Ontology: Layer 1 Trust Network for Decentralized Identity and Data

The following report was written by Messari Hub Analyst(s) and commissioned by Ontology Network, a member of Messari Hub. For additional information, please see the disclaimers following the article

Trust opens up new and unimagined possibilities.

- Robert C. Solomon

And so does Ontology.

Building a Trust Network

Trust has been the centerpiece of commerce, community, and happiness. In the course of human history, trust has changed its meaning from a person’s word to a bill of exchange to a legal document and, most recently, in the 21st century to technology. In the last decade, blockchain has created “trustless” systems where individuals don’t need to trust anyone except software to verify transactions. Blockchain brought not only trust to the masses through shared access of decentralized information but has also fundamentally changed the future of trust ecosystems.

However, many blockchain protocols have multiple issues in their trust networks. The fragmented source of verification is time-consuming, costly, and sometimes, can put data at risk. At the same time, data owners usually don’t have full control of their data. Beyond the technology, there also exist issues of content moderation, collaboration, and data exchange.

Ontology, with its mainnet launch in June 2018, is building infrastructure for a peer-to-peer trust network with a decentralized identity that allows users to have full control over their data for real-world use cases. While traditional economies rely on third party service providers to facilitate trust, Ontology enables decentralized trust that aims to integrate the blockchain and different business sectors through partnerships to provide distributed services including distributed communities, data verification, data exchange, and credit across industries.

Consensus Algorithm

TheOntology consensus management smart contract manages the Ontology consensus network. The consensus management contracts run on the Ontology Network, and regularly updates the consensus nodes list and the VBFT algorithm configuration parameters. The VBFT consensus algorithm combines PoS (Proof of Stake), VRF (Verifiable Random Function), and BFT (Byzantine Fault Tolerance). This combination forms the core of OCE (Ontology Consensus Engine). While PoS introduces an economic incentive for consensus nodes to remain honest and act within the rules of the network, VRF guarantees the randomness and fairness of the consensus population generation, and BFT provides the consensus regular feedback about the current state of the blockchain and ensures that state finality can be reached quickly. Ontology boasts of reaching block commits in less than one second.

The VBFT algorithm has many advantages. Due to randomness introduced by VRF, node prediction is very difficult and hence provides high resistance against attacks to consensus algorithms. Like any other public network, Ontology also faces the possibility of network failure, malicious attacks, and risk of forking in the occurrence of network isolation. However, because of VRF’s priority order nodding, it is very difficult to maintain a malicious fork. In the event of cyber-attacks, the consensus management contract also supports mandatory updating of the node through stake-based voting.

Token and Governance

Ontology has a dual token model. The first token, ONT, is used as the staking token for the Ontology Network. The second token, ONG, is used as gas on the Ontology network. While ONG is distributed as revenue to ONT addresses through airdrop, the time cost of staking ONT and the operating cost of nodes are taken as cost inputs. This allows Ontology to operate on the compensation/lease model. The holder of ONT leases its ONT for various tasks assigned by the network and is compensated in ONG. Unlike other PoS based consensus algorithms that use a single token for governance and utility, the dual token model reduces the volatility of the native asset value on the gas fee.

Ontology’s dual-token model divides the staking earnings equally between consensus networks and non-consensus networks. The PoS consensus network requires staking ONT in order to receive ONG based on stake ratio. To prevent consolidation of stakers, the Triones Consensus System dynamically adjusts the candidate network size according to the node cost and scale of business on the chain. The candidate network consists of nodes participating in consensus by meeting performance requirements. The node cost includes hardware costs and the opportunity cost of giving up ONT’s liquidity for staking. The scale of business refers to on-chain business activity including business development on Ontology blockchain. Larger staking sizes reduce the revenue per node and force the staking nodes to either decrease their stake or split the single staking node into multi-node validators which imparts fairness in incentive distribution and gives equal chance to the participants with different stake size.

The Ontology Network

The Ontology blockchain distributed ledger system (DLT), which includes the Core Ledger, smart contract system, and security system. The distributed ledger facilitates consensus, data protection, a data storage, and a framework for smart contract applications. The decoupled architecture of Ontology’s DLT can support other blockchains, non-blockchains, and other traditional information systems as well. For this reason, Ontology is also referred to as “Ontology Chain Group” or “Ontology Chain Network”, since it aims to act as an interoperability layer between blockchains. The application layer allows developers to build applications using Ontology’s decentralized identity tools suite. This application layer is governed by a series of protocol standards clubbed under the umbrella of the Ontology Identity Protocol. The protocol consists of a distributed trust framework which is the core logic layer and provides identity verification, certification, and authorization-related services.

The crown jewel of Ontology is its Decentralized Identity (DID) framework which is also called ONT ID. The ONT ID, which is based on W3C decentralized identifiers, is an open DID protocol that connects all types of entities including people, data, services, and (IoT)-devices through a reputation system. The protocol allows users to manage their data in a self-sovereign way and authorize their data to be shared in applications of their choice. This also makes it possible for users to instantly sign into any application that is integrated with the ONT ID protocol.

It can also be used across a range of popular DeFi applications, EVM, and other virtual machines. The recent launch of ‘Ontology Mercury’, a DID based peer-to-peer communication framework will add support to verifiable credential-related messages as well as support for message routing and security.

