🤔 What is Internet Computer Protocol ?
Internet computer is a decentralized alternative to centralized cloud services like Google Cloud and Amazon web services, etc.
Developers can choose to deploy softwares and publish web content on internet computer instead of centralized cloud service providers.
💡 What role does ICP token play ?
ICP token plays following roles in Internet Computer Protocol ecosystem:
- Governance: ICP token holders can lock their ICP tokens to make neurons. Neurons vote on proposals and earn voting rewards. They can also be configured to automatically vote by following other neurons it trusts – maximizing the voting rewards without doing too much work😎. Neurons voting power and rewards depend on:
- Quantity: Number of ICP tokens locked to create neuron.
- Dissolve delay: Owners cannot redeem locked ICP tokens immediately. Dissolving neurons to get ICP tokens back takes 6 months to 8 years. Dissolve delay settings are selected at the time of initialization of neurons. Neurons with longer dissolve delay have greater voting power and are paid more rewards as compared to neurons with shorted dissolve delay. This is because neurons with longer dissolve delay vote based on a longer-term view.
- Age: Older neurons have greater voting power as compared to younger neurons
- Buy cycles: Developers can transform ICP into cycles. Cycles are stablecoins used to pay for computation. 1 Swiss franc worth of ICP is equivalent to 1 trillion cycles. Developers pay cycles to data centers to power the web apps. Value of cycles is kept stable so that developers can predict the cost associated with deploying and running their apps.
- Node rewards: Nodes are building blocks of data centers. Developers running node machines are paid node rewards on a monthly basis for proving their infrastructure.
📝 Origin of Internet Computer Protocol
Dominic Williams founded Dfinity foundation to build Internet Computer Protocol in 2016.
- Williams is a graduate of King’s College London, where he studied Computer science earning high distinction.
- He is also the founder of “Fight my monster”, an MMO game for children.
- In 2015, Williams worked at Mirror Labs, a startup in San Francisco working on a Bitcoin transfer process similar to the Lightning Network.
- He is now the President and Chief Scientist at Dfinity foundation.
Dfinity raised approx $195 million from accredited investors, venture capital firms and public offerings in 2018-2019. They also airdropped $35 million worth of ICP tokens to 50,000 participants in 2018.
The team launched the internet computer protocol’s mainnet in December 2020.
😌 What problems does Internet Computer Protocol solve ?
Internet is one of the greatest invention of all time. It started off as a novel idea to connect all computers however, power got concentrated in hands of just a handful of tech giants as time passed.
Developers build on these cloud platforms instead of deploying their own servers to reduce costs and avoid maintenance overhead. These cloud platforms power majority of web content and can collude to sensor services.
Internet computer protocol provides a decentralized alternative to existing cloud service providers, like Google Cloud and Amazon web services. Advantages of building on Internet computer protocol are:
- Projects do not have to manage:
- Backup systems, etc
This reduces the cost and time to build web services.
- Teams cannot be 100% sure that cloud platforms are not spying on their data.
- Teams building on internet computer protocol can rest assure that no centralized cloud platform will bar them from using the services.
- Many startups build their services using APIs of tech giants eg Tinder uses Facebook’s APIs to build user preferences and find matches. There is no guarantee that Facebook will continue to provide access to its API. This exposes these startups to significant platform risk.
Whereas, developers using APIs of autonomous software build on internet computer protocol can be rest assured that they will continue to get access to these APIs in the future.
🤩 What's the vision ?
🤖 How does it work ?
Hierarchy of network building blocks
Internet computer protocol is a decentralized protocol run by distributed infrastructure. Various building block of ICP network are:
- Nodes: People buy standardized hardware specifically designed to run ICP protocol. Group of these nodes deployed together form a data center.
- Data centers: There are thousands of data centers that run ICP, spread across the world. They act as building blocks of ICP infrastructure and host standardized node hardware.
- Subnets: Node machines of various data centers are logically combined to form a subnet. This ensures that data is not centralized at one place. The network nervous system decides which and how many nodes will form a subnet. There are four types of subnets based on their use:
- Network nervous system
- Data subnet
- System subnet
- Fiduciary subnet
Each subnet forms a proof of stake blockchain that runs canisters(smart contracts).
- Canister: They are compute units similar to smart contracts. Each canister runs inside hypervisor and interacts with other canister using public APIs. Canisters run on web assembly code that can be compiled from Rust or Motoko(ICP native programming language).
Developers charge canisters with cycles to perform computation. Canisters can also fork themselves or subnets to support additional users.
NNS - Network Nervous System
NNS controls, configures and manages the ICP infrastructure. Various management roles played by NNS are:
- Datacenter level: NNS decides whether the datacenter can join ICP ecosystem.
- Subnet level: It decides which nodes from which data centers will join to form a subnet. It also splits and merge subnets to balance load across the overall network.
- Node level:
- Identifies misbehaving and underperforming nodes.
- Distributes monthly rewards to nodes.
NNS itself comprises of canisters running on a subnet:
- Registry canister: Stores configuration of ICP: which subnet comprises which all nodes.
- Ledger canister: It records internet identities, transactions and account balances.
- Governance canister: It stores proposals and votes.
Threshold relay - consensus mechanism
Each subnet forms a Proof-of-Stake (PoS) blockchain using threshold relay consensus mechanism. It comprises of 4 layers:
- Identity and registry layer: Registers participants in ICP ecosystem. Unlike Proof-of-work blockchain(where there are no repercussions for submitting wrong results), NNS punishes malicious behavior.
- Randomness beacon: Serves as verifiable random function, which selects which node will mint the next block.
- Blockchain and fork resolution layer: Is driven by the randomness of the Random Beacon Layer and builds a blockchain from the verified transactions.
