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Have you heard about OmiseGO, an Ethereum-based decentralized exchange that promises blockchain interoperability with high transaction processing power and low transaction fees?
Since 2017, the platform has been working to provide a seamless user experience with money transfers that knows of no currency or national boundaries.
If this was enough to get you excited about the project, keep reading our guide to find out about the solutions and technology that OmiseGO offers.
OmiseGo is a project developed by Omise, a payment processor from Thailand, in Southeast Asia. The company was founded in 2013 but the OmiseGo project came four years later. In the ICO that took place in July 2017, they managed to raise up to $25 million.
The startup was introduced under the slogan “Unbank the Banked” which stood for OmiseGO’s main goal of representing an open and decentralized financial network that would make other financial institutions redundant.
The key challenge is finding a way to foster fast and cost-effective communication between banks, payment processors, and gateways. OmiseGO’s network will allow users to make transactions from one blockchain to another, or transfer funds from a blockchain to a traditional payment provider (e.g. VISA, SWIFT) excluding crypto exchanges and other intermediaries.
In the last three years, OmiseGo has been developing its three network services that would help the network solve this challenge: the White Label Wallet SDK, ODEX, and Plasma.
The Technology Behind OmiseGO
OmiseGO is not owned by any single one party. Instead, it is an open distributed network of validators which enforce behavior of all participants. It uses the mechanism of a protocol token to create a proof-of-stake blockchain to enable enforcement of market activity amongst participants. (OmiseGo, Decentralized Exchange and Payments Platform)
OmiseGO’s blockchain is built on top of Ethereum’s programmable blockchain and backed up by Ethereum’s founder Vitalik Buterin among other crypto giants.
Similar to other blockchains, OmiseGO has its own native token called OMG that’s based on Ethereum’s ERC20 token standard. Users owning OMG qualify for validator nodes on OmiseGo’s PoS regulated blockchain by staking the tokens as a security deposit.
The underlying technology of the platform is quite complex so we’ll try to break it down by explaining the three most important components mentioned above.
White-Label Wallet Software Development Kit
White-label products are products made by one company that can be rebranded and used by other companies/brands.
Therefore, a white-label wallet, the one developed by OmiseGO, allows individuals and businesses to use the OmiseGO blockchain to build and run their new or existing digital wallets and store any currency they like.
The main advantage it has over other online wallets is that by linking different wallets, the platform makes sure there will always be a high level of liquidity for all network participants.
OmiseGO has recently released the Software Development Kit (SDK) that will allow developers to build their own wallets or integrate the OMG software into existing ones.
The next step towards changing the financial system is creating a native decentralized exchange (DEX), that OmiseGO has called the ODEX. This will be the infrastructure that would allow different markets to interact with each other in a transparent, decentralized, and secure environment.
The infrastructure will be governed by the same Proof of Stake (PoS) consensus mechanism used for the blockchain. The validators put their OMG tokens at stake to validate transactions and get paid in transaction fees.
Since OmiseGO is Ethereum-based, validators have to run a full Ethereum node because the staked OMG tokens are stored on Ethereum’s blockchain as “the root chain”.
Unreliable validators are punished by OmiseGO by having their stake slashed. The great thing about ODEX is that returns and rewards can be received in any currency.
OmiseGo’s PoS mining mechanism is integrated with our next and last component, Plasma.
OmiseGO plans to achieve infinite blockchain scalability using the Plasma architecture.
In the last couple of years, its root chain Ethereum has significantly grown in size and the problem of low blockchain scalability and weak network performance has become quite evident.
At this point, the platform is using two different solutions: first-layer scalability solutions that make on-chain changes such as blockchain “sharding” and switching from PoW to PoS, and second-layer or off-chain scalability solutions that reimagine the crypto-economics of the blockchain.
Plasma is one such second-layer solution representing a series of autonomous smart contracts that are taking place on trusted side-chains (also called child chains) that are connected to the root chain with a tree-like structure and remain under its jurisdiction.
This kind of child/root chain framework is the relationship that OmiseGO as a child chain has with Ethereum and that enables it to have infinite scalability while still relying on Ethereum for security and protection.
The Official OmiseGO Guide explains this in more detail:
OMG was designed for the Plasma architecture, which structures blockchain computation into MapReduce functions and uses a combination of proof-of-stake token bonding, fraud proofs to reduce the costs of computation, a withdrawal design to efficiently counter network attacks, and the network security provided by Ethereum as the root chain to safely enable unprecedented transaction and on-chain exchange processing speed and scale.
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