FAQs | XDC Network

A blockchain can be described simply through its name, but first, let's look at its concept. Simply put, a blockchain is an open digital ledger that processes and records transactions.

Transactions on the network are processed, finalized, and recorded into groups called blocks. When a block is created, it makes a permanent record of all the transactions and state of the network. A cryptographic hash is then created to identify that block and can be used to verify its data.

The chain aspect comes from each block being connected to the other. When a new block is created, data from the previous block is verified through its cryptographic hash, connecting the new block to the previous. This process continues as each block is created, moving the state of the network forward one block at a time.

So how are transactions verified and blocks created? The blockchain is operated by a global network of nodes. These nodes are basically computers that communicate with each other, transact data on the network, and create blocks. When a new block is created, nodes ensure that data across the network is aligned and verifies the history from the previous block.

Decentralized applications, commonly referred to as dApps, are applications that run on a decentralized network. With blockchain running on a network of nodes instead of centralized servers, applications built on them operate in a decentralized environment. This allows them to be accessible by participants on the network, provides transparency, and ensures that data and transactions are not owned by one governing authority.

READ more about smart contracts here.

Community is the lifeblood and foundation of the XDC Network. Community can be anyone interacting with and contributing to the XDC Network in any way. This can be users, developers, entrepreneurs, enterprise, supporters, and any participate that contributes to or builds on the network. Each community participant plays a role in a network's success, and each role has different needs from the ecosystem to successfully contribute.

There are many ways to join the XDC Network community and engage with others participating in its ecosystem.

Get active with the community here.

The XDC Network is an enterprise-grade, EVM-compatible Layer 1 network equipped with interoperable smart contracts. A highly optimized, bespoke fork of Ethereum, the XDC Network reaches consensus through a delegated proof-of-stake (XDPoS) mechanism, which allows for two-second transaction time, near zero gas fees, and over 2,000 transactions per second (TPS).

Secure, scalable, and highly efficient, the XDC Network powers a wide range of novel blockchain use cases.

As an EVM-Compatible, Layer1 blockchain with smart contracts, the XDC network can support a large collection of token standards. These include XRC20, XRC721, and XRC1155 imported from Ethereum as well as native standards that allow you to deploy and handle multiple types of tokens within your smart contracts. The tokens can act as units of account for applications that reside on the XDC Network.

In addition, you can create your very own XRC20 token through the XDC Origin dApp. The user interface is easy to navigate, and your token can be created and deployed in just minutes. You can also do the following with your newly created token:

Deploy your verified token contract on XDC Network (no coding required)
Mint your token and add it to your XDCPay wallet with easy button clicks
Burn and Pause your token as needed

You can create NFTs on the XDC Network through several NFT dApps deployed on the network. Visit the ecosystem page and find an NFT dApp in the XDC Builds section.

The XDC coin, or simply XDC, is the native asset of the XDC protocol and may serve as the reserve cryptocurrency for all third-party dApps running on the XDC Network. As a coin, it unlocks functionality on the XDC Network, powering a wide range of novel use cases:

Settlement for dApps built on the XDC Network
Support for micropayments with near-instant settlement
Transaction costs (gas) for on-chain transactions
Smart Contract deployment and settlement for smart contract event triggers.

Note that multiple distinctions can be intended between “coin” and “token” in the blockchain context. Most fundamentally, “coin” is used to refer to the native, or primary, asset of a blockchain while “token” is used to refer to secondary assets created by or for use with particular dApps or “Layer 2” applications. The terms “coin” and “token” are often used interchangeably in the industry. The use of “coin” here is intended only to indicate that XDC is the primary asset of the XDC Network and, on that basis, can be distinguished from all tokens on the network.

The XDC Network’s operation relies on Masternodes which are operated by third parties. Some operators have set up multiple Masternodes; XinFin Fintech operates three Masternodes which it set up originally to run the Network at inception, whereas XDC Foundation does not operate any Masternodes. Each Masternode falls into one of three subcategories: Validator, Standby, or Archival.

READ more about Masternodes here.

ISO 20022 is an international standard for financial messaging that financial institutions will migrate to as a common language for cross-border payments messaging.

The ISO 20022 standard allows for financial entities throughout the globe to abide by the same messaging data schema when interacting with each other. This allows banks, wealth management funds, and governments to have a simple means of interacting with data from other entities without having to anticipate any specified schema that entity may have designed.

