Loom Network (LOOM): dApp Building Platform for Ethereum
Is Loom Network’s Layer-2 scaling solution the key to building enterprise-grade dApps on Ethereum?
Updated August 31, 2021 • 6 min read
Loom Network is a Platform-as-a-Service (PaaS) blockchain solution that enables sidechain development for Ethereum-based applications. Loom believes that decentralized applications (dApps) have their own unique needs when it comes to consensus methods and security measures, so they should be able to create and implement their own rules to effectuate faster and easier scaling. Originally, the Loom Network focused on blockchain-based social media and gaming dApps. But it has since changed its business model to concentrate on enterprise blockchain applications for government agencies and healthcare providers. LOOM, the Loom Network’s ERC-20 token, is the utility token that powers Loom Network.
Origin of the Loom Network and the LOOM Token
The Loom Network’s headquarters have been based in Bangkok, Thailand since the project’s launch in 2017. In 2018, Loom held an Initial Coin Offering (ICO), alongside a private sale of its native utility token LOOM, which raised $45 million U.S. dollars.
LOOM is an ERC-20 token with a fixed total supply of one billion. The company keeps 35% of the total supply in a reserve fund to ensure the ongoing development and longevity of the project, while 10% is held by team members and advisors. The remaining 55% of the token supply is in public circulation.
In order for clients and partners to access the Loom Network, they need to hold a minimum of one LOOM network token. To use LOOM, businesses not only pay subscription fees for the Loom Network Platform-as-a-Service (PaaS) model, but also pay transfer fees for moving assets between Loom Network sidechains and the main Ethereum blockchain. We discuss this sidechain architecture in greater detail below.
The Loom Network realizes its vision of making decentralized applications (dApps) easily scalable on the Ethereum blockchain using the following tools:
Loom Network’s Software Development Kit (SDK)
Delegated-Proof-of-Stake (DPoS) Consensus Methodology
dAppChains as a Layer-2 Scaling Solution
Loom Network SDK for Application Development
The Loom Network provides an SDK that simplifies application development for software engineers looking to build on the platform. This SDK enables developers to build all kinds of dApps without requiring advanced knowledge about how to build natively on the Ethereum blockchain, and without needing to know Ethereum’s native Solidity programming language. Applications developed using the Loom SDK can then be integrated into the Loom Network platform through their own unique Ethereum sidechain, called the dAppChain, designed to carry out the distinct rules, consensus methods, and data protocols that each developer might choose for their own applications.
Loom Network Delegated Proof of Stake (DPoS)
The Loom Network operates on a Delegated-Proof-of-Stake (DPoS) consensus mechanism. Much like the more common Proof-of-Stake (PoS) system, DPoS incentivizes users to confirm network data and ensure system security by staking collateral. However, the distinctive characteristic of DPoS is that the system layers on a voting and delegation structure, where stakeholders don’t just stake their collateral, but also have an active voice in making consensus more efficient, transparent, and democratic. In contrast to PoS, where nodes are usually awarded the ability to process new blocks based solely on the total amount each node stakes, the DPoS system allows users to delegate their own stake to a node of their choosing (known as a delegate), and in essence elect the nodes they wish to validate new blocks. This chosen delegate works much like a senator or other elected representative in a national political system, speaking and acting on behalf of the greater community that chose them.
Further, unlike most PoS models, Loom Network’s DPoS system is designed so its transaction finality is not dependent on all the network nodes competing for the chance to validate new blocks. By democratically choosing the delegates that will verify new blocks ahead of time, the DPoS consensus mechanism is designed to function much faster than a regular PoS system. This functionality allows Loom’s DPoS system to achieve transaction finality much faster than the average PoS-based blockchain, drastically improving network scalability by producing faster transaction confirmations with reduced network latency. Other projects that use DPoS include EOS, Cardano, Tron, Tezos, and Cosmos.
Loom’s dAppChain as a Layer-2 Ethereum Scaling Solution
In the blockchain world, Layer 1 refers to the main underlying blockchain architecture, while Layer 2 refers to a network built on top of Layer 1. For example, Bitcoin would be considered a Layer-1 system, while the Lightning Network would be considered a Layer-2 system. The Loom Network is a Layer-2 solution built on top of Ethereum (a Layer-1 solution).
