Investigating Funding and Incentivization Models for BrightID

BrightID is one of several projects trying to tackle the daunting task of creating a fully decentralized and globally unique identity system.

This document continues the line of thought started by Adam Stallard in his post about crowdfunding models being investigated. For the sake of brevity, only points with significant distinction from what was already mentioned will be covered in depth.

The goal of this document is to formulate high-level approaches which may aid in finding solutions. It is in no way a formal specification that attempts to solve the numerous hurdles which will inevitably be encountered along the way.

Challenges

• Adoption: The growth of any network is extremely difficult, especially in the early stages. A system like BrightID becomes exponentially more valuable as it gains acceptance if it is able to maintain reliability.
• Bad Actors: As the value of the network increases, so does the rewards for those who seek to cheat the system. The network must have systems in place to mitigate continual and evolving attack vectors.
• Funding: Development is expensive, and the success of the project requires a long-term sustainable funding model.

Assumptions

• Participants will follow standard rational game theory and are unlikely to contribute or participate in large numbers without an incentive to do so.
• Increases in the barrier to entry will result in dramatically lower levels of adoption. This may not be true in later stages but is definitely true before the network is proven to show value.
• BrightID is providing a service that is desirable and provides benefits that others are willing to pay for.

Funding Models

• Donations: Risky. Irregular cash flow could lead to continual project setbacks, and periods of underfunding and stagnation. Projects that rely on donations and partnerships, such as Wordpress, do exist. However, this model is challenging and rarely is it sustainable on its own.
• Government Grants: Could give a boost to a project that is providing a verifiable benefit to the public good. However, grants can be difficult to attain and are generally only given to established entities to accomplish a specific task. There are also stigmas involved when any government entity becomes involved.
• Token Sale: ICOs can provide significant capital in a short period, but the increasing amounts of red tape make it a questionable choice, especially in the United States.
• Founder’s Reward: A percentage of the total supply is reserved for the development team. Often times this is paired with traditional investment.
• Treasury: If the system utilizes a native token and is designed to include any form of direct incentivization (such as mining), a percentage can be directed back to the developers.
• Traditional Investment: Upfront capital can be raised through traditional investment, and can easily be combined with the aforementioned models.

Points of Incentivization

• Nodes: Running nodes carries inherent expenses. In order to maintain a robust and resilient platform, nodes need to be incentivized to maintain long term operation.
• Users: There must be direct benefits to users in order for them to adopt the platform. This can come in the form of a direct incentive, or an indirect incentive in the form of benefits received by utilizing third-party services which rely on BrightID.
• Integrators: Services that integrate with BrightID are typically the largest consumers of the service being provided. Their incentive is simply the value and benefits that the service provides.

Inflationary Token Incentives

Creation of new tokens through inflation is an effective means of paying rewards to nodes and users. This does not necessitate that the token itself be permanently inflationary since other actions, such as proof of burn, can effectively offset inflation at a later date.

The reward amounts can be fixed or dynamic. BrightID’s primary purpose is being resistant to Sybil attacks, which gives it a unique advantage over many other distributed systems. BrightID could dynamically control reward amounts based on the user count within the network. In turn, this could give advantageous features, such as being able to equalize rewards for early and late participants.

Node Incentives and Staking

Nodes which perform as expected could earn a token based reward. To keep the operators honest, a minimum stake amount could be introduced as a requirement to make the node eligible to receive rewards. If the node is determined to be malicious by a majority vote of the other node operators, then their stake will not be returned, and will instead be burned.

If the system requirements for a node remain low, then the incentive amounts can also remain much lower. Existing masternode operators are always looking for new platforms that they can stack onto their existing infrastructure.

User Incentive

Users who join the network could also earn token-based rewards. There are multiple forms which this could take.

The most simple and straightforward is to issue a one-time fixed stipend upon attaining a minimum threshold to be confidently considered legitimate by the network. This could be upon becoming “verified” by attaining a specific score or level, or by completing manual verifications such as a check of government-issued IDs.

Participation Incentive

Users could also earn rewards for participating with services using their BrightID. Consumers (service providers) could pay small token amounts to users who join their service. Consumers gain immediate access to a wide willing audience, and users are compensated for their participation.

Consumers paying to acquire new users is nothing new. This is one of the primary purposes of advertising on the internet. Offering a direct reward removes the middleman, and gives a stronger benefit to both parties involved.

Data Sharing Market

User data could be held in zero-knowledge encrypted stores within the nodes. Users could then allow or disallow their data to be shared with consumers.

The data could be organized in tiers, where higher tiers contain more personal data. Consumers who wish to access this data must either convince the user that their service is deserving of access, or they could even pay increasing amounts for the higher tier data.

Consumers paying for user data is nothing new. Data mining is one of the biggest revenue sources on the internet today. Once again, this removes the middleman and gives a stronger benefit to both parties involved.

User Verification and Staking

One of the core elements of BrightID is the user relationship data graph, which determines user scores. One of the biggest challenges is maintaining the accuracy of those relationships.

Users could be incentivized to stay honest when verifying each other by using a stake based vouching system. Two connected users each place a stake on their connection, creating a bond. As long as both users remain in good standing, small rewards are paid to both users for simply maintaining the bond.

If one of the users is discovered to be a bot or Sybil, their account would be immediately suspended, and the stake would be locked for both participants in the connection. This penalty discourages bad actors and also discourages users from being lax on their verifications of others.

Treasury Reward Models

• Operational tax: Each time a reward is paid to a node operator, a fractional amount is issued to the treasury. This gives the developers a semi-predictable reward stream.
• New user reward: Each time a new user joins and attains minimum verification, a small reward could be issued to the treasury. This incentivizes the developers to meet adoption goals.
• New Engagement reward: Each time a verified user interacts with a new consumer for the first time, a small reward is paid. This incentivizes the developers to create an ecosystem with diverse participation.
• Consumption tax: Each time a consumer pays a user, a fractional amount is given to the treasury. This rewards the developers for creating an ecosystem that thrives on real-world value.

Token Burn Models

• Consumption burn: Each time a consumer pays a user, a fractional amount is burned.
• Suspension “burn”: Each time a user stake or node stake is locked for mal-intent, the tokens are effectively removed from supply. This is equivalent to a burn but reversible in the case of a false positive.

Conclusions

There are numerous avenues that could be investigated for both funding and incentivization. The single defining consideration something that leads to long-term project sustainability.

A variation on the treasury model may be the most viable route on the developer side. This provides a continuous flow of revenue to sustain development and provides a continued incentive to improve the product.