TOQEN — A Third Layer Cryptocurrency bringing Smart Contracts to IOTA
One of the most exciting features of Distributed Ledger Technologies are Smart Contracts: decentralized contracts which are not controlled by a single entity and will inevitably be settled the way the contract author programmed them to do. Smart contract platforms such as Ethereum have emerged to become the second generation of cryptocurrency. However, recent events have made it obvious that the nature of blockchain technology prevents it from executing such contracts in a fast, cheap and scalable manner.
The IOTA protocol, on the other hand, which utilizes a DAG architecture (Tangle) to solve the scaling problems of blockchain, unfortunately lacks support of native smart contracts. This is also the reason why Oyster Pearl was forced into becoming a hybrid project utilizing both IOTA for data storage and Ethereum for automatic settlements. Therefore the question arises whether smart contracts could be implemented into IOTA on a higher abstraction level.
TOQEN, built on top of Qubic Lite, which itself is built on top of the IOTA Tangle is a new proof-of-concept cryptocurrency approach that tries to supplement the IOTA protocol by providing it with smart contracts. The consensus of the public ledger is built by a qubic consisting of multiple independent oracles which validate and confirm any transaction happening in the TOQEN network.
A first theoretical concept for such a qubic cryptocurrency has been described in this article back in June. With the development progress of Qubic Lite, building TOQEN appeared to be the perfect way of demonstrating the technical capabilities of the Qlite protocol. Now, with this article, an early TOQEN prototype will be released. Smart contracts are not included yet and will be implemented in the near future. However, it already allows you to send peer-to-peer value transfers, which is definitely enough of a feature for now.
Theory and Features
TOQEN works like a blockchain and therefore, unlike IOTA, cannot scale vertically (at least for now; it would require a few major adjustments to the Qubic Lite protocol). However, scaling could happen horizontally by allowing multiple TOQEN Qubics to interact with each-other by exchanging TQN through atomic swaps.
Although TOQEN runs on IOTA, it is completely unaffected by the coordinator since Qubic Lite does not depend on IOTA transaction confirmations. Hence it might offer an alternative way to send value via the IOTA network in times of heavy Tangle congestion.
For efficiency purposes and as spam protection, invalid transfers are filtered out and do not even reach the qubic. This is realized by bringing in API nodes, which act as a layer between user and qubic and do all the filtering. Just like a qubic’s assembly it consists of many oracles, there will be many API nodes. In fact, the API nodes cannot do any harm to the qubic consensus and there is really no technical reason to not allow hundreds or thousands of them for optimal decentralization.
Fees and Confirmations
There are no transaction fees. Instead the Privilege of the HODLer is used to prioritize transactions and prevent spam. The more funds you transfer and the longer you let them sit before sending, the higher the weight of your transfer. A transaction spending 100 TQN 10 epochs after they have been received has the same weight as 10 TQN after 100 epochs.
For the sole purpose of showcasing the current development state and because of the lack of available ql-nodes maintained by the community, the qubic is currently run by only a single oracle and a single API node. Running a big qubic with multiple oracles supplied by community members would show the true decentralization behind TOQEN.
Actually not that hard to implement since Qubic Lite already offers decentralized computations. Smart contracts can be expected in the very near future if there are no major obstacles.
One of the most useful smart contracts would be a gateway between the native IOTA token and TOQEN. This would take away any need for exchanges since such gateways would already act as a decentralized exchange.
By allowing multiple TOQEN qubics to interact with each-other, horizontal scaling and colored toqens could be realized. Even completely different qubics can use a TOQEN qubic and trigger certain smart contracts or payments. One example would be decentralized gambling.
For game-theoretical purposes, API owners should be incentivized to act correctly and should receive a tiny reward proportionally high to the weight (TQN value times epoch age) of the spent inputs of the transaction they send to the qubic. Rewards would add an inflation to the total supply, but should stay insignificant because the work necessary to run an API is minuscule.
Some kind of decentralized coin tumbler is definitely thinkable and would be a much-needed feature for IOTA.
Try it Out Now
The testnet of the first prototype will go live with this announcement. It is very important to keep in mind that this a testnet and it is not yet secured against attacks. Moreover, it would be very naive to expect it to be completely bug-free. Do under no circumstances give it any value yet. Having said that, you can try it out right now by following these steps:
- install the QLRI (http://github.com/qubiclite/qlri)
- install and open the TOQEN qApp with Qlite Web (instructions on qame.org/toqen)
- ask someone to send you a few TQN (you can ask me on discord: microhash#4229) so you can start playing around
You will find more information about the installation process on qame.org/toqen.
Closing Words: Why another Token?
There is no other (at least obvious) way to have smart contracts in IOTA. It would require some major modifications of the core protocol to have smart contracts operating with the native IOTA token. Apparently, having a second token might not seem like the best idea in the eyes of IOTA holders at first. But understanding the actual consequences should put their minds at ease rather quickly:
IOTA is an established protocol with real-world partnerships developed by a Foundation full of professionals backed by funds worth multiple million USD. That alone makes it a lot more attractive as a long-term investment.
TOQEN will never be able to replace anything IOTA offers because IOTA is by design scalable and light-weight. TOQEN on the other hand offers totally different features. It’s more like a plugin for IOTA. And with IOTA-TOQEN gateways, funds would be highly liquid:
- swap your IOTA to TQN using these gateways
- lock your TQN up in whatever smart contract you are interested into
- once your TQN are released, convert them back to IOTA
As you see, there is no technical need to hold TQN while you are not actively taking part in a smart contract.
But there is one more very important aspect to mention: adoption. Smart contracts would definitely increase the capabilities of IOTA and hence have an indirect effect on its value. The snowballing effect of attracting more developers and projects on a decentralized platform should never be underestimated.
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