THIS IS NOT FINANCIAL ADVICE. I HAVE NOTHING TO SELL YOU.
Nothing in here assumes that Koinos will be successful, nor does anything I say is with any absolute certainty. I am not a professional. Do not buy or sell anything based on this document.
Before we explore the future of Koinos, please bare in mind that if you are not committed to success, then this long thread is simply not for you because there’s too many topics that must be understood to appreciate the depth of knowledge provided in this document. If you are a seasoned veteran of this industry, you may skip directly to the Chapter 1. Otherwise if you are new and committed, please read the forward carefully and decide if you wish to participate in the game of crypto.
For most token holders, buying a token is strongly correlated to the hope that some catalyst will cause the price to go up. What that catalyst may be is largely unclear and broad, if not completely vague in most cases. New investors simply drool over the potential for gains, especially in bull markets where the rising tide lifts all boats. Seasoned investors, especially those that have lost money know better because they survived to play “the game” long enough.
Like any sport, winning is a matter of inches, milliseconds, knowledge and skill. In some cases, when faced with the clock, it is a matter of luck. Pro level cryptocurrency players operate on a LONG time scale that most people don’t have the patience for. Some of these players are executing a “trading” strategy. Some of these players are executing a “build strategy”. Most will be trading the markets, and few will be building the market themselves.
But the common thread between these players is that the maximum advantage comes from starting the game during bear markets and playing deep into bull markets. This concept becomes an extremely important strategy to employ regardless if your a trader or a builder.
Ultimately, winning is simple, avoid going full degen by maximizing knowledge and most importantly, executing on that knowledge. For that reason alone, the best players are always the ones that are deeply involved in the game of cryptocurrency. This is why this article is lengthy, and why I’ve written so much on the topic of Koinos.
But theres one more thing I want to tell you and its the most important message I have for you. Within the category of those who build blockchain projects, there is an intense amount of “low key scams” that you must be aware of. When you become deeply involved into blockchain, you will notice that the overwhelming majority of projects have deeply flawed mechanics and have no ability to deliver on their promises.
Instead, these scam builders prey on players who misunderstand the game entirely. Their victims are the players that operate on hope alone. Please understand that hope is NOT a strategy and you are actually prey to the predatory scammers.
With that said, I can now begin this long discussion on how Koinos will succeed, starting with the most important thing for any player of any sport. KNOWLEDGE.
CHAPTER 1: KNOWLEDGE
Decentralization is at the core of everything this industry is about and the sooner the player understands this, the more likely they are to succeed.
By definition, decentralized projects are those that can be influenced by the broader community and there is no one central figure that can single handily hold back the project or push the project forward. Instead, it is the collective effort of those who are willing, that drive the project forward.
Willing participants are those that can participate with no barriers to entry, also known as permission-less.
Koinos is a decentralized system because it is
- Sustained through actions of the community alone
We’ll cover each of these topics in depth in this article.
The Koinos team is a fully doxxed American team of engineers and entrepreneurs. You’ll be able to meet them at conferences, events and talk to them directly.
When Koinos began, it was an idea and there was no financial support to bring the idea to reality. The development of the Koinos Blockchain was entirely funded by sweat equity, aka the time and effort of the team with no financial backing.
Because of this, the original ERC-20 KOIN token (now defunct) was distributed through a “free-mined” approach. Meaning anyone who was willing to run Ethereum based mining software was able to receive ERC-20 KOIN. The idea behind this free-mine approach was that anyone who was willing to participate, could participate. Although the token ended up on Uniswap, the token was largely worthless to the broader players of the cryptocurrency game.
There was no blockchain, and there was no tangible proof that the ERC-20 KOIN token would be valuable, especially if the team did not succeed in deploying the blockchain. This largely attributed to the reason why the ERC-20 KOIN token saw little volume and insignificant price action. This scenario was known ahead of time and expected since the price of ERC-20 KOIN was never the goal, launching the blockchain was.
99,738,744.02587864 ERC-20 KOIN was created through fair mining actions and held in 3754 wallets.
