Loki: Trade & Communicate with Freedom

Abstract: This document is designed to be a brief overview of the fundamental principles of the Loki project. It is not to be considered as a condensed whitepaper or supplementary to the whitepaper, but as a succinct & accurate summation of the project.

Loki: Loki is a private protocol that allows users to transact, communicate and access information privately. Based on the codebase of Monero, Loki builds on and enhances Monero’s privacy features, and incentivises full node operators (Service Nodes) to ensure the network is decentralised, far-reaching, and stable.

Project aim: Loki’s core aim is privacy; both of transactions & of communication. The problem the project hopes to solve in order to achieve this aim is to protect against the capture and retention of meta-data. The term ‘meta-data’ as it will be used in this paper, “is data that provides information about other data.” This might sound cumbersome, so for the sake of clarity it is data that draws conclusions from other data, which is then stored for years at a time, essentially as a tool for predicative analysis. This is the best use-case application for decentralisation, with the recent Cambridge Analytica data scandal and #deletefacebook movement presenting recent topical examples of the need for public privacy.

Why is this a problem?
Large troves of public data are problematic for many reasons, but for the sake of brevity we will touch on the core issues of depriving people of their basic right to privacy.

1) It’s a huge privacy invasion for unproven reward
A 2014 report titled “Do NSA’s Bulk Surveillance Programs Stop Terrorists?” suggests that traditional investigative measures are far more effective than complete digital and traditional surveillance;

“Surveillance of American phone metadata has had no discernible impact on preventing acts of terrorism and only the most marginal of impacts on preventing terrorist related activity,” the report said.

2) Companies & governments are using data to predict behaviour
Results from the newest McKinsey Global Survey on data and analytics indicate that an increasing share of companies are using data and analytics to generate growth by predicting behaviour. Data and analytics are changing the way business is done, and the competitive edge that advertisers glean from this raw data means the pendulum is swinging as far away from the consumer as it has ever been. This is because human behaviour is 93% predictable as a 2010 study done by Professor of Physics Albert-László Barabási and his team concluded.

In a nutshell; data is being taken from users unwittingly, analysed, and then used against them for commercial gain. People once thought that they were the customers of social media companies like Facebook but they now know they are the product, and advertisers are the customers. It’s an untenable commercial situation when the CEO of Facebook and one of the largest benefactors of siloed data, Mark Zuckerberg, is apologising about data breaches. “This was a major breach of trust and I’m really sorry that this happened” in relation to the Cambridge Analytics scandal. The implications of this scandal are that data was used to create targeted, politically motivated advertising during both the US election and British Brexit vote. This is not only a deprivation of privacy but also a debasing of democracy.

These two points lead to a myriad of secondary issues, however as this is not an exhaustive document we will limit the threat to these key bullet points.

How will the Loki protocol solve these privacy concerns?
The Loki architecture is two-tiered; the first layer is the security layer and the secondary layer incentivises full node operators (Service Nodes) that allows for a highly functional and feature-rich protocol. These Service Node applications will be known as SNApps (pronounced as “snaps”).

The first layer is a code fork of Monero, where Loki draws on the Monero source code and enhances its privacy features. This is a bold claim; given that Monero is widely accepted as the most secure cryptocurrency, but let me explain the deviations and why they make the Loki network more secure. While both platforms have core similarities such as stealth addresses, here are some key distinctions in the Loki architecture.

1) Ring signatures work by constructing a ‘ring’ of possible signers to a transaction, where only one of the signers is the actual sender. Loki uses ring signatures in the same way that Monero does; to obfuscate the true sender of any transaction. Ring signers will be mandatory for Loki transactions, but unlike Monero, which has a mandatory ring size of 5 signers, Loki will have a fixed ring size of 10 for improved anonymity and to prevent Meta analysis of ring size selection.

In lay terms Loki will use 10 signatures (9 being mixins) which will create indistinguishable signatures, instead of the 5 that Monero currently use so that identifying the origin of sender is that much more difficult.

2) Loki integrates a Service Node system similar to the Masternode system used by DASH, however with some subtle but significant changes. For example, Dash requires Nodes to store a fixed amount of Dash (1000 Dash) in order to run a Masternode. At this point in time this is incredibly difficult to achieve financially, and creates a system where early adopters have an essential monopoly over the architecture and mining rewards of the system.

