Blockchains are great because they rely on the mathematics to ensure security, trust, and decentralization — cryptography, to put it more technically. But the problem is that each blockchain is a separate universe. The process of extracting and entering information into them is always fraught with great vulnerability: it is necessary to trust a source outside the blockchain. Even to get at least the current price of Bitcoin, you need to trust the source fully. It is vital to be sure that it provides accurate data and has not been hacked by intruders. Here the Band Protocol comes to the rescue.
What Is a Band Protocol?
Band Protocol is a decentralized ecosystem of oracles based on Cosmos SDK, which links smart contracts and incoming data. The operation of Band Protocol oracles is ensured by comparing data from several sources, combining them into one, and sending them to the final recipient (the above smart contract).
In simple terms, Band Protocol helps blockchains process data, increasing the security and performance of services of various profiles.
Band Protocol has created a network of nodes that transmit information to and from the blockchain and form a vital fragment of the smart contract infrastructure. Such an “intermediate link of the blockchain” ensures that oracles can provide reliable information — price, event results, and links to traditional payment systems. At the same time, the system does not sacrifice decentralization or security. In addition, thanks to the use of Cosmos, Band Protocol compares favorably with its main competitor Chainlink, since Cosmos allows it to reduce the cost of transaction fees and increase network bandwidth.
How Does Band Protocol Work?
Band Protocol disposes of its own BandChain blockchain built based on Cosmos SDK. Thus, Band Protocol can serve applications built on different networks, thanks to the Inter Blockchain Communication protocol. Furthermore, developers using BandChain solutions can benefit from highly customized oracle scripts that deliver accurate data. These scripts include data, their sources, the required number of validators, as well as the method of aggregation and packing.
The oracle script is executed according to the following principle:
- First, the path starts with a smart contract that needs data to work. Then, this request is sent to the Band Protocol following the oracle script.
- The request is sent to a random set of validators who extract the data and guarantee thorough verification.
- Depending on the prescribed settings of the oracle script, reports are aggregated and packaged for a specific format.
- The data is permanently recorded in an immutable and secure BandChain blockchain and can be verified anytime.
- Carefully verified external data is transferred to the blockchain for further use.
As of the launch in 2019, the project was running on the Ethereum blockchain. In June 2020, Band Protocol was transferred to Cosmos. So the developers got access to the Cosmos SDK, a framework that allows users to create customized blockchains based on the Tendermint consensus algorithm. The new protocol based on Cosmos developments was named BandChain.
As a separate blockchain, BandChain utilizes the Delegated Proof of Stake (DPoS) consensus algorithm and the native BAND token to ensure the security of the oracle network. At the time of writing, there are more than 60 validators in the network that are responsible for network security and data reliability. For the sake of an additional guarantee, validators lock a certain proportion of BAND tokens when they publish a data supply offer. Thus, these tokens can be confiscated in case of unscrupulous behavior of the validator. On the other hand, if everything goes smoothly, suppliers receive their payment, which consists of part of the request fees and block rewards.
In addition, BAND holders can choose to become a validator or delegates. In the case of token delegation, holders receive part of the validators’ reward.
How Is Band Protocol Unique?
Decentralized applications have a huge vulnerability when the blockchain intersects with the outside world. The points of contact through which data enters and is extracted from the blockchain represent the vulnerabilities of the ecosystem. It is at these points that data leaks can occur, they can be intercepted, falsified, and they can also be used for manipulation. The most popular project providing the world with a secure bridge is Chainlink. However, Chainlink and Band Protocol have a crucial difference. While Chainlink uses the Ethereum network, Band Protocol has switched to Cosmos. Thanks to this solution, the project has several key advantages:
- Speed, scalability, and cost-effectiveness. Band Protocol allows developers to get rid of problems with transaction delays and high network fees.
- Cross-chain compatibility. Band Protocol is chain-agnostic and was designed to be compatible with all smart contract-capable blockchains.
- Data flexibility. Dozens of oracle scripts are provided, which allows Band Protocol to bring more use cases in blockchains beyond DeFi.
Band Protocol Use Cases
- DeFi. The special role of oracles is to support those smart contracts executed based on market data, such as currency rates, asset prices, indices, etc.
- NFT. Band Protocol can play an essential role in generating random NFTs and creating attributes as rewards for various achievements in the game, for example, obtaining a rare item.
- Third-party payments. Band Protocol can facilitate a wide range of payment services due to its ability to transfer results from smart contracts to third-party APIs.
- Insurance. Band Protocol smart contracts direct insurance contracts towards a more objective, equitable model, where data directly determines the results, and execution is deterministic, without the possibility of information substitution.
- Corporate Solutions. Band Protocol can provide enterprises with a bridge to offer their data and API services in blockchain environments and meet technical requirements, such as access to private data in the chain, contract logic calculations, the confidentiality of transactions in the chain, and much more.
Band Protocol’s mission is to accelerate innovation and adoption of smart contracts by enabling developers to create multifunctional decentralized applications and providing global enterprises with a universal gateway for all blockchains.
Band Protocol helps solve the vulnerability of smart contracts when interacting with external data. Additionally, the main priorities of Band Proctol are to build a cross-chain compatible decentralized oracle network, reduce transaction costs and increase transaction speed, which is especially valuable for next-generation decentralized applications.