Golem is a project mainly based in Poland, which has the goal of creating a blockchain-based supercomputer. This is done by allowing location-independent computers to connect and be rewarded for providing their hardware with the internal currency called Golem network token. These tokens are currently based on the Ethereum blockchain. All computations take place in sandbox environments and are fully isolated from the hosts' systems.
The final whitepaper was officially published in 2016 and had 26 pages describing both the Golem project and the people behind it.
In the meantime, several Golem applications have been officially made available, which allow us to join the Golem project via test- or main net.
In this work, we will examine the Golem project in more detail and above the question of what potential it has. To do this, we will focus on the Golem network tokens to find out what potential is behind it.
Please make sure that this is an example of a detailed analysis of a cryptocurrency, not an investment advice.
Golem Project promo video
The GNT has no physical collateral because it's not backed by something like gold or silver in the physical world. It is just based on code which means, it has fixed rules which are implemented in its protocol which in this case is first, the ERC-20 standard for tokens on the Ethereum blockchain and second, the specific rules which are implemented to the GNT tokens directly, which implies for example, that the entire quantity of GNT will be 1,000,000,000 tokens.
The monetary authority of a currency is the subject entitled to create new units. In the case of GNT, there is no central bank that could simply issue new money, as the fixed quantity was set to 1,000,000,000 tokens from the beginning by the development team when they issued 1000 tokens in crowdfunding for 1 Ethereum to finance their project:
The carrier for a currency can be understood as what people perceive as money and, more specifically, how the currency is reflected and extended to the real world. In case of GNT, this can be done with an e-Wallet that can store ERC-20 tokens. But keep in mind that the tokens are not really deposited, because only the access rights as a key are stored on them, they can also be kept on a hardware wallet such as Ledger Nano S or simply on a sheet of paper via QR code or seed. But while these transactions and balances are stored on the blockchain, a person's e-Wallet is the tool that enables them to view, create and receive the currencies. Therefore, the e-Wallet is the cryptocurrency holder's projection of the money to real life, and thus the carrier.
The monetary unit shows us how the currency is divided. For example, how a USD is divided into cents, a bitcoin can be divided into satoshi up to 8 decimal places. In Golem, we have 18 more decimal places available through GNT, which makes a tiny subdivision possible, since 1 GNT is currently only worth 0.046 USD. But at the moment, there is no specific name for the decimal range of GNT like satoshi is for bitcoin.
GNT is transferred-as it is typical for crypto currencies-through the blockchain. In this case, Golem uses the Ethereum blockchain, which is currently the most popular adaptive blockchain for cryptocurrencies. The unique feature of the blockchain by comparison to currencies such as the US-Dollar is that there is no central unit that controls the money. We speak of decentralization in this area since the power is distributed to the participating members who provide their computing power to the system (miners). This makes the blockchain unchangeable, which means that, for example, no transaction can be reversed, and no bank account can be frozen. Furthermore, in most cases, the entire transaction chain is public, which means that every transaction can be traced without us knowing the owner behind it.
Institutions are all the subjects that can regulate the currency or are needed to maintain it. As GNTs are decentralized, there is no one to control them directly. However, it should be noted that GNTs are pre-mined coins that are not continuously mined by miners, as is the case with bitcoin, for example. These coins were all issued in a crowdfunding scheme which-as we have seen in the table above-resulted in an 18% refund to the developers to finance their future work. As we can see in the whitepaper, they are also paid exclusively in GNT. However, since GNTs are running through ERC-20 on the Ethereum blockchain, which is currently still operated by proof of work mining, we can say that those miners can be considered as a decentralized institution in a certain extent.
GNTs are not linked to a security that guarantees their stability. The value is fungible and is derived exclusively from the network and its currency users. We could also say that the value depends on how high the supply and demand for computer power are within the Golem network at the moment.
During the Creation Period, a total of 1 billion GNT have been created by the Ethereum Smart Contract System, all of equal value and functionality, however, divided by the Smart Contract System into three different pools as you can see below:
This means that the money supply is fixed and cannot be extended as far as desired, as it is the case in the current banking system. During the crowdfunding it was handled in such a way that Ethereum was included in a smart contract in order to convert it into GNT with a subsequent exchange rate like below:
Creation Rate: The Creation Rate during the Creation Period for each GNT of Pool A will be 0.001ETH (i.e., 1000 GNT per 1 ETH).
But because this exchange is not reversible, we cannot speak about a direct price connection to Ethereum as collateral anymore.
Because GNT's are running on the Ethereum blockchain, there is no way to remove money from the system by paying off debt, as a bank does. Nevertheless, it must be mentioned that someone may lose access to his wallet, and the tokens become no longer accessible and can be considered destroyed. Also, there are situations that tokens might be unintentionally destroyed when they are used as payment for a smart contract instead of using Ether. Because of this issue, an estimated value of $3 million in ERC-20 token has yet been lost.
