Honest Lition ICO review

Note: this is an English translation of the Russian article we wrote recently with an in-depth analysis of the Lition ICO.

ICO Website | White Paper | ICO Chat | Medium | Github

The review was created by “Avocado Approves” community with the support of Golden Borodutch Telegram channel. For the convenience of readers, the review is divided into six parts: product, advisors, team, partners, legal part and conclusion. We’d appreciate if the project team answered the questions in bold publicly.

Worth noting that everything written below only represents the personal opinion of the author, which fully complies with the Fair Use laws and the First Amendment. It’s is in no way trading advice, and all the information was gathered from public sources.

Product

Lition is an agnostic protocol, meaning it could be based on any blockchain with smart contracts, that features data deletion and the core network scalability.

Data deletion is possible only in private sidechains under certain conditions of the smart contract. Lition team claims that this is necessary to comply with the GDPR.

Sidechains are separate private or public blockchains of the protocol tied to the core network. Most often used by commercial companies as private data storage.

GDPR is the European data protection law adopted in July 2018. In a nutshell, GDPR gives EU citizen the right to know what of their data is used and what for, along with the ability to change and delete that data.

The process of data deletion is described in the technical whitepaper in a quite complicated way. As far as we could figure out from the video, where the founders explain how their product works, the deletion process is similar to the recently reviewed project — LTO Network. Incidentally, they are working on conforming blockchain with the GDPR requirements, but from a different angle.

Data deletion contradicts the values of blockchain technology, and therefore data deletion and blockchain are incompatible. Lition, however, used data deletion as a marketing honeypot. In fact, Lition’s sidechains are not blockchains, but a distributed ledger. The personal data is meant to be kept in that ledger and be deleted from it. It is unclear how Lition would manage that, but they say they would.

• How exactly will the data in the distributed ledger be deleted? When you delete data, will the areas be filled with zeros or marked as unused?
• How do you comply with the GDPR requirement of not storing personal data forever?
• How much will deletion cost for data owners?

And the only thing that’s store in blockchain is hashes of data transactions. When sidechains are synchronized with the core network, hashes are checked for data integrity. When that data is deleted, its hashes are marked as unhashed.

Lition team claims that they are working on making their data deletion technology proprietary.

• Can you prove that you applied for a patent?

According to the team, the test network uses the Ethereum blockchain, Quorum distributed ledger, and Raft consensus algorithm for sidechains as a temporary solution for a quick launch. Later they are going to switch to the Hyperledger Fabric blockchain, distributed ledger from SAP, and Pos consensus algorithm for sidechains.

• How are you going to migrate the data over to a new blockchain? Can you provide technical details, or you haven’t even thought about how you will carry out the migration yet?

Along with the protocol, Lition is developing a web platform that allows electricity consumers to buy electricity directly from suppliers. The project is called Lition Energy.

Illustration of the current system with a bunch of intermediaries. What Lition offers is a dApps P2P electricity exchanger with cost reduction

Providers can be represented by both large sellers (public and private power plants) and ordinary people with small farms of solar panels.

The blockchain is used to authenticate users and perform operations through smart contracts.

The platform and its smart contract are open source, but the only thing available for the public is the demo version with zero functionality. A simple interface featuring a selection of suppliers divided according to the types of electricity they provide:

Some reviewers dare to call it MVP. Beware, it’s not an MVP! You can poke about the prototype here. Login-demo, password-demo1234.

In June 2018, one of Lition developers thoroughly described the process of the initial development of the platform frontend. It is an interesting reading.

Lition’s founder claims that they have already commercialized Lition Energy and introduced It to customers in more than 50 cities.

• Can you prove that your product is already working? How did you introduce it to your clients?
• If you already have so many clients, then why do you need the protocol, the core network, data deletion, scaling and an ICO at all?
• How can we contact the companies you are already working with? It won’t mind reaching out to them to confirm the information.