The team did eventually prevail and was ready to launch main net. This also meant that ERC-20 KOIN was to be depreciated and main net KOIN would take its place. To do this, a typical “Snap Shot” of all ERC-20 KOIN holders was taken on October 31st, 2022.
Anyone captured during this snapshot would be able to claim main net $KOIN (hereafter referred to as $KOIN) and participate in main net activities. This is the reason behind the gap in price between October 31st and the first day of trading on MEXC in December.
CHAPTER 2: MANA & ZERO FEE
Most users are drawn to the Koinos blockchain for its ability to provide zero-fee transactions. We understand that zero-fee is an experience that web 2.0 has leveraged to great extents and it has been a highly successful method of on-boarding users to the apps available on the internet. Instagram, YouTube, TikTok, Twitter are all services which are free to use and one of the primary drivers of traffic on the internet. Yet the development of blockchain began with fees and it has almost single handily crippled adoption. Mana solves this problem, but to understand Mana, we must first understand why Mana did not exist first.
GAS FEES HAVE A PURPOSE
When Ethereum was first launched, it was clear that giving free access to a smart contract blockchain would lead to instant death of the project. A method was required to manage usage and it was obvious that the lowest hanging fruit was to employ a fee system. It was never intended to use fees as a way to sustain the operation of the blockchain, rather their primary focus was to manage access to the blockchain by increasing the cost to access its resources under high demand.
It is falsely believed by many new players to the game that gas fees are used to pay miners that support the network. This is not true and easily observed through the actions of EIP-1559. How a blockchain sustains itself is a deep topic that we cover later in this Ultimate Guide.
Over time, improvements such as EIP-1559 has resulted in the universal burning of gas fees in an attempt to reign in the printing of ETH. The wide adoption of EIP-1559 becomes one of the quantitative data points to support Proof of Burn (discussed in Chapter 3).
With the understanding that the gas fee’s sole purpose is to manage access to blockchain resources, it is possible to design any number of systems that could result in a gas-less blockchain although no project has tackled this problem because it’s network effects take a much longer time to develop.
This is where the history of Mana is vitally important.
The principal concept behind Mana is simple, BALANCE. In life, everything is balanced. We cannot sprint forever without long recovery times. We can run for long distances, however our effort is much lower than sprinting. And at the end of the day, we all must spend time recovering.
To express this in a digital form, users who have $KOIN, also have Mana. It is not a token in itself, instead it is a property that is soul bound to $KOIN. Seasoned blockchain players will understand this by comparing it to gas. One cannot trade gas and it can never be stored. Mana is effectively renewable gas.
Operationally, when a users wishes to use the blockchain, they must use their Mana. The more computation they need, the more Mana is necessary and the longer it takes to regenerate Mana. At no point does the user ever lose their $KOIN, they simply lose and gain Mana, creating the effect of zero-fee.
Some may argue that the need to buy $KOIN constitute as a fee, but to the people who pick at this point entirely miss that the user never loses $KOIN and miss out on the important concept of Mana Sharing.
Mana sharing is a native feature of the Koinos blockchain that allows token holders to share Mana without transferring $KOIN, meaning that custody is maintained. Users who have access to Mana through sharing hold no tokens, making tokenless access possible for the first time in Blockchain history.
Mana sharing is a highly desirable feature that becomes one of foundational elements to the success and value of the Koinos blockchain and $KOIN.
Mana sharing is in fact, the single reason why the engineering of gasless blockchains does not exist because without Mana Sharing, it is simpler to reduce gas fees to near zero than to actually make them zero.
Several efforts exist to maximize access to Mana through Mana Sharing including the “Mana Fountain” created by Koinos Pro, and “Mana Station” created by Koinos Account Protocol (KAP).
CHAPTER 3: TECHNICAL DETAILS
PROOF OF BURN
Koinos operates on a Proof of Burn (PoB) Consensus mechanism. In concept and operation, the consensus mechanism does nothing earth shattering or new. It’s principal purpose is to take the most desirable components of Proof of Work (PoW) and Proof of Stake (PoS). To help the reader understand this better, a pro and con table of each is presented.
