LUKSO Ecosystem: Part 1
Many thanks to Rob G and the LUKSO Team, who assisted me in polishing this article.
LUKSO is developing an ecosystem for the new internet era, known as Web3, that incorporates fair and equal relationships between users and services. As users of the regular internet, we rely on trusting extensive centralized services to store and secure our data, which leaves us susceptible to privacy issues, data breaches, and the inability to own the data that is ours. Blockchain technology enables users to truly own and transfer digital assets on the internet through a cryptographically secured network of independent computers around the globe. Use cases for decentralized public blockchain networks are rapidly increasing. To meet this demand, the following fundamental issues surrounding current architectures need to be solved:
- Standard blockchain networks suffer from over-occupancy.
- Users must directly pay for the fees that sustain the network.
- Assets and accounts are cumbersome to manage and easy to lose.
- Accounts cannot hold personal data or refer to static datasets.
- The data contained within assets is not verifiable.
By developing innovative standards deployed on a new state-of-the-art EVM platform, LUKSO aims to solve these core issues and deliver a blockchain for the creative economy that is available to everyone and resistant to censorship.
User onboarding
Adopting decentralized solutions, like blockchain networks, is a complicated task for the user. They often get lost in the underlying technology and terminology and do not understand the specific steps they have to complete. LUKSO aims to solve this by creating a user experience that is simple and familiar. Builders can quickly create smooth and free onboarding experiences with proper user accounts for any personas through the project's software solutions. These accounts can store and transfer assets more safely, which is essential to enabling new digital user-centered data economies for mainstream use cases. As LUKSO founder Fabian Vogelsteller announced in the initial Twitter Space from KEEZ, the project will feature an application for smartphones and a browser extension, raising blockchain-based profiles to an even higher level.
Network Operation
Blockchains transfer power from central authorities and distribute control and decision-making across a peer-to-peer network. Individuals interested in participating can do so in two ways. They can choose to protect the network by downloading and updating its contents on their local computer, or they can actively participate in securing the blockchain by committing computation power to validate proposed blocks on the network. Operators protect the network from attack, and security strength increases as participation increases, creating a more decentralized network. Active participants create valid chunks of data. These chunks, called blocks, are chronologically linked, which creates a verifiable history of changes on the ledger. Usually, it looks like an ever-expanding linear chain of blocks, hence the name "blockchain."
Individuals contributing computation power to the network earn the digital coins, which power decentralized blockchains. Small fees are appended to network transactions and rewarded to those individuals. The currency compensates them for the power consumed by their computers their efforts to contribute to the network's security and might also deliver an additional monetary incentive. Operators are chosen almost at random to validate the following blocks and attach them to the chain. Random selection removes the ability to predict opportunities to add inaccurate information intentionally. This combination of multiple independent operators and random selection ensures a network that is both decentralized and secure. The following section will briefly introduce the currency used on LUKSO.
Token Economics
The currency that powers the LUKSO blockchain is LYX. Prior to the main network, supporters can trade LYXe, the token equivalent on the Ethereum blockchain. Users can migrate these pre-launch tokens into full-fledged coins after the network goes live.
LYXe was released with a circulation of roughly 15% of the final 100M supply. This amount consists of ~8% for sales and marketing fees, ~6% from the public sale, and 1% from the Initial Exchange Offering on KuCoin. Since sales never exceeded the first general token sale threshold, the project never introduced a second public sale, and ~14% of surplus tokens were added to the reserve pool.
The distribution plan seen below is not set in stone and can change over time. LUKSO might never release some or most of the supply on the network.
The LUKSO public sale was implemented as a Reversible Initial Coin Offering (rICO), allowing participants to purchase LYXe tokens at a specific price over eight months, without a commitment to participate in the entire process length of the sale. Buyers could choose to discontinue and have their remaining ETH returned at any time. It was even possible to join the sale in the latter stages without being drastically disadvantaged.
The rICO, proposed by LUKSO founder Fabian Vogelsteller for the LUKSO public sale, is a public standard that gradually unlocks tokens through an autonomous-acting software instance deployed on the Ethereum blockchain. LUKSO did this to provide a token sale that is fairer and more protective for the buyer. The project wants to lay the foundation for a project that operates with a philosophy of organic growth. In total, the project received nearly 10,000 Ether.
