications before they’re ready for market.

In 2022, VeChain also announced a partnership with Amazon Web Services in developing the VeCarbon platform, which helps companies determine their carbon footprint and hit emissions targets.

Other “big names” using VeChain-based solutions include appliance company Haier and fashion brand H&M.

VeChain is also partnered with a number of Chinese government entities, including the state-owned telecommunications operator China Telecom.

What are the pros and cons of VeChain?

Now that you’re informed about what VeChain is and what it aims to do, let’s consider some of the pros and cons so you can decide whether VeChain is worth your attention.

Pros of VeChain

In contrast to some blockchain projects that have purely theoretical use cases, VeChain seems to have identified important real-world applications, demonstrated promising implementations, and even has its solutions in use by some customers.

The validation VeChain has received through some big-name partnerships is also a reason for optimism about VeChain’s future.

Finally, with its founding in 2015, VeChain has already outlasted many other flash-in-the-pan cryptos and is led by an experienced team, including original founder Sunny Lu.

Cons of VeChain

For crypto enthusiasts who place great importance on the decentralization and anonymity that crypto can offer to users, getting on board with VeChain might prove problematic.

Users who want to run authority nodes and have greater say in the project’s governance have to disclose their identity. In the future, it’s possible some of VeChain’s partners may eventually demand even greater verification.

Furthermore, although VeChain’s list of partners may be impressive, users should be sober-minded about who they’re metaphorically getting into bed with. VeChain’s links to Chinese government entities may give pause to some.

Finally, with its focus on business supply-chain applications, VeChain may not be able to generate the level of interest from individuals that causes other cryptos to see huge gains in value.

What you need to know about VeChain

What is VeChain? It’s an effort to use smart contract blockchain technology to solve problems of supply chain management, like shipment tracking, quality assurance, and counterfeit detection.

With its unique technical characteristics, real-world applications in a trillion-dollar industry, and impressive partnerships, it’s easy to see why VeChain has become intriguing to so many.

While VeChain has the potential to achieve great things, you should always make sure you thoroughly understand the pros, cons, and risks of any cryptocurrency or token before getting on board.

We hope this article gives you a strong foundation of knowledge to build on as you research.

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