Better well stolen than poorly invented

Tron (TRX) is a moderately known, yet surprisingly successful blockchain. It is primarily known for its eccentric founder and a major stablecoin, but there is more to discuss. Let’s take a thorough look at the cryptocurrency.

They are rare, but they exist: cryptocurrencies that gain value against Bitcoin over months and years. One such example is Tron (TRX). The coin has been steadily rising in Euro since 2018 and also gaining value against Bitcoin.

If Tron is known at all, it is mostly as the blockchain on which the majority of Tether (USDT), the largest stablecoin, transactions occur. This remains the most important, but not the only application of Tron.

We will delve into the history of Tron, describe the technology and its successes, but also not shy away from criticism.

From ICO to One of the Most Used Blockchains

The history of Tron began in late 2017 with an ICO on Ethereum. The TRON Foundation, founded in Singapore, sold Tronix tokens (TRX) for approximately $77 million and promised to create a „universal credit platform for global entertainment networks.“

Behind Tron, then and now, is Justin Sun, who was already a well-known figure. Born in 1990, the Chinese entrepreneur had worked at Ripple since 2013 and founded a chat app in China. Forbes China listed him in their „30 under 30“ in 2015.

Tron faced criticism almost immediately after the ICO. The whitepaper used to raise funds allegedly contained plagiarized sections from the whitepaper of the Interplanetary File System without citations. Further accusations of plagiarism soon followed, and developers from the EthereumJ client, which Tron had forked, complained about license violations.

Nonetheless, Tron evolved into one of the most used blockchains. The website now claims 257 million accounts, nearly 8.5 billion transactions, and $13.778 billion in transfers. Those who invested in the ICO have seen returns nearly 80 times their initial investment.

Tron is doing something right. But what?

Adopting What Is Available

Let’s start with the technology. We describe it based on the Whitepaper 2.0, which reflects the current state.

Initially, Tron invented very little but freely borrowed from other blockchains. Essentially, Tron combined two elements that were publicly available and already well-proven during that time, 2017 and 2018.

First, Ethereum: Tron forked Ethereum and adopted the complete Ethereum Virtual Machine (EVM), the environment for executing smart contracts. A significant portion of the developer work behind Ethereum ended up on Tron for free, making it compatible with any smart contract on Ethereum. A „dApp“ on Ethereum can be moved to Tron with a few clicks, and upgrades or other developments can be integrated with relatively little effort.

However, Tron changed the consensus mechanism. This is the second component. Instead of using Proof of Work (which Ethereum used at the time), Tron is based on „Delegated Proof of Stake“ (DPoS). This is a consensus mechanism that was relatively popular at the time, used by blockchains like BitShares, Steem, and Lisk. DPoS means that anyone holding a token can elect delegates who are then allowed to validate blocks.

The number of validators (equivalent to miners) is deliberately kept small, specifically to 27, which benefits scalability. Thanks to the smaller number of validators, Tron can reduce the intervals between blocks to three seconds, without suffering from large latencies like other blockchains. At the same time, the election of delegates gives individual stakers at least some control. DPoS is considered a reasonable compromise between decentralization and scalability.

Electricity and Bandwidth Points

Apart from borrowing from other projects, Tron has also integrated various innovations of its own and from other sources, sometimes from the start, and sometimes over time.

Tron introduced a three-layer architecture consisting of the Storage Layer, Core Layer, and Application Layer. This modularization could simplify development and scale individual elements better. The blockchain, for instance, is stored in a LevelDB database like Bitcoin, while the state, equivalent to the UTXO set, is stored in a KhaosDB.

Later, Tron integrated native decentralized exchanges (DEX), using the rules of the Bancor protocol, a DAO on Ethereum, and created special accounts for tokens. Instead of being a dApp, the exchange of tokens is possible on the consensus level.

A unique feature of Tron is that it does not use „gas“ as a unit for fees like Ethereum, but two concepts: „Bandwidth Points“ and „Energy.“ Bandwidth Points are based on the size of a transaction, while Energy is based on the computational power a smart contract requires. Both can be acquired by freezing TRX tokens. According to my user experience, you always pay a fee in TRX, similar to other blockchains.

Lastly, Tron adopted the „Transaction as Proof of Stake“ (TaPoS) concept from EOS, another blockchain of the time. Each transaction must include the hash of the last block header. This prevents transactions from being broadcasted on forks and guards against various attacks, such as hard forks and double spends.

Who Copies, Is Compatible

The technology of Tron is, admittedly, well-copied to form a scalable smart contract blockchain, with some compromises in decentralization. The elements Tron has subsequently added appear thoughtful and plausible.

The motto „Better well-stolen than poorly invented“ seems to be a success formula for Ethereum clones. While Cardano and Polkadot, which are reinventing Ethereum with much brilliance and effort, continue to struggle for significant usage, Tron and Binance Smart Chain (BSB) have established themselves among users by simply copying large parts of Ethereum. Because the copy, unlike the reinvention, has the significant advantage of compatibility.

But technology alone is never enough. Numerous similar blockchains started during the ICO boom of 2017/18; the promise of reinventing Ethereum but with better scalability awaited investors around every corner.

The technical foundation is solid—but what else did Tron do differently compared to many other blockchains?

A Colorful Personality

A factor not to be underestimated is the founder—Justin Sun. He is a flamboyant personality with a penchant for narcissism, an excellent promoter both for himself and for Tron. Justin Sun loves to make himself a brand. For example, the smallest unit of the TRX token is called a „Sun,“ comparing himself to Satoshi in the process. Audacious, but that’s how a brand is born.