Lition doesn’t stop there. They are going to develop dApps for healthcare, finance sector, travel, automotive industry, telecommunications, data management, and pharmaceuticals. They’ve already announced a nearly finished MVP of a banking dApp and a hosting platform for Security tokens, which would be issued to businesses after their products have been launched.

• Can you provide evidence that you are close to launching those two MVPs?

There are three interesting paragraphs in the Key features section on Lition.io:

Sensitive data is stored on private sidechains. Quantum-computer safe.

• Can you tell us more about how exactly Lition uses the mentioned quantum computer? As far as we know, only a few companies in the world have access to quantum computing.

Made for European regulated STOs. Designed with the Government

• Who exactly and how did the government help to develop Lition? Do you have any proof of that?

Infinitely scalable and low-priced. Every new sidechain increases throughput.

• How do new sidechains scale the network?
• What are the criteria of choosing which nodes should be privileged to operate on sidechain federation?
• What are the minimum requirements for becoming a node?
• What incentives will be offered to stakers?

You claim that it is impossible to recover data from hashes. But the use of a hash in a blockchain can lead to another kind of problems. After all, a hash is still considered personal data if it can be associated with a person. Let’s say the data contains a name and a phone number. If you know this name and phone number, you can generate a corresponding hash and find it in the blockchain.

• Projects like Lition prevent that by adding random data or timestamp to the hash. How do you solve this problem?

When manipulating other people’s data, the transaction hash will be changed and the nodes of the core network will notice it. The malicious node will be punished, but what happens to the modified data? Will that data remain changed in sidechains?

Lition’s Github repository only contains the frontend of Lition Energy platform and its smart contract. We asked the founder when the code of the main product is going to be published, and that’s what he told us:

Not sure yet. We’ll publish them when we feel ready that the community can use our testnet for their own applications and give feedback. The current testnet works, but it requires a lot of custom configuration to set up a sidechain. if we’d release it now we’d spent a lot of time troubleshooting and explaining.

• But shouldn’t it work the other way around? The more code you have, the more time you will spend on corrections.
• When will you conduct an audit of your smart contract and protocol? Have you already decided who will do it?
• Are you going to implement Bug Bounty program? If so, when and on what terms?

The public launch of the test network is scheduled for the first quarter of 2019, and the launch of the core network in the third quarter of 2019.

Partners

SAP

The most weighty partner is a giant German company that produces software for no less gigantic organizations, some of which are listed in Fortune 500. We have not found any public evidence of SAP’s partnership with Lition, but here are some facts related to it:

1. In May 2018, the Consensus conference announced the joint work of SAP, Lition Energy, and Modum (IoT platform). Their work was said to be carried out through SAP Leonardo — several SaaS services referred by SAP as “digital innovation system” for business (more details here). Briefly, there was no promises and no mentions of an agreement of any sort. This leads to the conclusion that Lition is simply using SAP Leonardo, building its solution on the blockchain from SAP.
2. Lition isn’t listed as a partner on the SAP website, nor is it on their startup portfolio. The mentioned Modum, on the other hand, is listed.
3. The project has a technical adviser — Juergen Mueller, CTO at SAP. His connection with Lition is confirmed as he is mentioned as an advisor on Lition’s LinkedIn page. Mueller also appears in several videos alongside with members of Lition team, but he never said anything about Lition’s supposed partnership with SAP, and only talks on joint work in general terms. Also, he never mentions Lition on any of his social networks accounts. We’ve reached out to him on LinkedIn and are waiting for an answer.
4. According to Lition CEO, the partnership agreement between SAP and Lition is under NDA. When being asked why SAP wouldn’t announce the partnership, Lition team responds that SAP prefers to keep it a secret for security reasons until Lition has launched their product. We’ve reached out to SAP press-service and are waiting for an answer.

The terms of the partnership between SAP and Lition are that Lition should be able to use SAP Leonardo’s distributed ledger service for Lition’s sidechains. The underlining technology is still unknown. SAP’s work with the Lition protocol, PoS consensus, and the core Hyperledger network is now at the design stage.