Proof of Work PROS
1- Permission-less: Anyone may participate through buying mining computers (GPUs, ASIC, CPU)
2- Trust-less: All participants are able to verify the state of the blockchain by working through the validation of every block through computational work.
3- Decentralized: At a network level, because the equipment can be purchased freely, the network has become decentralized and robust.
Proof of Work CONS
1- High Energy Usage: Requires significant amount of electrical power
2- Hardware Centralization: New technology makes old mining equipment obsolete which makes it easier for those with more money to outperform those with less.
3- Unable to manage supply and often purely inflationary.
Proof of Stake PROS
1- Energy Efficient: PoS does not require heavy computation.
2- Fair participation: Anyone with the underlying token may participate in securing the network.
Proof of Stake CONS
1- Centralized/Decentralized: PoS protocols vary in many cases and whether or not it is decentralized is largely dependent on initial token distribution. ICOs are often centralized and require significant amounts of time to distribute the token in such a manner where it would be considered decentralized. ETH 1.0 → ETH 2.0 is a great example.
2- Variations: PoS variations with slashing means the network controls the token during mining activities. PoS Variations with Delegations suffer from the exchange attack.
3- Unable to manage supply and often purely inflationary.
Proof of Burn PROS
1- Permissionless like PoW
2- Trustless like PoW
3- Energy Efficient like PoS
4- Fair participation like PoS.
5- No hardware centralization unlike PoW
6- Self regulates inflation through burning.
7- Randomized block production through Veritably Randomness Functions (VRF)
Proof of Burn CONS
1- Requires a fair distribution to be decentralized just like PoS
2- Requires management of $KOIN and $VHP
The concept of randomness is vital to blockchain, however randomness often goes against the principals of blockchain because a blockchain is based on known order. In fact, the randomness of blockchain was not fully solved until recently through the development of Verifiable Randomness Functions (VRF).
Randomness is important in consensus because it is the principal reason why Proof of Work is functional. Since PoW requires miners to submit proofs to collect rewards and the system is entirely decentralized and permission less, randomness is the natural state of a PoW system.
PoS in nearly all cases, suffer from a randomness problem where the order of the blocks cannot be randomized. To solve this, block producers are often ordered and preset ahead of time to prevent gaming and continuous collecting rewards.
In Pure Proof of Stake designs, VRFs are used and their solution is similar to PoB with the exception of the $VHP token which we’ll discuss in the next section called “VIRTUAL HASH POWER”.
To participate in PoB mining/network security, a user must go through these five points of action.
- Possess $KOIN.
- Burn $KOIN to receive $VHP
- Operate a mining node and earn $KOIN while burning $VHP.
- Burn more $KOIN to receive more $VHP.
- Rinse and repeat.
While this operation is simple and only necessary for miners to understand, non-miners may still wonder what $VHP is.
VIRTUAL HASH POWER
$VHP, also known as Virtual Hash Power, is a fungible token that is automatically received when burning $KOIN. $VHP does not have the Mana property and thus it’s only purpose is for mining. Users should be aware that participating in Mining means they burn $KOIN and thus reduce their ability to access Mana, proportionately. This also means that the more $VHP a user possesses, the higher their likelihood of randomly producing a block and earning the block reward.
$VHP is consumed whenever a node produces a block which means that the miner must periodically (at whatever interval they wish) burn more $KOIN to maintain their node.
The Virtual Supply is a unique definition currently only found on Koinos. It is the total supply of $KOIN tokens in existence and the total supply of $VHP. Users may try to extrapolate other bits of information from the Virtual Supply but the only purpose of knowing the Virtual Supply is to determine inflation.
Assuming all ERC-20 KOIN has been claimed, the virtual supply can change at each block and this change occurs for ONE reason and ONE Reason only.
