What is the Phala Network?

The Phala network combines the muscle needed to produce complicated modern applications with blockchain’s decentralized trust and transparency features, allowing users to provide computation capacities and earn. These users are referred to as “workers.”

The network also allows developers of “clients” to integrate their applications into the Phala network with a pre-built, low-code experience using templates. It connects dApps to external APIs, stores data on any platform, performs complex calculations, and even automates smart contract functions based on real-time data.

History and Team

The Phala network was founded in 2018 by Marvin Tong, a senior product manager and ex-employee of Tencent and Didi, and Hang Yin, the lead developer for Bitcoin Gold and a senior developer with about 10 years of coding experience.

The project launched its testnet in March 2020, called PoC-1, which allowed users to issue new confidential tokens and transfer them to other users. In July 2020, the project announced the second testnet phase, PoC-2, which led to testnet Vendetta, or PoC-3, which was characterized by the integration of decentralized TEE nodes, and finally, the launch of its mainnet as a parachain on Polkadot.

By the end of 2020, the Phala Network conducted a funding round that raised more than $10 million through participants like Candaq Group, InfiChain, Blue Mountain Labs, Incuba Alpha Group, and Exoplanet Capital.

The native token of the project, PHA, was launched as an Ethereum token in 2020 and a Kusama token in 2021.

Core Components

The Architecture

Source: Phala Network Whitepaper

The Phala Network is designed as a trustless cloud computing solution in the blockchain space that aims to bridge the real world with the digital space by facilitating and maintaining powerful dApps. The design comprises the Phala blockchain, off-chain runtime (p-Runtime), and the bridge relayer.

The Phantom blockchain is the central infrastructure for the network that handles communication and verification. At the same time, the off-chain runtime feature carries out complicated computations within secure enclaves, allowing the network to process confidential user data and operational information off-chain.

The bridge relayer, or Pherry, is the messenger that connects the blockchain with the off-chain secure enclaves. It is responsible for translating the information and ensuring smooth data flow and safe execution. The hardware isolation architecture allows the network to stay decentralized while protecting against malicious actors in the crypto space.

Phala Nodes

Source: Phala Network Whitepaper

The nodes in the Phala Network consist of three types—-the client node, the worker node, and the gatekeepers. The client nodes are the developers or users that interact with the network to create or launch dApps without needing special hardware.

The worker nodes are the nodes that harness the secure enclaves in the network’s infrastructure to execute complicated applications and handle confidential information. They are the network’s backbone, hidden behind the scenes, so they are not exposed to the developers or clients. Instead, they are grouped into clusters as dedicated units for contract executions. These clusters provide benefits such as isolation, inter-node collaboration, cross-cluster interactions, and improved efficiency.

The gatekeepers are the managers of the secret keys or the authorities in the network. They ensure the smooth operation of the network by validating transactions, managing resources, and upholding security protocols.

Secret Key Hierarchy

Source: Phala Network Whitepaper

The Phala Network borrows from the initial work of the Ekiden paper to employ a multi-layered key hierarchy as a security feature. The key hierarchy includes the users’ identity keys, which allow for secure signing and communication.

The WorkerKey pairs are generated within the secure enclaves to shield workers individually. The next level is contract-related keys, which include the ClusterKey and ContractKey for worker clusters. These contract-related keys are generated from the highest level in the key hierarchy, the MasterKey, which the Gatekeepers possess in the network.

The key hierarchy controls the level of access a hacker or bad player gets when a node is compromised. The compromised WorkerKey grants attackers access to messages, ClusterKeys, and the ability to impersonate workers, potentially providing false data.

A compromised ContractKey exposes historical data, contract states, and potentially sensitive data. Finally, a compromised MasterKey gives the hacker full access to the network, but this is mitigated by security features in place such as key rotation, updating the MasterKey, removing compromised gatekeepers, generation of a new MasterKey, and a future Multi-Party Computation (MPC) system that distributes the master key among numerous gatekeepers, so no single gatekeeper has all the components of the MasterKey.

Phat Contracts

Source: Phala Network Website

Phat contracts are programs executed on the Phala network, similar to smart contracts on blockchains. The Phala network is a computing network that focuses on preserving privacy. The Phat contracts add to this by performing robust, cost-free computation, allowing a higher dApp efficiency at minimal cost.

Phat contracts can access the internet, integrate with Web2 APIs, securely verify data, and protect user privacy while conducting computations. They were designed to overcome the limitations of smart contracts, such as interoperability, the cost of executing every single event, and the functionality of off-chain or on-chain executions.

Yet, the Phat contract isn’t designed to replace smart contracts but to reduce the on-chain smart contracts to as compact as possible while implementing more tasking computations off-chain. This is made possible because Phat contracts can also interact with smart contracts on different blockchains, such as EVM or Substrate, without the need for a bridge.

Features of The Phala Ecosystem: Phala Dashboard, SubBridge and Phala World

Phala’s Dashboard

Source: Phala Network Website

The Phala dashboard is used to access the features of the Phala network. It comprises the developer’s sections and the network user section.