Network specifications
Now that we know about token economics and its origin, we can clarify how blockchain validators can use them. LYX is a transfer of value and compensation for computation power. It is also used as a deposit to qualify as a validator on the LUKSO blockchain. Operators should be trustworthy so the network can be resistant to attacks. To ensure that LUSKO validators act in good faith, they must lock and risk their deposited coins, which is referred to as "staking." Validators who perform a malicious activity or are offline will incur losses of a portion of their staked deposit, referred to as slashing. More collateral staked means higher risk but also higher earning potential. Using coins for staking to ensure operator interest rates while protecting the blockchain against attacks is a clever and energy-efficient way to reach accord across validators. To ensure block validity and detect malicious activity, validators abide by a "consensus protocol," a set of legislative rules that check incoming changes to the blockchain. It is the unified way blockchain computers communicate to reach agreements.
In LUKSO's particular implementation, the consensus protocol is Proof of Stake (PoS). In more detail, it combines two necessities:
- achieving the finality of changes made to the network
- pairing it with a ruleset to determine block arrangement
Rules to determine block arrangement are needed in scenarios where multiple blocks require simultaneous validation. Disputes will cause splits of the linear chain at the latest common block, and validators must choose which of them they want to validate. The additional ruleset will resolve this problem to continue unified computing on one branch. Casper the Friendly Finality Gadget (Casper FFG) is the finality tool. The algorithm to determine block arrangement is named Latest Message Driven Greediest Heaviest Observed Subtree (LMD GHOST).
We already mentioned Ethereum, the public blockchain where LUKSO's rICO took place. LUKSO uses Ethereum's core technology stack, including the Ethereum Protocol and the Ethereum Virtual Machine (EVM). The project could become one of the first networks to use the Casper FFG consensus with the Ethereum Virtual Machine for smart contracts, creating an energy-saving network with a higher transaction speed. The Ethereum blockchain, which still uses the energy-intensive Proof of Work (PoW) protocol, is in the process of transitioning to this same consensus.
LUKSO also directly implements the basis for a scalability mechanism called sharding. This technique comes in handy when blockchain networks reach an inconvenient utilization threshold where fees rise immensely. By default, the network is one unified engine, where every change has to be approved by every operator. While it is essential to have many operators for resilience against attacks or outages, not everyone would have to process every minor update independently with sharding functionality. Future sharding functionality can split the network into smaller subnetworks called shards, which sync critical data. Each shard will sync only a small portion of network changes, so it scales almost relative to its number of shards. Software instances are excluded because their complexity hinders simultaneous processing. Sharding is also in active development on the Ethereum blockchain, the most occupied first mover.
Even though LUKSO is introducing the same new features that the Ethereum Foundation will introduce, it does not intend to be a competitor- rather a sibling for a different industry.
Key-based Accounts
Now that the network-specific topics are covered let us move on with some takeaways current blockchain adoption faces. Every action that changes the distributed ledger must be done through a transaction, which requires a key pair to sign the content cryptographically before the network can execute it. Keypairs consist of public and private keys. The public key derives an address, and this address is where users' assets are kept. The private key acts as a password and is used to sign and send transactions. On EVM-based blockchains, this is called an Externally Owned Account (EOA), which is controlled by a digital wallet. A list of words, called a seed phrase, is generated during the initial wallet setup. This phrase, which should be written on paper and kept safely, serves as the only backup for the private key.
An EOA can only have one private key, which is mandatory for participating in the network. Therefore, the private key represents anyone's network presence. If the private key is lost, held assets and participation can only be recovered by one specific backup phrase related to a private key. The dilemma puts extreme importance on the blockchain onboarding process when attaching an address to a person or device. A single password should never secure valuable assets and accounts. Multiple options for restoring accounts are needed for proper identity management to achieve mainstream adoption.