The minimum amount of Loki required to run a node will decrease over time, ensuring that as time passes and adoption increases, the financial barrier to running a Service Node is reduced, facilitating the creation of a large network of Service Nodes. A greater number of service nodes increases the network’s decentralization, increases the network’s security, speed, and anonymity.

The greater Node count is advantageous for both circulation and randomised remote node selection, and will improve the user experience and provide greater resilience to attacks on the network.

3) The ability to send a transaction with a high degree of confirmation certainty in less than 2 seconds using Trustless Quorums to lock key images. Dash calls this process InstandSend while Loki’s variation is called Blink.

Loki’s unique architecture makes a feature such as Blink possible. Blink enables the same transactions that would occur on the traditional Loki chain to confirm instantly, assuring both the sender and the receiver the validity of the transaction and protecting the receiver against a double spend.

A trustless quorum of 10 nodes (10 randomly selected nodes) is selected every block to act as a set of nodes that will confirm a transactions validity and lock the transaction from being spent. Basically they are working as the authorities on the transaction. This quorum of nodes is trustless because it validates the transaction, without allowing for Loki tokens to be double spent. When each output is spent in Loki a key image is produced. Trustless quorums lock this key image so that if a user attempts to double spend, the network will notice an identical key image has been produced and lock the transaction from being spent. Thus the Loki can’t be spent again. This is the top line explanation of how Blink works, for the more technically inclined, Loki will be releasing a blog-post soon on how their system varies from the Dash system, and the similarities both systems share.

A précis summation is that Loki is in essence a hybrid of the both the Monero and Dash cryptocurrencies. In that technical architecture is taken from both projects, and improved upon to create the Loki protocol.

Incentivised Service Nodes
Loki has a hybrid Proof-of-work and Proof-of-Service consensus protocol. The hybrid Service Nodes (staking) allow for an incentivised secondary layer of service: SNApps (Service Node Applications). These will be highly resilient to attack, disruption and censorship, and the first SNApp to be developed will be a private messaging service called Loki Messenger. Loki Messenger will be the only completely decentralised communication service with perfect forward secrecy and deniable authentication.

In order to prevent Sybil attacks, Loki proposes a hybrid PoW and payment system to be called ‘Runes’. The PoW mechanism of course is to prove the actor in the system is human and not a program designed to disrupt the network. Requiring each Rune to be ‘bound’ to a public address provides nodes with a way to confirm ‘identity’ while still maintaining privacy.

A limit can be set on the number of requests that a public address can make to the network in a specified timeframe. This structure disincentives attacks on the network as the computer power to mine a Rune is relatively high.

Runes have a lifespan of 30 days, and can be acquired through mining or purchasing Loki tokens. The ownership and binding of Runes occur on the Runechain, a secondary blockchain in the Loki network that is maintained specifically for Runes.

They will be mined using the CryptoNight Heavy hashing algorithm which is ASIC resistant and provides a level playing field for most users. This is important, as you can’t have a decentralised network if you have a centralised mining network.

Loki aims to be the ideal protocol for those looking to build decentralised applications with a focus on privacy.

LOKI messenger
The Loki messenger is not designed to compete with WhatsApp or Telegram as a medium for communication. It is designed using the decentralised capabilities of blockchain technology to route information securely and privately via a powerful layer of service nodes. Loki will be an end-to-end encrypted private messaging service. This means it is highly resistant to censorship and cannot be shut down by external parties and state-level actors. This is incredibly relevant at the moment, because these are some of the issues that popular communications tools such as WeChat and Telegram are facing right now.

Ya-Wen Lei, an assistant professor of Sociology at Harvard had this to say about the state of monitoring the application by the Chinese government;
“Scholars often talk about the rise of the internet leading to decentralization, but the Chinese government is very clever. They kind of use social media and the design of technology to really recentralize. [WeChat] is actually a centralization of a lot of things in your daily life, so it’s actually become easier for the government to monitor and oversee.”

An even more unprecedented move happened in Russia recently when the Russian government blacklisted Telegram for refusing to share the data of private messages. The government is doing all it can — such as blocking millions of IP addresses in an attempt to stop people from using Telegram in Russia.

These are unashamedly brazen attacks on basic social privacy, and they are happening in broad daylight, with no apologies. This is the Orwellian prophecy.

End-to-end messaging applications already exist that provide a platform for users to send messages without revealing its content. However, they rely on centralised servers that can be targeted by third-party attacks. The Loki messaging system will use public-private key cryptography, where the receiving address is a Loki holder’s public key.