The developer’s section consists of No-code and native code features for developers to build using a no-code Phat contract kit or create their own Phat contract. It also has a program to give grants and technical guidance for developers looking to utilize Phat contracts fully. The network user section provides features such as staking, governance, compute-to-earn, bridging, and learning.

This section is for holders of the PHA token and participants in the Phala ecosystem who aim to earn passive incomes by providing hardware to the network, staking tokens to decide the network, making decisions in the ecosystem, and exploring the network while bridging tokens to other chains.

SubBridge

Source: SubBridge Website

The SubBridge is a cross-chain router developed by the Phala Network for parachains within the Polkadot ecosystem. It was designed to enable a seamless transfer, or bridge, of assets and information between parachains, Ethereum, and other blockchain networks.

To utilize the bridge, the user must first ensure a router is available to transfer the assets and that the assets intended for transfer can be recognized and handled in the target chain. The bridge is an EVM-compatible cross-chain protocol that handles uint32-type assets.

With its integration into the Polkadot ecosystem, any parachain built on the Substrate framework can readily integrate with SubBridge, expanding its interoperable functionalities with other blockchains. Projects like the SygmaBridge have already integrated with the SubBridge protocol.

The Phala World

Source: Phala World Website

The Phala world is a gamified version of the Phala network blockchain that tracks user activities and participation in the network through a play-to-build architecture that uses soul-bound NFTs. The network tracks the level of delegation, voting, and social media engagement, which are transformed into attributes for the user’s soul-bound NFTs.

The world is set in a period after the war with AIs, with four surviving species: Cyborg, Pandroid, AI Spectre, and X-Gene. The users can choose between careers like a druid, a warrior, or others. The platform is designed to offer an immersive gaming experience through quests and interactions, allowing users to upgrade by stacking activities on-chain or off-chain.

What is PHA Token?

The PHA token is the native token of the Phala Network. Workers who provide computing services receive rewards in the form of PHA tokens. It allows users to participate in staking activities as developers to run their Phat contracts and programs or for governance privileges to make decisions in the ecosystem.

Like most decentralized autonomous organizations, DAOs, users can stake directly or delegate to stakers and earn rewards. The token has a total supply of 1 billion PHA tokens, with around 672 million in circulation and a total market capitalization of $84 million.

Risk Analysis

Advantages

The Phala network architecture allows users to compute complex data off-chain while being secure in secure enclaves that safeguard sensitive data. The platform provides the relevant infrastructures and tools like the Phat Contract SDK and Phala Node, which assist developers and users.

The platform also enhances interoperability by integrating with Polkadot and SubBridge to facilitate seamless transfers of assets and data between chains. Finally, the gamified Phala World would attract and retain users who want to experience the immersive user experience.

Disadvantages

Although the project provides vital utilities, the project can be challenging for new users who aren’t knowledgeable about interacting with blockchains.

Another disadvantage is the key hierarchy within the project architecture that gives gatekeepers significant powers within the network. Although the project is decentralized, the MasterKey features give the architecture a measure of centralization, which would raise concerns among more experienced DeFi users.

Challenges

A significant challenge is that the project is relatively new and undergoing development. This means that Phala Network’s dApp ecosystem and user base are still relatively small compared to established players. It also means that the project’s future success depends on how much of its technology is adopted by users and developers.

Another challenge is the uncertainty and volatility of the crypto space. The constantly changing crypto regulatory landscape, coupled with the price volatility of the PHA token, can make the project unappealing to future users.

Competitive Analysis

The Phala network is tackling privacy and scalability as a general-purpose off-chain computation platform. Like the Phala Network, the Aztec Network is a privacy-focused Ethereum network focusing on scalable smart contract computations for DeFi use cases.

The Phala network uses secure enclaves (SGX) as the work nodes. At the same time, zero-knowledge (ZK) proofs ensure data verification without compromising confidentiality, while the Aztec Network uses the Aztec Sandbox combined with ZK roll-ups to ensure privacy.

Although the Aztec Network is a layer 2 project, its reliance on zk-SNARKs can incur higher costs than Phala, which relies on the fees in the Polkadot Blockchain. The Phala network is a general-purpose network that isn’t limited to specific industries, making it more accessible to users than the Aztec Network, which is limited to only financial dApps and cannot cater to the broader needs of the crypto space.

Is PHA a Good Investment?

The main value proposition for the PHA token is access to decentralized cloud services for developers and earning opportunities for users.

Holders of the PHA token can stake and earn, contribute computing power, and earn, delegate, and get involved in governance activities. As the project develops, they can interact with other dApps and features like Phala World built on the Phala network and enjoy cross-chain activities through the SubBridge.

The project could build a robust and active community by encouraging gamified social interaction, making its token viable in the long run.

How Can You Own PHA?

To own PHA tokens and become a part of the Phala Network ecosystem, users can follow a simple process:

Setup a Wallet

One way to own PHA tokens is to purchase them through an exchange. For this, the user must create a Gate.io account, complete the KYC process, and add funds to the account to buy the token.

Utilize the PHA Tokens

Once users have acquired PHA tokens, they can explore the Phala Network ecosystem by partaking in staking, bridging, contributing computation power, and governance to earn passive rewards.

Take action on Phala Network

Users can trade the PHA token here.