Sun likely played a significant role in Tron attracting the support of numerous Chinese crypto-celebrities during its ICO, including Bitmain’s Jihan Wu and many others. He also likely played a role in Tron securing one appealing partnership after another immediately following the ICO.

Partnership after Partnership, but Few Fruits

As a „blockchain for the entertainment industry,“ Tron primarily cooperated with companies in the sector, the more well-known, the better for the token.

Even in January 2018, before the blockchain went live in April, Tron entered into a partnership with Game.com, later with Sony Entertainment, and later still with Pornhub, the YouTube for erotically neglected adults. A less fitting partnership was with the bike-sharing service oBike. Most of these partnerships resulted in nothing, maybe the closest being with Pornhub, where „models“ could receive TRX payments after PayPal blocked them. Nevertheless, interest remained limited.

Within the crypto ecosystem, Tron acquired Steemit, a publishing platform based on a blockchain (Steem) that was somewhat successful. This move led to dramatic events as Justin Sun tried to integrate the Steem blockchain into Tron, resulting in its split and decline.

More fruitful was the acquisition of BitTorrent in July 2018, the well-known P2P file-sharing service, for $140 million. This gave rise to the BitTorrent-Chain (BTTC), which acts as a central bridge between different blockchains. Simultaneously, the BTT token on Tron was integrated with BitTorrent’s file sharing, allowing it to accelerate downloads.

In total, Tron succeeded in gaining partners from the media industry—but failed to create anything marketable from them. It seemed destined to fail as an entertainment blockchain, and this could have been the end of Tron.

However, one of Tron’s strengths is its flexibility and ability to pivot when necessary.

Tether Lands on Tron

In March 2019, Tron landed a partnership that likely saved the blockchain from the common fate of shitcoins—losing significance: Tether, the issuer of the namesake stablecoin (USDT), announced it would start using Tron.

Tether had initially run on the Bitcoin-based Omni protocol and then migrated to Ethereum. However, starting around 2020, Tron began to replace Ethereum as the main foundation for Tether; since May 2020, more than 50% of all Tether transactions have occurred on Tron.

There has been speculation about whether Justin Sun negotiated a deal with Tether. While it’s not out of the question, Tron may have simply been lucky. Over the year 2020, it might have been enough just to be there. As Ethereum’s fees skyrocketed during the hype, transactions on Tron remained cheap since the blockchain was hardly used for anything else. Thanks to its short block intervals, transactions were also much faster.

Since then, Tron has been the blockchain for Tether, possibly the only example of a blockchain smaller than the external token running on it: Tether has a market cap of nearly $120 billion; even a quarter of that would be much more than TRX’s $13 billion market cap. Consequently, most of the value transferred on Tron is USDT.

However, the Tron story doesn’t end here.

DeFi and NFTs

Flexible as Justin Sun and Tron are, they have jumped on most trends in the ecosystem over the past few years.

For instance, there is the APENFT marketplace for NFTs. In doing so, Tron integrated one of the biggest trends of recent years. With „TRONscriptions,“ Tron also tapped into the Ordinals trend, and with GameFi, it offers a platform for games. However, Tron does not seem to play a major role in the NFT world. Most NFTs continue to be traded on Ethereum, Solana, BSB, and Polygon. But Tron shows that it’s ready if there is demand.

The same goes for DeFi, decentralized finance, the second big trend of the last three to four years: The JUST network—the name once again celebrating Justin Sun—brings „JustDeFi“ to Tron. It covers the typical DeFi applications: „JustStable“ generates an algorithmic stablecoin similar to the DAI dollar; the JustLend DAO allows for lending and borrowing of coins; and JustCrypto maps other cryptocurrencies, such as BTC, ETH, LTC, or Dogecoin, onto the Tron blockchain.

In short—everything that has been trendy in the ecosystem in recent years can be found on the Tron blockchain sooner or later. It’s usually not innovative but solidly copied—and it can draw on the strong liquidity of USDT on Tron. This seems to work in the DeFi sector: With a „Total Value Locked“ (TVL) of over $8 billion, Tron has climbed to second place in the DeFi sector after Ethereum, primarily thanks to JustLend.

However, amidst all this, there are also reasons to criticize Tron, and there have been setbacks for Justin Sun and his blockchain.

Centralized and Accused

Naturally, one can criticize Tron for being insufficiently decentralized. The „Delegated Proof of Stake“ consensus mechanism narrows the number of validators to 27.

Among these validators are Binance, Poloniex, the TRONALLIANCE; OKCoin, Blockchain.org, Huobi, Ant Investment, OKX, Google Cloud, and more. This has little to do with the decentralization and permissionless nature of mining—or staking on Ethereum. Tron is more like a shared database of a cartel of companies rather than a genuine cryptocurrency.

All the more ironic, therefore, is another accusation increasingly directed at Tron—that of processing payments for illegal organizations. This probably goes back to Tether, which is finding more and more fans among criminals wary of Bitcoin’s volatility. As recently as November 2023, Tron was accused of processing payments for terrorist organizations like Hamas, Hezbollah, or Palestinian Islamic Jihad.

Tron and Tether are responding by cooperating with TRM Labs to better analyze transactions on Tron and more decisively freeze “dirty” addresses. Since then, the pace at which Tether freezes addresses has increased rapidly.

Finally, there is an ongoing court case in which the US Securities and Exchange Commission (SEC) accuses the Tron Foundation and Justin Sun of issuing unregistered securities (TRX tokens). This case has been running for several years, and the latest update is that a New York court is cautiously siding with Tron, without deciding the case.

None of this, however, changes the fact that Tron has established itself as one of the few blockchains in the ecosystem that is actually used, rather than just being a speculative object. Whether one likes it or not.