This messenger has two unique encryption features; perfect forward secrecy and deniable authentication. Perfect forward secrecy is a feature that disables attacks where a long-term key is exposed. A new shared encryption key is used for each message, so if one key is revealed, the entire message chain does not become compromised. Basically it means that it is incredibly difficult to break the encryption.

Deniable authentication is the ability for two parties to prove to each other they are the sender of each message. However it does not allow for a third party to know the identity, or even true sender of any message.

The take away from this is that we are living in the world that is becoming increasingly difficult to communicate without intrusion. The Loki Messenger already has claims to being the most secure portal for communication that is available to the public. This function is of critical importance given all that we know, and all that we don’t know about public digital surveillance. The ability to communicate freely, and without penalty has unfortunately become a luxury.

Fungibility:
Unlike most cryptocurrencies, Loki is perfectly fungible. Fungibility is the quality of a good or asset’s to interchange with other individual goods or assets of the same type. Put simply, this means that that every item in a set is worth exactly the same amount.

Loki possesses this quality because it provides no way to link transactions together nor trace the history of any particular token. This means that no weight of value can be attributed to how this token has been previously used. Tokens such as bitcoin, ethereum and almost all others do not have these qualities as they are on public blockchains. This means that the history of a bitcoin token can be tracked right from the time that it was mined.

Hypothetically if a famous person had owned a particular coin it could be valued higher than an ordinary bitcoin in the same way that memorabilia appreciates in value. Conversely it could depreciate in value, or not be accepted at all if it has previously been used for an illegal or immoral purpose. This is again due to the traceable nature of public blockchains, as this transaction would be noted on the ledger with perpetuity.

This is a poor quality for a currency to have, as it means that different tokens are not equal and this can create instability and uncertainty. Loki is at a distinct advantage in respect to fungibility, and therefore mass-adoption, because of the inherent privacy built into the protocol.

Tokenomics:
Intl circulating supply (pre-mine): 22.5 mln
Dtbn of tokens: Token sale (59%), Founders (17%), Advisors (6%), Seed (13%), Community/Reserve (5%)
Total token supply: 150 mln
Hardcap: $9.027 mln USD
Softcap: $6.018 mln USD
Minimum ICO investment: $100k
Price per token: $0.68USD
Loki blocktime 120 seconds
Hashing Algorithm Modified CryptoNight (Bytecoin, Monero)
Elliptical Curve Curve25519

Decentralised Governance:
The Loki network governance structure will be decentralised by the Loki Autonomous Government. LAG will have three instruments to distributing authority. These are: The Loki Foundation (think of Neo council), Loki Project Team (think City of Zion for Neo), and the Loki Funding System.

The Loki Foundation — The Foundation is a not-for-profit organisation that will have authority over the governance block reward and are responsible for the signing of transactions. Decisions will be made by consensus vote. The board will have no say in the outcome of Funding System proposals once they are submitted to the network of Service Nodes for voting.

The Loki Project Team — The Project Team is the executive branch of the ecosystem. The team is tasked with ensuring the ongoing development of the project, operating the bounty system for development, and managing all public facing aspects of the project. The Project Team is governed and funded by the Foundation. Funding is reviewed by the Foundation to ensure that the Project Team remains aligned with the vision and goals of Loki.

The Loki Funding System — This monetary system will enable the team to invest for growth as well as stave off third party influences. As per the whitepaper the average split will be 50% for the miners, 45% for service nodes, and 5% to the fund.

Given that the network will have three distinct branches, this will create a separation of powers as to balance and limit central governance.

It is possible for the Foundation to be overthrown through a hard fork where the receiving address for the governance pool is changed. For this to happen, a majority group of users must agree on the outcome. This is a mechanism to incentivise the Foundation to act for the benefit of the Loki ecosystem and reflect community interests in their decision-making.

Summary of roadmap:

• 2018 April — Main-net release
• 2018 September/October — Service Nodes up
• 2018 Late December — Loki messenger open beta
• 2019 January/Feb — Loki messenger released
• 2019 March — SNApp Open source SDK CONNECT

Website: https://loki.network

Telegram (12000+): https://t.me/LokiCommunity

Github: https://github.com/Loki-project

Special thanks to Kee Jeffries, Simon Harman, and Josh Jessop-Smith for discussion and review. All errors remain my own.