Do you already have an outline of how this architecture will work in terms of technology? If not, why are you so sure that the launch of the core network will happen in the third quarter of 2019?

Microsoft

Another quite a prominent partner. In fact, what is meant by “partner” is Microsoft’s startup accelerator (Microsoft Startups), but we couldn’t find any evidence of Lition being listed there. We’d e-mailed Microsoft Startups and were told that Microsoft could not provide the information on the partnership, and if a startup wants to confirm the partnership, they must request this information from the accelerator themselves.

• Can you prove your partnership with Microsoft Startups? What are the terms?

VR Bank

VR bank is a co-operative bank founded by two large German banks: Volksbank and Raiffeisenbank. Lition claims to be working on a few dApps for group lending using Security tokens for VR Bank. We couldn’t find sources where VR Bank representatives would confirm their partnership with Lition. We’ve reached out to the press-service of VR Bank and are waiting for an answer.

• Can you prove your partnership with VR Bank without referring to an article by third-party journalists? Anyone could have written that those articles prove nothing.

Tokeny

Tokeny is a fintech platform that helps projects to issue securities. The partnership is associated with the launch of dApps for VR Bank and an STO for Lition platform, as both projects are using T-REX, the token standard allowing ownership transfers of tokenized securities developed by Tokeny. The partnership with Tokeny is confirmed.

GASAG

A large German company supplying electricity and gas. Lition team claims that seven of GASAG clients are already connected to the Lition Energy app for energy trade. The partnership is confirmed by the GASAG press-releases.

And here are smaller Lition partners.

• The Stanford Graduate School of Business cooperates with Lition to study possible uses of blockchain technology. The partnership is not confirmed. Lition claims that the school will include them in the next blockchain research report.
• Onfido provides Lition with KYC services.
• Instinctools — an outsourcing IT company. The most part of Lition developers come from Instinctools.
• Quantum Factory is a German company developing a practically usable quantum computer. The partnership with Lition is not confirmed. Lition claims to collaborate with Quantum’s founder (Björn Stein) on the development of smart contracts and quantum computing architecture. Stein also helped with the writing of the technical whitepaper. We’ve reached out to Quantum Factory and Stein. On March 13th we received an answer from Stein’s work e-mail. He said that Quantum Factory no longer works with Lition, as QF management decided to terminate their collaboration.

By the way, it is worth noting that Quantum Factory does not have access to quantum computing. They are actively looking for funds for the development of a quantum computer and offer consulting services. It’s a company of theorists, not practitioners. If that collaboration is what Lition calls “the access to quantum computers,” then there is no doubt Lition only wanted to mislead investors.

Lition also mentions several funds, which invested at an early stage: Advisum, LD Capital, LongHash, Alpha Capital. Besides, Lition said that Advisum owns Lition shares as one of the early investors.

The team claims that at the beginning of 2019, a soft cap was collected at the Seed round ($2,000,000). A total of $8 000 000 is collected on the token sale.

The lock-up period for early investors is 3–6 months. The tokens that won’t be sold during the ICO will burn. But the smart contract is not public, so we can not check if that’s true. What it means is that Lition can merge the tokens at the peak thereby ripping the investors of their money.