- Miners producing blocks and earning $KOIN as block rewards (increasing $KOIN and decreasing $VHP).
There is no cap on how much $KOIN may exist in the future unless there is a change to the blockchain through on chain governance. I have found that this triggers many readers, but the reality is that most people have little appreciation for how inflation and deflation operate and thus spend no time on the topic. We’ll reserve the “why” to later in this Ultimate Guide, for now, we will stick with the technical aspects.
Inflation on $KOIN is managed by on chain governance and set at 2% of the Virtual Supply and this value is used to determine the current block reward. For more information on the exact mathematics, see this Video on Mining Rewards.
If there exist more burning of $KOIN than the creation of $KOIN in any given period, there will be a temporary state of deflation until miners rebalance the continuing burning of $KOIN to its creation. Mathematically, a period of deflation will always make it more difficult for miners to earn rewards since there are simply more miners burning $KOIN to participating in Proof of Burn
Burning $KOIN reduces the global supply of $KOIN available (thus impacting how much $KOIN is available to access network resources) and the liquidity of $KOIN. Whether or not this has a positive or negative effect on the Koinos Economy largely depends on economic state of the Koinos blockchain.
IMPACT OF INFLATION AND DEFLATION
If the supply of $KOIN is expanding through its mining operations, we may find that there is a net increase in selling $KOIN for profit by the miners. This $KOIN ends up on the open market and if the user base is expanding, such as dApps becoming accessible through Mana Sharing, then the net result is a positive effect on the Koinos Economy.
If the user base is expanding and miners seek to compete with one other by burning more $KOIN, the supply of $KOIN reduces and so does it liquidity causing an increasing in price.
Similarly, if the user base is not expanding inflation of $KOIN drives prices down and gives new participants an opportunity to access Mana more cheaply. On the other hand, if the user base is not expanding and deflation is occurring, price can remain stable.
As you see, there are many scenarios that can be beneficial when users of the system have the ability to impose temporary deflationary pressure through its mining system. None of the above is definitive, nor is it an exhaustive list of possible scenarios. These situations cannot be predicted and cannot be controlled because the system is decentralized and any action still requires global coordination off chain to actually execute.
When designing next generation platforms, the designer has a choice to optimize for key parameters. SOL for instance, was optimized for powerful hardware and high TPS rather than generic hardware. AVAX was optimized for the option to use C-Chain, P-Chain or X-Chain depending on your needs. DOT was optimized for multi-chain from the start.
But these optimizations make the chain difficult to improve in other areas without undesirable effects, this is evident in the upgrade of Ethereum 1.0 to 2.0.
Instead, Koinos is designed with modularity in mind. Meaning its core functions are designed to be as basic as possible and its features are optimized to be replaceable. To do this, only the core business logic was hard coded into the blockchain itself, effectively creating a Layer 0.
Upgradeability was manifested through the use of microservices that use an AMQP communication system to coordinate the logic.
Everything else exist as smart contracts and improving a feature simply means using a new version of a smart contract. This was readily evident in the deployment of Koinos Main net which was deployed using a Proof of Authority and swapped to Proof of Burn within several minutes of deploying the Proof of Burn Smart contract. If a new consensus algorithm that greatly improves upon PoB, then Koinos would be able to vote in the new contract without performing a coordinated hardfork.
Arguments have been made that say that any blockchain can improve through hardforks and upgradeabiity on Koinos is a marketing gimmick, but I simply view these people as refusing to accept that blockchain technology is constantly changing and the need to be adaptable is immensely important.
CHAPTER 5: GOVERNANCE
Although upgradeability is heavily tied into governance, so does block production. For this reason, Governance has been broken out into its own chapter.
If we consider what a DAO’s primary function is, Koinos is the worlds simplest DAO. We will look at how and why in this chapter.
On Koinos, voting is not done by the classic 1 token = 1 vote method. While it is fair, does not reflect active participants in the network because people can come out of the wood works and vote, having never participated in the Koinos ecosystem prior.
