Polygon Absorbs Hermez: The First Blockchain Merger in History!

Polygon-Hermez Merger

Polygon released an announcement which has made crypto history. Polygon (MATIC) informed the public that they have purchased the rollup platform Hermez – a unique Proof of Donation blockchain application – for $250M, which will be paid entirely in MATIC tokens. Polygon’s purchase of Hermez is the first and only complete blockchain merger to have ever taken place. In this article, we will discuss the details regarding how this merger is taking place, as well as how each of these merging blockchains contribute to the cryptocurrency ecosystem.

The Polygon network will be absorbing Hermez into the Polygon ecosystem, under the name “Polygon Hermez.” The $250M payment in MATIC tokens is based on the value of the MATIC token, as it was recorded on August 4th, of this year. All of Hermez’s employees and technology will be incorporated into the Polygon platform, as well as Hermez’s native token, HEZ. Holders of the HEZ token will be able to exchange their tokens at a rate of 3.5 MATIC tokens for every 1 HEZ token. Other cryptocurrency projects in the past have executed partial mergers – such as the partial merger of Ethereum projects Keep and NuCypher earlier this year – although none of these quantify as a complete merger, as both projects have continued to keep their companies and brands separate.

What Exactly is Polygon (MATIC)?

The Polygon (MATIC) network was founded in 2017 by experienced software developers: Jaynti Kanani, Sandeep Nailwal and Anurag Arjun. Jaynti Kanani is one of the original architects of More Viable Plasma (MVP), which is essentially an improved version of the Plasma scaling solution, which was originally conceived by Ethereum founder, Vitalik Buterin. Simply put, the Plasma technology makes it so that nodes on the Ethereum blockchain are not required to confirm all the data which was initially required during the conclusion of smart contracts. MVP works by periodically creating copies of the Ethereum blockchain, called child-chains and periodically sends snapshots of their states to the parent chain. In this case the parent chain is the Ethereum blockchain.

The Polygon (MATIC) network is similar in nature and application; however, it was designed to be an agnostic blockchain technology. This means that the Polygon (MATIC) technology can be used on any blockchain that allows smart contracts, rather than only operating on the Ethereum blockchain. The Polygon (MATIC) network is certainly capable of carrying its weight, as it can handle somewhere between seven to ten thousand transactions per second. Polygon (MATIC) was originally called the Matic network, however when the company re-branded to Polygon, the direction of the company shifted as well. Polygon (MATIC) – as we know it now – is aiming to become “Ethereum’s internet of blockchains” in their own words. Currently Polygon is focused on building other layer 2 protocols on top of the Ethereum blockchain, aside from its MVP functionality. It is no wonder why Polygon (MATIC) was eager to purchase and absorb Hermez, due to the nature of the functionality of the technology backing the company.

So What is Hermez?

Hermez is a digital asset transferring service, which is also built upon the Ethereum blockchain. Ethereum needs to be looked at as a public database to be fully understood. This database contains records of every transaction that takes place within its network. These transactions are both saved and verified by thousands of computers which are spread out across every inhabited part of our spherical earth.

Many of us know that Ethereum has its drawbacks. For those of us who are new to crypto, the famous problem which the Ethereum network faces, is high transaction fees, AKA gas fees. These gas fees are a necessary component to a decentralized public database; however, when network activity is high, the gas fees often increase to a price which discourages individuals from participating in the network.

Rather than sending unique transactions through the Ethereum network – which require individual validation and are the root cause of high gas fees – the Hermez technology compresses and aggregates thousands of transactions into single transactions. This batching of transactions makes token transfers on the Ethereum network considerably cheaper than individual transactions. Individuals who use Hermez to transfer tokens on the Ethereum blockchain are paying at least 90% less in gas fees, compared to those who directly transfer tokens through the Ethereum blockchain.

Hermez is a network which is run by coordinators who implement hardware to verify and batch transactions. These verified and batched transactions are then recorded within the Ethereum blockchain. These coordinators bid against each other in an auction style model, using HEZ – Hermez’s utility token – during the bidding process. The winner of the auction is then allowed to prosses as many transactions as possible, over the course of a ten-minute slot. At the end of this slot, the transactions are processed through the Ethereum network and the coordinator who processed the transactions is rewarded with the transaction fees paid by the individuals who submitted the transactions.

40% of the winning coordinators bid goes to the Ethereum development community. This is how Hermez aligns its incentives in such a way that both Hermez coordinators and Ethereum developers both benefit from batching transactions. This is the fundamental basics behind Hermez’s Proof of Donation system.

In Conclusion

Due to the currently unavoidable problem of exponentially increasing Ethereum gas fees – because of the perpetual bottlenecking of the Ethereum blockchain – second-layer rollup platforms are likely to be the most practical solution. Hermez – being the only decentralized rollup platform – has incredible potential to perpetuate the scalability of the Ethereum blockchain, just based on its own merits. The combination of the Polygon (MATIC) network and the vital capabilities of the Hermez project are exactly the type of merger that push cryptocurrency and blockchain technology forward. Progresses such as this merger are the steppingstones which allow the future of decentralization to cross from unconventional to commonplace, as the world of cryptocurrency applications are built; one block at a time.

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