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Ontology: A Platform for Digital Identity and Data Exchange

Ontology is an open-source blockchain focused on providing a platform for digital identity, trust, and data privacy. It is primarily powered by Ontology Coin (ONT), which trades at $2.41 USD, with a circulating supply of around 809 million and a market cap of 1.94 billion USD at the time of writing. Its second token, Ontology Gas (ONG), which is used for transaction fees, trades at 1.23 USD with a circulating supply of just under 200 million at the time of writing.

what is ontology

What Is Ontology?

Ontology’s whitepaper, introduced at the end of 2017, presented a decentralized identity system and data exchange built on a blockchain-based trust system powered by the token ONT, which was originally contained on the NEO platform before launching its mainnet in June 2018.

At its core, Ontology is a decentralized ledger that enables smart contracts and transactions. Use cases proposed in the Ontology whitepaper include verifying people and objects, collaborative data exchange, financial services, and reputation evaluation. In particular, Ontology’s focus on the secure exchange of data sets it apart from other blockchains.

The Ontology blockchain uses a dual-token system: In addition to ONT, a second token termed ONG works as ‘gas’ for transactions. ONG is released or ‘unbound’ to holders of ONT based on holding ratios to incentivize ONT staking.

Unlike many other cryptocurrencies, Ontology did not launch through an initial coin offering (ICO). Instead, it distributed tokens to its community through airdrops (freely distributed tokens for newsletter subscribers and others) and bounties (tokens given to developers for helping with Ontology’s technical development). It also held a private token sale for major private investors.

Ontology uses a unique consensus mechanism called verifiable byzantine fault tolerance (VBFT), a combination of byzantine fault tolerance (BFT), proof of stake (PoS), and verifiable random function (VRF) mechanisms. This combination allows for quicker transaction processing than the much more energy-intensive proof-of-work (PoW) consensus mechanism used by Bitcoin and Ethereum. Ontology handles 4,000 transactions per second (TPS) on its mainnet and that number can increase to tens of thousands with scalability solutions (e.g., sharding). In comparison, Bitcoin currently handles about seven transactions per second, and Ethereum handles about 15.

Who Developed Ontology?

Ontology was co-founded by Jun Li and Andy Ji – respectively, a blockchain systems architect and a manager with experience at various blockchain and finance-related organizations. Now, Li leads a team of 150 in the blockchain’s continued development at Ontology’s offices in Shanghai, China. Ji serves as Ontology’s chief strategy officer.

Early in its development, Ontology received funding from private investors. Ontologyalso had notable ties to the China-based, B2B-focused blockchain company Onchain and its related smart contracts platform NEO (both started by the same co-founders). ONT was first launched as part of the NEO platform, and some of the initial Ontology airdrops gifted ONT to holders of NEO tokens. Close ties between the two blockchains persisted even after Ontology launched its independent mainnet in 2018. In 2019, Ontology and NEO announced a partnership in creating the cross-blockchain platform eventually known as PolyNetwork.

However, Ontology has since distanced itself somewhat from the NEO ecosystem and Onchain, expressing a willingness to work with other platforms and partners. Its recent efforts have focused on improving the compatibility and interoperability of Ontology with Ethereum smart contracts and other blockchains.

What Does Ontology Do?

One major component of Ontology is its decentralized identity framework: ONT ID. Typically, using the internet involves adopting a diverse set of personas and credentials across many websites and platforms. But in Ontology’s proposed system, a user has a single verifiable identity on the internet and greater autonomy over how their data is used. This concept is termed self-sovereign identity (SSI). Trust anchors serve to verify these identities within Ontology’s distributed identity network. Ontology claims that this innovation, part of what they term DeID (decentralized identity), can protect users’ data from being hacked and maintain their privacy.

As part of this framework, Ontology launched the ONTO Data Wallet, a smartphone app for managing a user’s digital identities, personal data, and assets across multiple blockchains. The app also includes the user’s ONT Score, which is based on Ontology’s decentralized credit rating system OScore. This reputation score can help a user obtain DeFi loans or other financial services on the Ontology blockchain and other compatible blockchains (most notably Ethereum).

What is a decentralized data exchange network?

Another central Ontology protocol is the decentralized data exchange network (DDXF). This network can be used to:

  • Identify data and its owners via ONT ID.
  • Maintain privacy and data security.
  • Enable trusted parties to quickly and safely transfer sensitive data.

This secure data exchange theoretically, has limitless applications. This aspect of Ontology is generally geared more towards businesses than individuals. For example, one sector that Ontology has recently focused on is the automotive industry. Ontology has proposed a solution using the blockchain to authenticate car parts, facilitate payments and agreements along the supply chain, handle insurance claims, and more. According to Ontology, this solution is currently used by a major German automotive company.

