Flow Blockchain Explained

What is Flow?

Flow is a blockchain created by Dapper Labs in 2019. It is a layer 1 smart contract platform that does not require sharding or the use of layer 2 protocols to scale. Flow operates with a proof-of-stake consensus mechanism.


What kinds of tokens exist on Flow?

  • Fungible tokens (coins) - Similar to ERC-20

  • NFTs - Similar to ERC-721


Top communities on Flow


Who is Dapper Labs?

In 2017 the Dapper Labs founders created one of the earliest successful NFT projects on Ethereum, CryptoKitties.


CryptoKitties was so popular that it rendered the Ethereum blockchain unusable due to congestion. This inspired Dapper Labs to create a new blockchain that could handle this type of demand from NFT projects, marketplaces, etc.


Flow blockchain - Unique Features

  • - Upgradeable Smart Contracts

  • - Easy Consumer Onboarding

  • - SPoCKs

  • - Multi-role architecture


Upgradeable Smart Contracts

Upgradeable Smart Contracts are one of the features that differentiates Flow from Ethereum. On Ethereum, when a smart contract is deployed it is automatically immutable. This means if there are bugs, the developer cannot do anything to change what is already live. On Flow, developers are able to upload smart contracts in beta which allows them to make sure it's working as intended before making it immutable.


Easy Consumer Onboarding

Human Readable Security

Flow's transaction format tells users exactly what changes will be made when they connect to a website or app. This is to ensure users do not give malicious websites any unintended permissions.


For example:

  • - On Ethereum, people can get their wallets drained by approving a transaction that allows the contract to move any asset from their wallet. It's the "set approval for all" command which gives the contract the ability to send any NFT from their wallet.

  • - On Flow, this notice would be made clear on the signature interface so that the user is aware what they're actually approving before they click submit.


Fiat to Crypto on ramps

Flow makes it easy to go from Dollars to Crypto which is a huge plus for onboarding new entrants into the NFT market. Typically, most NFTs on Flow are purchasable using credit/debit cards.


Specialized Proofs of Confidential Knowledge (SPoCKs)

  • - Similar to ZK Proof

  • - Non-interactive, doesn't reveal confidential info (good for privacy and security)


Multi-role Architecture

  1. 1. Collection

  2. 2. Consensus

  3. 3. Execution

  4. 4. Verification

These 4 nodes work as an assembly line to validate each transaction.


Validator Nodes

  • Consensus Nodes decide the presence and order of transactions on the blockchain

  • Verification Nodes are responsible for keeping the Execution Nodes in check

  • Execution Nodes perform the computation associated with each transaction

  • Collection Nodes enhance network connectivity and data availability for dapps


General node info:

  • Consensus & Verification nodes are the foundation of security (designed for high participation: consumer-grade hardware + home internet is all you need)

  • Execution & Collection nodes help the network scale (hardware intensive, requires a professionally managed data center)

  • Node operators receive a portion of transaction fees proportional to the work they do and associated stake

  • The decentralization comes from the fact that anybody can participate in the validation process whether you have a consumer-grade system or more specialized hardware. Efficiency is increased by separating these nodes into different categories.


Tokenomics

  • - Initial supply: 1.25 billion (100% minted at genesis)

  • - Max total supply: Uncapped (similar to Ethereum's model)

  • The more transactions on the blockchain, the more tokens will be removed from circulation

  • - Ticker: $FLOW


Token Distribution

  • - 20% Dapper Labs

  • - 18% Dev team

  • - 20% VCs

  • - 13% Community sale

  • - 29% Ecosystem development

Flow raised ~$30million from token sales in 2019/2020.


What are Flow tokens used for?

  • - Pay transaction fees

  • - Earn staking rewards from validating

  • - Governance voting

  • - Data storage (for developers)


Criticisms of Flow

  • - Highly centralized. Most node operators are partners of Dapper Labs.

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Paper Ape's Analysis

Flow has a lot of good things going for it but it shares one issue that all newer blockchains face, CENTRALIZATION. As decentralized as Flow's node architecture may be, the fact that Dapper Labs and its partners run a large majority of the nodes is a big yellow flag.


I say yellow flag instead of red because centralization is one of those ideological issues that doesn't have much effect on price movement. Sure, it'll keep some hardcore cypherpunks out - but they aren't the audience Flow is targeting.


