In Part 1 of this series, we presented a thought paper on how an ideal crypto payment system should work. In this part, we deep dive into the project xDai.
How does xDai work?
The xDai blockchain is a sidechain of the Ethereum blockchain. It has the same properties as Ethereum but plans to work on a different consensus algorithm (Permissionless delegated Proof-Of-Stake based consensus with public POSDAO). This method will make sure that the transactions are valid and consistent across all nodes in the distributed network and give the unique properties to xDai (5-sec blocks, low fees).
Why xDai matter?
xDai has very interesting features:
- Scaling: xDai scales Ethereum. However, unlike Matic and Loopring, it is a stablecoin. It has a different consensus mechanism than the others. Also, the governance token, Stake, is built on the ERC-677 standard.
- Stability and Decentralization: The Token is pegged to Dai. Hence it is as decentralized as Dai. 1 xDai = 1 US Dollar
- No ETH Gas fees: xDai does not use Gas for transactions. It is the single token for transactions & gas fees. This is important, as this removes the dependency on Ethereum.
- Fast and Cheap: Fast transaction times (5 seconds) and low transaction fees (500 tx for $.01).
- Smart Contract, DApp & toolset compatibility with other Ethereum-based chains like Ethereum, Ethereum Classic, and others.
- Burner Wallet: A unique community payment wallet.
How is xDai created and used?
- The user locks Dai into a smart contract on Ethereum. This means it must remain in that contract and cannot be moved until the contract receives a verified signal to unlock it.
- TokenBridge is the bridge mechanism for xDai. It transmits data about locked Dai to a smart contract on the xDai chain.
- The contract on the xDai chain creates the same amount of xDai.
- This xDai is then usable on the xDai chain. Users only need to switch the chain and xDai is available using the same Ethereum address.
- The wallet which xDai currently recommends is Burner wallet. Burner wallet is a unique concept.
- The Burner wallet works in a mobile web browser. There is no app download and no seed phrase.
- io automatically generates a Burner wallet
- A local-storage stores the private key.
- You need to burn the keys after use.
Burner Wallet is still an early prototype. It is a platform for building simple blockchain applications with a focus on simple user experiences.
The concept of Community economy: Burner Wallets are meant for carrying around small amounts of cash (xDai) for short periods. It is not a highly secure solution because keys are stored in local storage.
In the recent ETHDenver, food trucks used Burner wallet for accepting crypto payment. Transactions worth $38,432.56 in DAI were done with a fee of only $0.20!
6. The exchange of xDai for Dai happens in reverse. xDai is burned (destroyed) in the xDai chain smart contract. A verified signal is sent to unlock the same amount of Dai on the Ethereum mainnet. Unlocked Dai returns to the user’s address on the mainnet.
Other compatible wallets include Alpha Wallet, Portis Wallet, Status Wallet, etc.
Can xDai become a good retail crypto payment solution?
xDai is a project in a developmental stage. The concept is futuristic. If we compare the previous section with an ideal Payment model (Part 1), there are multiple areas in which the project needs work.
- Low decentralization:
- Currently, xDai is centralized. It is dependent on a permissioned chain. Hence, it has low security. When xDai moves to POSDAO (Permissionless delegated Proof-Of-Stake based consensus with public POSDAO), this problem will be resolved.
- xDai is as decentralized as DAI is. However, it can adopt other stable coins and tokens.
- Scale: Can the xDai chain scale? They promise to deliver better speed than the current Ethereum. We need to monitor closely.
- No big wallet integration: Though Burner wallet is a unique concept, not many use it. Without integration with major wallets, adoption will not be successful.
- Poor UI: Burner wallet is still a web wallet. It is not user friendly.
- No Point of Sales integration: We have not seen any partnerships with Point of Sales systems and crypto payment Gateways. The project has not yet focused on global mass adoption.
- No global Marketing: xDai is popular in the Ethereum community. However, it has not done well in marketing themselves to the broader mass.
- Others – There are competitors on the horizon, like Fuse, who are bringing the Plug and Play Model in the Community payment ecosystems. xDai needs to have a serious look into that area.
Read the section Use Cases to understand their current focus areas.
The 2-token architecture
The project has two tokens (similar to Maker Dao)
- xDai – A stablecoin for transactions, payments, and fees.
- STAKE – A Governance Token to protect chain consensus.
One does not need STAKE for everyday chain transactions. Validators commit a large amount of STAKE into a contract. Successful validations result in additional STAKE as rewards. Smaller community members can delegate their STAKE to validators. Validator selection criteria are as below:
- Amount of STAKE in their pools
- A random number selection, which makes sure that the selection process is fair.
The below use cases are not focused on retail payments. Their payments narrative is currently focused on community and event payments majorly.
Peer-to-Peer crypto Payment
Peer-to-Peer payments are one of the most important use cases. Payments are fast, efficient, and stable.
Burner wallet is an ideal example of user-friendly, quick peer-to-peer payments. This wallet was demonstrated in ETHDenver. People used xDAi as a currency to purchase food, merchandise, etc.
Community currencies are the upcoming big thing! These are complementary currencies designed to support local commerce.
They do not replace the national currency. The dynamics of local economies is much different than dealing with larger businesses and government institutions outside of the immediate community. A multi-currency approach, which is stable, dynamic, fast, and user-friendly, easily accessible, and yet digital, makes sense.
In Kenya, poor rural and slum communities have a lot to sell. But the lack of hard cash makes the economy unstable. To solve this The Red Cross embraced Blockchain with the help of Grassroots Economics. It is leveraging the xDai chain to manage currency trading within and among communities in Kenya. More details in this article, Red Cross boosts disaster-prone communities with blockchain “cash”
A platform for Prediction Markets
Stable prices remove fluctuating transaction fees and allow for more participation. Currently, there are no running projects in this use case. Check out an old project called Helena.
A platform for Blockchain Games
A stablecoin like xDai provides stable transaction fees and speed. This helps developers to plan and execute accordingly. Again, there is low adoption in this use case. Refer to the game called DAOG.
One can use xDai for On-chain voting and management for Decentralized Autonomous Organizations. Galt Project is an International decentralized land and real estate property registry, governed by DAO.
Easy Staking is the staking platform for xDai. It allows users to place STAKE into a contract and receive STAKE emissions on Ethereum. It also features:
- Incentives to liquidity providers on decentralized exchanges through unique reward mechanisms
- Staking via hardware wallets
- No minimum STAKE requirements for staking
Quantstamp is currently auditing the code. Once completed, plans will be disclosed.
xDai is currently participating in The Great Reddit Scaling Bake-Off. It is a competition of Ethereum scaling technologies that can handle Reddit’s scale. Below is a load testing result.
Collateral in the Unit protocol
A new decentralized borrowing protocol, Unit Protocol (not yet live) has accepted xDai as collateral for stablecoin loans.
The xDai chain project is extremely popular among the Ethereum community. It has been working under the radar for quite some time. The solution has real-life use and extremely beneficial. However, the project is still under development with quite some way to go. Maker Dao is one of the validators of this project. xDai is making the foundations correct before going big bang. We expect that this project will get more attention in the coming days.
You may like to watch Altcoin Buzz Youtube Video on Best Cryptocurrencies in 2020 You Can Use Today.
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