Loom originated from a desire to create a simple, fast, and scalable middleware platform that could enable developers and corporations to build applications on the Ethereum network more efficiently. Middleware is often likened to “software glue.” Ethereum suffers from the same scalability problem that is quite common among many public blockchain networks — especially those that require multiple network nodes to verify each new block of transactions added to the blockchain. The different consensus methods that various blockchains choose to integrate in their respective protocols can significantly affect the rate at which consensus can be achieved, but all consensus mechanisms take time. The delicate balance of speed, decentralization, and security is what has become known in the blockchain world as the “scalability problem” (also known as the “scalability trilemma” or “Blockchain Trilemma”). This concept asserts that it is impossible to build a blockchain protocol that perfectly implements the three main characteristics — decentralized, secure, and fast — required to create a truly balanced, state-of-the art system that is optimized for widespread enterprise use. In other words, due to the scalability problem, compromises often need to be made on one or more of these three fronts.
Various solutions to the scalability trilemma have been implemented over the past several years. Layer-1 solutions are those that make direct changes to the Layer-1 blockchain protocol itself. An example of this kind of change would be increasing the block size in order to pack more transaction data into each new block, with the goal of increasing network scalability and transaction finalization times. However, one of the downsides of increasing overall block size is that each node must then process more data-intensive blocks to achieve finality. Arguably in this example, increased throughput could end up reducing decentralization because many network participants would not have the power to process larger blocks efficiently. In turn this might make the barrier to entry too high for individuals and hobbyists, while concentrating power in the hands of large and sophisticated enterprises.
In contrast, Layer-2 scaling solutions work by increasing the speed of the network without significantly increasing the burden on individual nodes. They accomplish this by moving a portion of the required data processing off of the main blockchain network — therefore also lowering the burden of individual network nodes’ network responsibilities in the process. Layer-2 solutions do not alter the protocol at the base of the main blockchain, but instead increase operational efficiency by performing operations externally from the main blockchain. Because of this structure, Layer-2 systems are also known as off-chain systems. The off-chain process alleviates processing pressure from the base blockchain protocol, while still maintaining many of its security, decentralization, and transaction speed characteristics.
Layer-2 solutions often exist as smart contracts built on top of the original blockchain. As smart contracts, they have the ability to interact with external third-party software, and this software is where a portion of the network’s processing operations are migrated. Layer-2 development also allows for the creation of “childchains” or “sidechains,” which are secondary chains connected to the main blockchain. Sidechains can handle complex processing tasks and even host entire dApps — all while minimally interacting with the base layer blockchain they are anchored to. This is exactly the type of system that the Loom Network provides for developers building dApps on the Ethereum blockchain. The dApps built on the Loom Network platform are given a dedicated dAppChain, which becomes their own unique sidechain built on the Ethereum blockchain.
Early Loom Crypto Use Cases vs. Current Developments
The Loom Network originally focused on the development of blockchain-based social media and gaming dApps. Several of these dApps, including Crypto Zombies and Crazy House, have enjoyed significant popularity. Despite Loom’s relative success in this regard, it seems many Loom-affiliated dApps encountered funding issues, and didn’t advance past the startup phase. Overhauling its mission and value proposition in 2019–2020, the Loom Network shifted its focus toward providing data accessibility for enterprise-level government departments and healthcare providers.
Many government departments and healthcare providers in developing countries still rely on physical documents for their data storage, which can be cumbersome from an administrative perspective. Loom Network’s enterprise blockchain platform intends to provide storage and management services as a solution to address these needs and to enhance efficiency. The LOOM network token will still be used by network participants to pay for these new services.
In 2020, the Loom Network made another change to its business model by implementing transaction fees, again payable in LOOM. This monetization pathway will help ensure that validators are compensated for their work securing the Loom Network. Transaction fees are payable by dApp developers instead of end users, meaning that developers must deposit and maintain enough LOOM tokens to cover the cost of their dApp users’ interactions with the base blockchain. This process allows the dApp developer to determine if and how they pass that cost on to the system’s end users.
The Loom Network’s shift in business plan, development focus, and corporate team structure have spurred a fair amount of public speculation about the security and longevity of the project itself, but many are hopeful that these recent developments will pave the way for improved monetization, increased adoption, and the overall long-term viability of the project.
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