Just look at Solana. Does its centralization stop people from buying the coins? No. People are just looking for fast, cheap transactions and the price to go up.


Chains like Flow and Solana prioritize scalability over decentralization because their goals are to make crypto widely accessible. I don't like to compare these newer chains to Ethereum because they have different goals.


*Enter: The Blockchain Trilemma*


The Blockchain Trilemma refers to the challenge blockchains have satisfying these 3 core concepts:

  1. 1. Decentralization (no central authority)

  2. 2. Scalability (high transaction speed)

  3. 3. Security (ability to prevent attacks)


The biggest challenge in crypto is creating a blockchain that sufficiently satisfies all 3 elements. At present, zero blockchains have achieved this feat.


This leaves blockchains to compete for the top spot in 1 of the 3 categories rather than all 3 at once (decentralization, scalability, or security).


Currently, Ethereum is the clear #1 smart contract blockchain when it comes to decentralization. It had the first-mover advantage from being created before VC's cared about investing in seed rounds on blockchains. Ethereum has also been around the longest, giving its initial coins the most time to change hands compared to the newer chains. For these reasons, it's nearly impossible for new chains to catch up to Ethereum in terms of decentralization.


Being the most decentralized chain comes at the cost of being one of the least scalable. It wasn't long ago that a single ETH transaction could cost upwards of +$100 during times of heavy network traffic. This is something the Merge is aiming to fix.


New age blockchains (Flow, Solana, AVAX, etc.) are all competing to become the most scalable blockchain in order to appeal to the normies. These chains are focusing on creating a positive user experience through high transaction speed + low fees. This, however, comes at the cost of decentralization.


There is a lot of competition for becoming the most scalable blockchain and I don't think Flow will be the #1 choice. I could still see Flow doing well because of their financial backing and partnerships but there doesn't seem to be as many developers building products on Flow as compared to its competitors.


FLOW NFTS

Currently there aren't any NFTs worth collecting on Flow unless you're a fan of the NFL, NBA, or UFC. My biggest criticism of all these collections are that they provide zero utility for their users and are just collectibles. The web2 mentality (centralization) seems to have seeped into the NFTs on Flow because this chain is primarily used by big corporations to extract value from their fanbases while providing nothing in return.


If I wasn't a UFC superfan, I would own 0 Flow NFTs.


One thing to watch is to see if Doodles moves to Flow in one of their next collections. I speculate on this connection in the Doodles article.


Final Thoughts

Flow isn't a bad blockchain by any means but my own cypherpunk ideologies make it hard for me to support this blockchain. I find it hard to justify collecting NFTs on a blockchain I don't have a long-term belief in.


To play devil's advocate, Flow is designed to become more decentralized over time.


The question is: how long will it take for Flow to be truly decentralized?


The answer is much longer than I want to wait. We could probably check back in a decade from now and maybe there will be a significant difference. Maybe.


As far as NFTs go, I wouldn't feel rushed to collect any NFTs on Flow. I do own some UFC Strike NFTs, however I didn't buy these expecting a return on the investment. I'm mostly collecting these for the sake of collecting. If I'm lucky I can sell some of these for profit within the next 20 years.


This leaves us with speculating on the $FLOW token price.


First we have to look at why people buy Flow tokens.

  • - Pay transaction fees

  • - Earn staking rewards from validating

  • - Governance voting

  • - Data storage (for developers)


If you're speculating on the price of $FLOW it means you believe people will buy tokens so they can perform the above activities.


For a chain with minimal fees it won't take much $FLOW in order to pay for transactions. A simple $10 investment into FLOW tokens could pay for hundreds of transactions on the chain. For this reason, I don't suspect there will be much buy pressure from people needing extra tokens to pay for transactions.


Flow's easy onboarding design has given people the ability to use debit/credit cards to buy NFTs. This means people don't need to use FLOW tokens in order to collect NFTs there, thus eliminating that source of buy pressure.


This leaves us with staking rewards, governance, and data storage as the remaining reasons for people to use $FLOW.


As a non-dev and non-contributor to the Flow ecosystem I am left with basically zero reasons to use FLOW tokens.


Do with this information as you will - for me, the option is clear.

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