- Notarization and near finality layer: Provides extremely quick finality of transactions across the network. Once the notary layer receives the proposed blocks, it runs the ranking mechanism for them, selects the highest ranked block, and subsequently signs and broadcasts it to the network.
Cycles as stablecoins
Cycles are stablecoins used to pay for computation. 1 Swiss franc worth of ICP is equivalent to 1 trillion cycles. Cycle peg is maintained by:
- Imagine a market participant dumps a large number of Cycles in the open market reducing its price. In such scenario, developers will prefer to buy cycles from open markets at reduced prices instead of converting their ICP tokens to cycles. This increases the price of cycles.
- Similarly, traders will burn ICP tokens to sell cycles in the open market if its price is over 1 Swiss franc, reducing its price.
Motokoto - ICP programming language
How does the process work ?
- Nodes taking part in ICP ecosystem are paid node rewards on monthly basis.
- Node operators sell part of node rewards in open market to cover their operating costs.
- Developers buy ICP tokens and convert them into cycles to power their apps.
💁 How Dfinity helps community
Dfinity offers resources to help developers create and deploy on their network:
- Beacon fund: Funds development of Dapps building on ICP ecosystem.
- Internet Computer Fellowship: A 12-month program for graduate students to learn ICP.
Dominic Williams founded Dfinity foundation to build Internet Computer Protocol in 2016.
It is a not-for-profit headquartered in Zurich, Switzerland, with offices and research teams in the United States, Japan, Germany, and the UK.
Difinity foundation made ICP code public and handed over the control to DAO in 2021. However, the foundation continues to research and propose updates to ICP protocol.
Dfinity Foundation has a team of more than 200 developers and researchers with nearly 100,000 academic citations and 200 patents collectively.
☠️ Internet computer ptrotocol is centralized
ICP has made following tradeoffs that make it centralized as compared to other crypto projects:
- Internet identity:
- Every participant using ICP ecosystem has a unique ID. This ID is linked to user’s mobile/PC/USB key etc, which is needed to sign all transactions.
- Internet identity makes it convenient for users to interact with protocol. However, user’s identity is tied to everything he does online. This is even worse than current system where tech giants like Google and Facebook own only a part of your online data.
- A person booted out from the ICP ecosystem will literally be blocked from using internet if all the apps build on ICP ecosystem. This will cut citizens out of the society.
- Data centers have to run custom ASICS hardware made by Dfinity Foundation to join ICP ecosystem.
- Dfinity Foundation holds a major portion of ICP tokens. These tokens are locked for 8 years, which gives them max voting power and rewards. These rewards can again be locked to compound ICP tokens and voting power.
🤑 How much money does ICP have for future development ?
- Dfinity raised approx $195 million from accredited investors, venture capital firms and public offerings in 2018-2019.
- Dfinity Foundation holds 24% of ICP supply. Foundation can sell these ICP to raise funds.
- Dfinity foundation does not have any source of income other than appreciation of their holdings and large reserves raised during ICO.
- Network effects: More developers will start learning ICP as more startups choose to deploy their apps on ICP. As more developers learn ICP, startups will choose to deploy on ICP. This chain reaction has potential to cause exponential growth.
- Switching cost: There are no existing solutions for apps running on ICP to migrate to other platforms seamlessly.
😨 Risks and challenges
- ICP pays fixed monthly rewards to ICP nodes and has fixed cost for computation(1 cycle equal 1 swiss franc) instead of free-market(supply & demand) deciding the prices. This can lead to imbalances in computation supply and demand.
- 1 cycle is equal to 1 swiss franc is not a good peg for a project with decades of time horizon. Value of Swiss franc is not stable over such a time hozion and decreases exponentially because of inflation.
- Establishing data centers require huge upfront cost and run on custom ASICS hardware provided by Dfinity foundation.
Initial supply of 469,213,710 ICP tokens was distributed as follows:
- ICP pays fixed monthly rewards to node operators which is inflationary.
- Developers convert ICP tokens to cycles to power their apps which is deflationary.
Token’s price increases due to demand pressure.
Demand pressure on ICP token will come from:
- Developers: They will buy and convert ICP to cycles to power their apps.
- Governance: People will buy ICP tokens to participate in ICP governance.
- Speculators: They will buy ICP tokens to bet on future price appreciation.
Supply pressure on a token decreases its price.
Supply pressure on ICP tokens will come from:
- Node operators: They will sell part of their monthly ICP rewards to cover operational costs.
Cloud computing is a multi-trillion dollar industry that is growing at an exponential rate. ICP token has tremendous room to grow even if ICP can capture a small share of overall market.
Artificial intelligence is a multitrillion-dollar market growing at an exponential rate.
Current market cap of ICP is:
🧐 Indicators to watch out for
- Dfinity YouTube channel has seen a sudden increase in number of subscribers and views. 🧐
- ICP Twitter following is on a rise since Jan 21.
- ICP ecosystem is growing.
👋 Final remarks
ICP is a difficult crypto project to understand and the team does not do a good job explaining it. In addition, they have made the project centralized to improve speed and efficiency which is a major concern.
I do not agree with some statements made by Dfinity founder and team:
- Its not like AWS or google cloud can shut hosted web content if they want – Most developers maintain backup of their sites and can choose from thousands of cloud hosting services to restore their websites in no time.
- Dapps built on ICP cannot be hacked – Any developer knows it is impossible to make an app that cannot ever be hacked.
- Developers do not need databases and database managers.
- API of dapps build on ICP cannot be revoked.
Tech giants are a threat to free internet but that does not mean that projects can bash them regardless to sell their products.