As mentioned in the introduction, the Golem network token should be used as the currency to pay and earn for sharing computer power within the Golem ecosystem. However, the software for sharing computing power is not based on a blockchain itself. But the blockchain is needed to generate consents about the GNTs which are used for payments. This is a central point of the project because the payment process can be easily automated by using tokens, which can also be divided up to 18 decimals. This makes it possible to transfer payments accurately, quickly, and cheaply all around the world.
Why do we need supercomputers?
Since the beginning of digitalization, we can see that more and more computing power is needed. In a personal context, your computer is sufficient to solve your problems. But in the field of artificial intelligence, chemical simulations, geographical or astrological analyses, however, several machines are needed to have the necessary computing power.
Until now, such supercomputers have often been operated at a central location, consuming vast amounts of hardware- and operating costs. Besides, there is the risk that in the event of a local problem, such as a power failure, the entire computer will shut down. This is the current reason why Golem is building a decentralized supercomputer.
In 2018 Golem launched its software called Brass Golem, which made it possible to share your computer power on a test- and main net. On 2. April this year, the Golem Clay was released, which improved stability and also offers new functions where developers can deploy now their own dockerized apps to the Golem network without a need for them to be included in official Golem releases. So, it enables much more stable release cycles for specific Golem use cases.
Another interesting point to mention here is that the computing power of the current hardware-based supercomputers is slowly flattening out over time, contrary to Moore's law which says, that the number of transistors in a dense integrated circuit (IC) should double about every two years.
How many people use it?
If we go to their website, we can check all the nodes which are provided to the network right now:
So, what we can see here is that 142 providers offer their CPU, RAM, or Diskspace right now. If we now compare this with a local supercomputer like the current largest one called Summit-based in the USA-we see that this one is much larger using 4,608 nodes based on 9,216 CPU's with 22 cores each, which means 202752 cores in total.
On this website, we can see that at the moment, there are 103'964 holders, which means Ethereum wallets with GNT stored on it. Now the question is whether these GNT are only being held because they are speculating on an increase in value or whether these tokens are actually being used to buy computer power via the Golem network.
But if we launch the Golem Beta Mainnet, we can see that there are two tasks on the network right now what means there is at least some demand around at the moment.
Is there another currency used in the same area?
There is another supercomputer ERC-20 token around, which is called SONM. From my point of view, they are also doing a good job but are not that successful at the moment as Golem is because while Golem is more concerned with the product and less with marketing, Golem still has more recognition as we can see below:
|Market cap rank|
Questions to the development team
Why does Golem need the blockchain?
Primarily to ensure permission lessness + borderless payments between requestors and providers. Other solutions provide it without a blockchain; however, it's challenging and cumbersome to become a provider since the entire setup is permissioned. Or some solutions do it, just without giving the provider compensation for their computation (i.e., altruistic).
If I use Golem computing power, is my data safe, or can those who share their power see or collect them?
A provider in the network usually only receives a fraction of the payload, which can still be a concern for some requestors. It's one that's always present, though, regardless if you're using Golem. When using computing at any large data center, you are susceptible to them possessing your data, the entire payload too. With Golem, the work is being de-centrally distributed to the user, so it would be difficult for them to mine any valuable data out of it. The most secure method would be to process locally, but even then, it still has its concerns.
We can use enclaves to improve on this, although it's still an area of research (not just for Golem).
From our point of view, the Golem project and the team behind it looks really promising. We have also sent several messages to their Telegram group. These were always answered by the admins fast and friendly. We believe that especially this closeness to the community is an excellent sign for such a project. Therefore we think we can say that it is certainly not just a scam, as it unfortunately often happens with cryptocurrencies.
However, our concern is that there is not much demand for computer power within the Golem network at the moment, which of course also confirms, why the Golem network tokens did not have a very positive value development during the last years.
We would, therefore, advise the Golem team to improve the usability of their applications, so that they can be efficiently executed without much technical knowledge. Because we have tested it ourselves and unfortunately, it is not that simple as long you need additional software like Windows 10 Professional or another container software like Docker.
You also have to keep in mind, that the project is dependent on the development team because if they decide to close the project because, for example, they can no longer pay their wages, the tokens will probably be worthless in the future. But we have the impression that they are still motivated, and we would like to thank them for their openness as well.
Nevertheless, we think that the current low level of demand may also be an opportunity to invest now. Because if it continues to prove right that computing power cannot be increased like before, a decentralized supercomputer can offer incredible opportunities in the future.
This analysis was conducted by Oliver Michel. It cannot be understood as an investment recommendation but as an example of a detailed cryptocurrency analysis. Is there a coin or project you would like to analyse? Contact us at email@example.com.