Ontology also envisions use cases for individuals through the ONTO app. These include buying concert tickets in the form of ONT NFTs, settling insurance claims instantly after a car accident, and even renting out your car to other users to earn ONT. However, in contrast to the business use case, these examples for individuals are still at the theoretical stage.

Ontology’s developers have also been working to increase the blockchain’s interoperability with other platforms and blockchains. In August 2020, they launched PolyNetwork, a protocol to enable cross-chain transactions, allowing developers to create dApps with cross-chain functionality.

By October 2020, 82 dApps in total were running on Ontology, with more than six million dApp transactions recorded on the Ontology blockchain. This may seem insignificant compared to Ethereum’s 3000-some dApps, but Ontology nonetheless seems to have a healthy ecosystem with room for further growth.

ONT Price History

Launched in the midst of the 2018 crypto crash, ONT nonetheless managed to rise from $1.48 USD to its all-time high of $8.96 USD in May 2018. However, its price dropped back down in the months that followed, in line with persistent bearish sentiment in the crypto space. Some price movement was seen in 2019, but was mostly traded for well below a dollar in 2019 and 2020.

More recently, ONT has surged again in the current crypto bull market. In the past three months, its price went from $0.67 USD to a recent high of $2.41 USD – a gain of 260%. ONT currently has a market cap of $1.94 billion USD, ranking 66th among other cryptocurrencies, with its circulating supply at 809 million, and maximum supply at 1 billion. With attention increasingly shifting from Bitcoin and Ethereum to altcoins in the so-called ‘altcoin season’, Ontology stands to benefit further. Its heightened profile combined with ongoing developments in DeFi could also encourage adoption among enterprises.

What Is the Outlook for Ontology?

Ontology’s developers are currently working to make Ontology completely interoperable with smart contracts on Ethereum and to integrate Ethereum’s Layer 2 with the Ontology mainnet. This integration may widen Ontology’s user base and introduce new use cases.

The Ontology team is also planning to further develop their DeFi digital lending platform, Wing, to work with additional blockchains, recently going live on Ethereum for the first time. Wing will also enable loans for additional types of assets in the future, including NFTs, cryoto derivatives, and securities.

Ontology’s aim to build a reputation evaluation system is also coming into fruition. In 2020, Ontology released the OScore protocol, a self-sovereign credit evaluation system based on user data on the Ontology blockchain. Essentially, this is a more expansive version of the ONT Score reputation system used in the ONTO Wallet app. Wing will allow users to integrate their OScore and their off-chain credit score to more comprehensively indicate their reliability for loans or other financial products. In doing so, users can avoid the current problems of overcollateralization (having to put up more collateral than one is borrowing) in DeFi.

Ontology argues that such a credit scoring system will be essential to the continued  development and eventual widespread adoption of DeFi – a view shared by other observers. If Ontology is able to get a firm foothold as a first mover in this space, it could play a significant role in the future of DeFi.

Amid all of this optimism, Ontology also has some potential weaknesses. For one, the basis of Ontology’s credit rating and reputation system would benefit from greater transparency. One of the factors influencing a user’s ONT Score (i.e., reputation score) is the number of times a user has logged into the ONTO app. Ontology has also encouraged and rewarded its users for sharing their ONT Score with others, bringing a significant social dimension to the measure. These initiatives could call into question some of the motives behind such a system – is it meant solely to build trust among users, or also to promote Ontology?

Ontology itself has compared its ONT Score to the Sesame Credit system in China. This system has become somewhat infamous for its far-reaching impacts on individuals’ lives – even factoring into online dating. With wider adoption, the basis and applications of Ontology’s credit scoring system could potentially face further scrutiny.

Another aspect of Ontology to potentially be wary of is its operations in China, which is known to be less than open to decentralized cryptocurrencies. If the country’s planned introduction of a digital yuan is accompanied by stricter regulations on other cryptocurrencies, China-based blockchain projects such as Ontology could be negatively impacted. It remains to be seen whether such regulations will come into effect, however.

Conclusion

Ontology’s data- and privacy-centric focus comes at an appropriate time. It offers a relatively unique value proposition compared to other blockchains through its focus on the decentralized transfer of data. Its technology is solid, and its innovations in identity verification, data exchange, and credit scoring allow for many possible use cases for both businesses and individuals.

What remains to be seen is whether Ontology will achieve enough widespread adoption to distinguish itself in the crowded crypto space. It seems fair to state that Ontology’s value proposition is currently stronger for businesses than for individuals. To encourage wider adoption, Ontology could articulate more clearly exactly how individual users can benefit from interacting with platforms such as ONT ID. Since internet users are increasingly demanding more control over their data and privacy, Ontology could achieve growth in DeID if it gains a wider audience. Its credit rating system is also a much-needed and lucrative development in the DeFi space. Overall, Ontology has unique and promising aspects that make it a cryptocurrency to be watched closely in 2021.


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