Advisors

• Juergen Mueller [in] — technical Advisor. Doctor of engineering. Author of several scientific articles on data management. Chief Technology Officer and Executive Board Member at SAP SE. He has a considerable information footprint as an SAP employee. We’ve reached out to Mueller on LinkedIn and are waiting for an answer.
• Yan Feng Chen [in|tg] — Advisor Digital Token Economy. Co-founder of the LongHash blockchain accelerator. CEO of the Nebula cold cryptocurrency wallets. Business developer at Taraxa IoT platform. We’ve reached out to Chen on LinkedIn and are waiting for an answer.
• Kelly Ford [in|fb|tw] — marketing Advisor. He used to be Chief Marketing Officer at mobile bank N26. Prior to that, he served as Head of Marketing, for eBay in New York, and as Sr. Director of Marketing for McAfee. Now he invests in German startups. Ford told us via LinkedIn that he advises Lition on marketing, sales, and branding, dedicating the project 10 hours a week.
• Sang-Seop Lee — Advisor Blockchain & Energy Use Cases. Lee is working as Head of Specialists and Leading Energy Expert for the Korea Block Chain Association (KBCA), primarily conducting research and providing blockchain consulting services for the smart energy age. Lee responded to us via his work e-mail at kblockchain.org, the e-mail that a Lition manager had given us earlier, that he advises Lition on blockchain architecture and utilities in Korea, dedicating the project from 4 to 8 hours a week.
• Dr. Markus Bick [in] — research Advisor. Prof Dr. Markus Bick has been Head of the Chair of Business Information Systems at the ESCP Europe. We’ve reached out to Bick on LinkedIn and are waiting for an answer.

Can you ask Juergen Mueller, Yan Feng Chen, and Dr. Markus Bick to answer us?

Team

• Richard Lohwasser [in|fb|tg] — co-founder and CEO. On his Linkedin page, Lohwasser indicates that in 1999 he founded and then developed until 2005 a German communication platform for computer gaming teams (“clans”). He was a Project Manager at McKinsey consulting company from 2006 to 2012, after that he worked as a Head of departments for process management (business, consumer and grid customers) at Swedish energy company Vattenfall for three years. From 2016 to 2018 he worked simultaneously at the German utility company ExtraEnergieas a Chief Operating Officer at the German utility company ExtraEnergie and eg factory (German renewable electricity supplier) as a Managing Director. This fact is confirmed by the fact that eg factory was registered in the name of Richard Lohwasser as a co-founder. The last year displayed in the eg factory financial statements is 2016. The records show that the company had 360 employees, €3 000 000 of total assets and €360 000 of annual income. The company is still active.
  
  There are two more family holding companies registered in Lohwasser’s name — Lohwasser’s Ventures and LCO Ventures Holding, but we couldn’t find any detailed information about them on the Internet. Lohwasser holds a Ph.D. in energy economics and took part in several scientific studies in that field in 2009–2012. Lition.io also states that at the age of 15 he was fluent in seven programming languages and founded a project called “WhatNow ”.

What programming languages wasMr Lohwasser fluent in? What projects did he implement using them?

Can you tell us more about Lohwasser’s project, WhatNow? What had he achieved and what had become of him?

What was the project Lohwasser worked on at McKinsey? That sounds very unlikely.

• Kyung-Hun Ha [in|tw|tg] — co-founder and COO. MBA and a Ph.D. in business administration. He worked at Vattenfall for almost three years. For more than three years now, he’s been running a German bicycle shop, simultaneously being the Director in GASAG , but we couldn’t find any proofs of that. There is an interview conducted by GASAG featuring Ha as Lition’s founder. The Lition website also says that prior and in parallel to his corporate career, he had successfully founded five start-ups in the tech and e-commerce sectors.

How does Kyung-Hun Ha manage to work at three jobs and find time for startups?

What are the names of the five startups founded by Ha? How many active users do they have?

The “Leadership Team” section on lition.io includes five people. We’ve already mentioned the founders; the rest three are board members coming from an investment company called Advisum. They do not hold any positions at Lition being only board members. Advisum claims that it invests in blockchain projects, while its portfolio only features real estate companies. Among the Lition managers, there is possibly a relative of one of the founders, Reinhard Lohwasser.

Next, skipping the rest of the managers, we proceed to the development team. Most of the developers work at a Belarusian IT company called Instinctools that outsources for Lition.

• Josef Sevcik [in|tg] — Head of Blockchain Development. Sevcik doesn’t mention his work at Lition on any of his social media accounts. He is a member of Lition’s Telegram chat though. Currently, Sevcik works as a blockchain architect at SophiaTX. SophiaTX has executed an ICO and now is integrating its b2b blockchain with SAP. Sevcik commits daily to SophiaTX’ repositories on Github.