The ONT ID framework also includes OScore. The OScore protocolis an independent on-chain reputation score, generated using on-chain data including the user’s ONT ID, engagements, assets, and credentials. OScore can only access user’s data stored on-chain, hence it honors the user’s privacy and anonymity. An entity’s OScore increases or decreases as the user adds more data to the decentralized network. A user with a higher OScore earns better lending rates on platforms like Wing Finance, Ontology’s credit-based DeFi platform. Wing Finance has recently started gaining traction because of its credit base for undercollateralized loans. The total value locked (TVL) in Wing Finance peaked in May this year reaching $400 million however, it still has a long way to go when compared with other DeFi lending platforms.

ONT ID frameworks also include the decentralized data transaction framework(DDXF). DDXF provides decentralized transactions of digital assets using the combination of smart contract templates, transaction modules, and cryptography modules. This provides a foundation for the development of a data exchange protocol which the team is in the process of developing to build out its data marketplace.

ONTO is the decentralized cross-chain wallet of Ontology that supports a variety of digital assets and dapps on several blockchains including Ontology, Ethereum, Binance Smart Chain, Polkadot, and more. Users can also manage their OScore within their ONTO wallet, which takes inputs from on-chain activity and the assets that users hold in the wallet. What separates the ONTO from other cross-chain wallets is the identity functionality which it gets from ONT ID. The digital identity features allow for easy switching between different devices and platforms and allow for one-click creation and management of digital assets on multiple public chains.

The ontology team has been working on cross-chain EVM integration with Ethereum and layer 2 solutions for providing a more comprehensive public chain platform. In addition to Native VM, NeoVM, and WasmVM the team has developed Ontology Ethereum Virtual Machine (EVM). This will help seamless interoperability between Ontology and Ethereum for Dapp developers. The enhanced feature of EVM also includes the Ethereum account system, Ethereum transaction types, and Web 3 APIs. The Ontology’s EVM will use ONG as gas, which compared to Gwei will have low transaction fees.

While Ontology Multi-VM will provide a broad spectrum of use cases and will incorporate more on-chain transaction features in the future for on-chain, the Ontology’s Layer-2 solutions will support off-chain scalability at a lower rate thus extending its reach to real-world data which will serve as a building block for the Ontology’s ambitious data marketplace. The Aristotle upgrade, which is still under development, coupled with cross-chain compatibility, Wasm-JIT, Multi-VM, and distributed data identity technology, the Ontology Layer 2 will aim to compete against other Layer-2 solutions. The Aristotle upgrade will also offer a more interactive approach for smart contract deployment at a lower cost and higher efficiency enabled by features such as operating multiple VMs on the same hardware, low storage costs and support for multi-language.

Last year the team was busy building its core products, this year the focus is on building experience by optimizing deeper product integration across different blockchains and bringing more users onboard.

This includes:

• Integration of DID features on more public blockchain.
• Integration more DeFi platforms into the OScore reputation scoring system
• Deeper native integration with DEXs and dapps using the ONTO wallet
• Launching more product pools and integration of Wing Finance on other blockchains. To date, Wing Finance has launched four pools including an “Inclusive Pool” which is a credit-based pool and “Any Pool” which makes it possible to link real-world assets to the crypto world.

SAGA – The Data Marketplace

Ontology’s SAGA protocol, a decentralized data marketplace, was introduced last year during the Consensus event in May. The SAGA marketplace enables data transfers and personal data storage in a decentralized manner. Also, the marketplace facilitates the buying and selling of data, including data validation, data valuation, privacy, and profit-sharing. Ontology plans to integrate blockchain into real use cases thereby attracting more partners and users for its marketplace.

While at first Ontology appears very fragmented, once all the products are pieced together the bigger picture comes together. A data marketplace backed by decentralized identity solutions, privacy, self-sovereignty of data, and cross-chain interoperability.

Competition and Risks

As of now, more than seven blockchain projects have started using Ontology DID solution and the clientele only seems to grow. There are other projects such as Civic, Transmute, Spruce Systems, Inc., and Secure Key offers DID solutions however none have as many blockchain based clientele as Ontology. Additionally, Ontology’s trust-based credit score offered by OScore and the ONT ID is further enhanced by ONTO, Ontology’s cross-chain wallet.

In recent years, there has been an increased focus on the data economy. Ocean Protocol has already carved out a piece in decentralized data marketplace space and other projects such as Big Data Protocol, Streamr, and Boson Protocol are also betting big on using the data marketplace in their broader frame of things. Ocean Protocol’s Data marketplace is the base for Big Data Protocol’s Data vault and Data Room and Boson Protocol plan to create decentralized ecommerce powered by NFTs which will later have a data marketplace with proposed self-sovereignty features. While Ontology’s SAGA protocol in addition to these projects can create a Web 3 based e-commerce for data, the main features of Ontology such as DID, DXF, and cross-chain EVM could serve as an application layer for the users.

Compared to Ethereum, Binance Smart Chain, or the Polygon ecosystems that have more than hundreds of projects building on them, the Ontology ecosystem has not experienced the same level of adoption. Although Ontology boasts 150 dapps, only one or two dapps have any meaningful user metrics.

Conclusion

Ontology is trying to build a platform with various tools and protocols all aimed at building a decentralized eco-system based on trust. The DLT initially focused on the Decentralized Identity space and is building solutions around credit scoring and data marketplaces. Although there is already strong competition in the oracle and data marketplace space, the market is large and Ontology’s existing applications in the identity solution space might help it enter these markets. Ontology has largely focused at building multiple products at once rather than focusing solely on one market. It’s possible that this strategy will yield successful results or that it will fail to capture meaningful market share in any of these sectors. Only time will tell if Ontology’s strategy proves successful.