The XDC Network is built for enterprise projects and can accommodate applications using the new ISO 20022 messaging standards.

Metcalfe's Law states that the value of a given network is proportional to the square of the number of connected systems. In other words, a network increases in value exponentially faster than the additional sum of the value of all additional parties involved.

For example, a social media application with one user will only have the connection of that one user. But for every additional user, there are exponentially more connections that can be made, thus increasing the value of that system.

Similarly, blockchains abide by the same rule. As more applications and parties come onto the network, their amount of value added to the network increases.

Trade finance is the financing of a purchasing transaction between a buyer (importer) and a seller (exporter). There is time in transit from the point of sale to the delivery of the goods purchased, and this is typically what trade finance covers. For example, a bank may provide a guarantee to the seller on behalf of the buyer that promises to make the seller whole should the transaction fall through due to the buyer’s lack of payment.

Once the buyer arranges this transaction with the bank, the transaction becomes a low-risk asset that the bank will typically sell to a secondary market investor. This is in order to get the asset off of their books so that the bank can make more lending/guarantee arrangements.

A Letter of Credit (L/C) is one common trade finance product and involves a bank pledging payment on behalf of the buyer (importer) to the seller (exporter). The seller’s bank becomes involved once the L/C is issued by the buyer’s bank, and the seller’s bank will typically issue a loan to the seller based on the guarantee provided by the L/C.

Purchase Order Finance (POF) provides capital to pay sellers based on verified purchase orders.

Supply Chain Finance (SCF) is a technology-driven cash flow solution that automates transactions and tracks the invoice approvals and settlement processes. Commonly, the buyer approves the sellers’ invoices for financing, and short term credit provides liquidity to both parties.

SME is an acronym for small-to-medium size enterprises. SMEs include women and minority owned businesses. The term is often used in the trade finance industry as the market segment is often precluded from participating in trade finance opportunities due to a high bank rejection rate — 50% or more. Reasons for the high rejection rates include SMEs lacking collateral requirements, creditworthiness, and knowledge about trade finance. Banks often lack the resources to extend credit to and audit SMEs.

As banks have well-established lending patterns with their clients, there are capital needs that go unmet in the trade finance sector. The trade finance gap happens when there is more demand for capital than there is capital available.

Those most affected by the gap are small-to-medium size enterprises (SMEs), particularly those in developing countries. Banks reject nearly 50% of trade finance applications from SMEs. Women-owned businesses faced additional challenges as well.

Several factors contribute to these rejections, including SMEs lacking collateral requirements, creditworthiness, and knowledge about trade finance. Other risk factors, like political and currency risks, also contribute to the trade finance gap, and one of the biggest challenges lies with the banks themselves and their lack of resources to extend credit to and audit solvent and viable SMEs.

Traditionally, large investment banks have been the providers of trade financing for the global trade industry. The complex and centralized nature of the financing products offered disincentivized other non-bank financial institutions, although the secondary market created by the banks for off-loading their initial investments was more diverse.

Thanks to blockchain and the innovation from forward-thinking fintechs, trade finance assets are now being offered to a wider secondary investor market, including institutional and retail investors. This leads to more funds becoming available for the SMEs, who have long been denied access to trade finance products.

Tokenizing trade finance can include, but is not limited to, issuing regulated notes and security tokens that are backed by trade finance assets on a distributed ledger. These security tokens reside on the blockchain and may be traded on exchanges.

Tokenizing trade finance assets allows a broader investor pool to have access to this asset class, thereby increasing liquidity and providing SMEs with greater access to trade financing products.

The International Trade and Forfaiting Association (ITFA) was founded in 1999 as a worldwide trade association for companies, financial institutions and intermediaries engaged in global trade, forfaiting, supply chain and receivables financing. Its members work together to originate and distribute trade-related risks. XDC Network was invited to become the first and, at the time of writing, only Layer 1 blockchain ecosystem member.

Digital Negotiable Instruments (DNI) Initiative Membership. XDC Network joined the DNI Initiative in November 2021 and provides the needed blockchain structure and interoperability for financial institutions to communicate across various platforms and ecosystems. The association was formed by the ITFA, and it aims to fully digitize trade documents and negotiable instruments as well as integrate them into existing processes.

Trade Finance Distribution Initiative (TFDi), a consortium of the world’s leading banks and non-bank financial institutions established by the ITFA for the purpose of liquifying trade finance. XDC Network was selected in 2021 as the first and, at the time of writing, the only blockchain ecosystem member.