When will Josef start working on Lition?

Why does SAP support the Lition B2B protocol, if it already has a ready-to-go B2B protocol from SophiaTX?

• Aliaksei Hiatsevich [in|tg] — blockchain developer. He has worked for three years as a lead developer at Instinctools and has an impressive experience according to his LinkedIn page. Judging by Hiatsevich’s Github account, he programs in JS, C++, and C and develops smart contracts for ICO projects. There is no evidence of his work for Lition though. Perhaps, it is private.
• Ivan Dubouski [in] — blockchain developer. Dubouski has worked as a senior developer at Instinctools for nine years. His account on Github is inactive.
• Eugene Melnikov [in] — blockchain developer at Lition and Instinctools. For eleven years he was a developer at Altoros, a company offering IT-education services. Judging by Melnikov’s account on Github, he programs in Ruby, JS, and Python and developed smart contracts for the Etherisc project.
• Artur Basak [in] — lead frontend developer at Lition, lead developer at Instinctools. On his LinkedIn page, Basak thoroughly described the last 25 projects he’s worked on since 2009. He writes technical articles, in one of which he intelligibly describes Lition project and its functional components. Basak is active on Github and he is the main contribution to Lition’s repository on Github. Also, he has published dozens of web apps written in JS.
• Aliaksandr Zimakou [in] — frontend and blockchain developer. He’s worked at Instinctools for four years. On Github, Zimakou only contributes to Lition’s frontend repositories.

There are 22 people in the team; most of them work in Berlin.

Who else are you going to bring to the project team?

It turns out that all your developers are outsourced. Does that mean that none of your employees works as a developer?

Legal part

There are two registered companies that hold “Lition” in their titles:

• Lition AG, a holding company in Liechtenstein, Vaduz;
• Lition Energie, a technology company in Germany, Berlin. Office address is Wilmersdorfer Str. 98, 10629. Registered through the Charlottenburg district court.

Can we see your license as an electricity supplier in Germany issued by the Federal Network Agency for electricity trade?

The project team claims that they are advised on legal issues by a German law firm called Naegele.

Lition tokens are utility tokens and will be used to pay for the transactions fees, staking, and mining. Also, if the ICO participant simply keeps Lition tokens after the token sale, they receive an interest bonus. The maximum retention period is 180 days.

• But don’t you harm your system by reducing the incentive for staking and mining tokens?
• How are you going to maintain the liquidity of your token?

The project provides refunds at the rates of 50% of the amount invested if the team does not fulfill the promised within six months after the ICO. But again, until there is a public smart contract, we won’t be able to check it.

• How can you guarantee that the refund program will work as you said?

Conclusion

As you may have noticed, most of Lition’s statements are not supported by any evidence. Nevertheless, many reviewers give it quite high scores.

The project attracts a lot of attention thanks to its partners. Why is it essential that Lition proves a direct mutual partnership with SAP? Because, there is a risk that the only connection they actually have is that of a service provider and its customer, not partners. Perhaps, SAP needs Lition as long as they use their SAP Leonardo. And in case of Lition’s failure, SAP can easily “disown” them.

In conclusion, we’d like to outline possible risks.

• The design of a compatible core network architecture has not been completed. The technology of data deletion is not fully developed.
• Lition doesn’t stand out in the sea of competitor due to their lack of USP. Their closest competitor in terms of technology is LTO Network.
• Instead of focusing on the protocol, the company starts to disperse its resources to develop several applications in more than ten industries from the very beginning.
• There is no need for public sidechains on top of the main blockchain. Yes, public sidechains provide more security. But more security does not mean actual security.
• If Lition really has an collaborative innovation agreement with SAP, it could lead to conflicts at later stages of product development and the protocol centralization.
• Since early investors own Lition shares, and their main investors (Advisum) are in management, there is a risk of internal conflicts.
• The founders have no experience in scaling IT projects. Their managerial experience applies only to the energy industries.

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