Alternative methods can lower the significance of keys. For securing high-value assets, multi-signature wallets, such as Gnosis Safe, work well to gain more security. With this method, multiple keys are needed to execute on-chain transactions. Multi-signature methods are geared towards a group of people controlling an asset. This method would require signing day-to-day updates with multiple keys and is not suited for managing the assets of individuals. Accepting something about your identity with various personalities should not be the default, and storing numerous keys on the same device cancels out the gained security. But key-based accounts have a second, much more severe problem.
It is impossible to attach your name, age, or other information to the public address of the EOA. Therefore, we cannot incorporate proper identity on the basic protocol layer.
EOA accounts are created offline and for free. They do not use network space and only appear after the first transaction is made. EOAs exist on the blockchain's bottom "protocol" layer that maintains the ledger of transactions, which cannot execute custom code. Not running custom code makes it difficult to safely add the features needed for more advanced user accounts without relying on "off-chain" resources that aren't directly secured by the network. However, we can find fitting solutions on a different layer, called the "application" layer, which contains programmable smart contracts that interact with EOA accounts.
Smart Contracts
Modern blockchains have a programmable application layer. On Ethereum-based networks, smart contracts contain code that executes on a blockchain computer called the Ethereum Virtual Machine (EVM). Smart contracts have addresses just like wallets, and the code within a smart contract executes when the address receives a transaction. The "autonomous-acting software instance" used for the rICO is an example of a smart contract.
By design, smart contracts are finite in their functionality once deployed to the network. Only values of variables can change. Ideally, we want accounts to be extensible and vivid, requiring clever storage methods and more flexibility than a single smart contract provides.
To give better details on why a new foundation is needed to reach this goal and develop blockchain accounts for identity solutions, we can look at the Ethereum Name Service (ENS) based on smart contracts. The idea of ENS is based on the web we use today. We use domains instead of typing the server address of a webpage, which resolves addresses into human-readable text. For example, we can quickly type lukso.network to view the LUKSO webpage instead of remembering 172.67.153.115, the server's IP address. As long as the user owns the domain, it can resolve to any address.
ENS offers the same functionality for blockchain addresses. Instead of sending transactions to 0xD167aA493a1Bea59C7245FEa6082f6655Aba3678, a name like lukso.eth can be used. ENS enables verifiable names for blockchain addresses. They can even add additional information such as social media links, email addresses, descriptions, keywords, or links to profile pictures. Name services are convenient for transferring assets but have multiple downsides for account management. The lack of key recovery, limited attachable information, and payment requirement to keep names are issues that remain.
Paying for ownership has more consequences than one might think. If the subscription expires, all historical transactions no longer bear this name. You will lose all verifiable information and reputation connected to it. Worst of all, anyone else could rebuy the name and assume the identity associated with it.
Pruning
Currently, information on blockchains is never erased, and they continue to grow in size. Every computer that runs the network stores a copy of this data, which creates a constantly increasing disk space requirement for participants and could result in less decentralization as participation declines.
Blockchain pruning, which may be implemented in the future, significantly lowers the required disk space by introducing a safety point where data is considered valid and no longer needs to be stored.
However, we could no longer verify previously owned assets if this were to happen. Transaction data is not stored within the actual EOA wallet. It is viewed through explorer applications that reference the blockchain's history. Referencing past transactions on a pruned blockchain would require archive explorers, which would be cumbersome to implement in a way that ensures accuracy.
Outlook
The exchange and management of digital information are hindered by centralization and incompatibility, which is often not obvious. The hiccup results in significant inefficiency and expense and even blocks one's ability to enjoy the economic benefit of ownership. To solve this, we need standardized digital information stored on platforms governed by a collective of individuals, not on media, under the control of single entities that rely on competitive business models to sustain themselves.
For the network effect to propose and adopt standards, services should use similar long-lasting specifications. To accommodate multiple use cases, they must not be too narrowly specified and not too broad. Otherwise, too much variation in custom implementations will be permitted. The ideal way would be a set of different standards that act as building blocks in a unified ecosystem.
Smart contracts offer excellent solutions, but their efficiency must be very well thought out because every operation carried out in the network is directly reflected in transaction costs. For instance, on public blockchains like Ethereum, one megabyte of data can easily cost more than $70,000. Therefore, services should only store meaningful data that needs to be verified.
Next, we will discuss the smart contract ecosystem of LUKSO.