Instead, votes cast on Koinos are done by 1 Block Produced = 1 Vote. To be clear and simple, only block producers may vote. Recall that block producers are also the token holders who have burned their $KOIN and gave up the ability to access Mana. This dichotomy is precisely why only active the governance structure on Koinos is reserved for active participants who are willing to burn their $KOIN.
To execute an on chain governance vote, the following steps must be undertaken.
- A contract is upload to the governance system with a 100 KOIN spam-mitigation fee.
- A 2 week voting period immediately begins
- Block producers identifies the contract and includes a ‘yes’ or ‘no’ vote for that specific contract into their mining node. Each time their node produces a block, their vote is included in the global tally.
- At the end of the 2 week period, if the vote fails to meet its required threshold, then the proposal dies. Else, there is a 1 week grace period for all impacted members to prepare their system for an automatic inclusion of the proposed contract.
- The inclusion process is automatic at the end of the 1 week grace period.
Mining pools are permitted on the Koinos Blockchain but they are built by users and not a part of the core software. Because pools exist, it is possible that the majority of votes will be cast by mining pools. There is a fear that mining pools will vote in their self interest. This can be true in extreme edge cases, which we will discuss but by in large it is unlikely to occur and I will go in depth to explain why.
Mining pools on Koinos are custodial because $KOIN must be burned to fuel the pool with $VHP. Currently, there exist several pools on Koinos including the pool launcher called Fogata and BurnKoin. Both of these pools are decentralized and it is the immutable contract that holds custody of depositors $KOIN. In other words, the pool operator cannot take user’s deposits.
Both pools can conduct governance votes however depositors have the ability to withdraw their $VHP at any time. In effect this removes the ability for the node to vote against the depositor’s own personal vote.
The edge case that I refereed to above, is when depositors either lose their keys, leaving all of their tokens with the mining pool operator. Or the depositor simply forgets that they are there. These are largely fringe cases that are unlikely to occur at scale although possible.
CHAPTER 6: THE KOINOS ECONOMY
Armed with the background knowledge on Koinos, its beginning and it’s technology, we can now talk about how the Koinos Economy can flourish using the two foundational principals that underpin the Koinos Economy and its ability to deliver real world value:
- The ability to share Mana (tokenless access)
- Smart Contracts
SHARING MANA & TOKENLESS ACCESS
As we previously stated, two projects are focused on increasing access to Mana however they are done in two different ways. Together, their synergy will improve access to blockchain in a way that has never been done before nor possible.
Koinos Account Protocol will allow users to access human readable names instead of long wallet IDs. By providing a premium tier and a free tier, effectively anyone can acquire a KAP user name. Premium tiers will provide much needed revenue to sustain depositors into a Mana Pool which allows users who do not have $KOIN to access the blockchain. While KAP operates on a user level, it can be leveraged by any dApp.
Koinos Pro on the other hand, is designed to empower developers to easily create applications that can be easily accessed by users who hold no $KOIN. dApps can acquire large amounts of Mana through Koinos Pro and focus on building dApps with tokenless access.
Combined, Koinos Pro and KAP allow tokenless access through the dApp, or through the user name which enable the adoption of web3 by web2 users without the hassles of buying and managing tokens.
It is without a doubt that the gaming community is one of the biggest sectors within blockchain that will benefit from tokenless access and zero-fee technology. Developers of games on Koinos will be able to focus on developing their game and user experience, knowing that their users won’t need $KOIN to play their game. This enables them to monetize through fiat using traditional payment streams such as credit cards.
The value of NFTs is ownership of unique assets that allow us to connect with creators. Previously, only those who were willing to pay minting cost were able to access NFTs. This either means the creator must shell out their own money and mint tokens so they can distribute them. OR, it means that creators must pay someone as middlemen to create, market and sell the NFTs.
With tokenless access and zero cost minting of NFTs, creators can dramatically reduce cost through NFT creator contracts that will mint entire collections of NFTs at no cost and sell them to their fans through traditional fiat payment streams.
My fingers hurt. Just ask if you have any questions!