Phonon Protocol Vision (Part 1)
The Phonon protocol scales blockchains to enable billions of transactions per second. Phonon uses trusted hardware to allow off-chain exchanges or swaps of any blockchain based assets. The Phonon protocol itself has now been released and a community managed Phonon DAO has been established. As the inventor of the protocol I have been thinking about why Phonon is needed and how it can be used for the last several years. I am writing down my thoughts for the consideration of others in the community as development of the DAO and adoption of the protocol begins.
What is Phonon?
Phonon is a Layer 0 protocol which enables off-chain transactions of crypto assets enabling, scaling, interoperability, and privacy for every blockchain. This is accomplished by leveraging provably non-replicable hardware, in the form of a smart card or SIM, to privately swap key-pairs associated with on-chain assets. There are more resources to reference if you would like a more in depth introduction at phonon.network.
Why do we philosophically need Phonon?
Fundamentally, I am a maximalist. I am not a Bitcoin or Ethereum maximalist. I am a cryptocurrency maximalist. I believe that capitalism fundamentally works when put in an unconstrained, transparent environment that is not corrupted by politicians and money. The majority of us live in a prison whose walls we aren’t able to see, touch, or smell. This prison is the fiat-based monetary system which guides our actions everyday and props up corrupt institutions. Cryptocurrency, although not a panacea, gives us a fighting chance to build a more free, fair and open society. Everything I work on is in service of building well-designed crypto systems that enable every person to use crypto not just as a speculative instrument, but also for every day commerce. Phonon is a novel cryptographic primitive which is a key piece to realizing the ubiquitous use of cryptocurrency.
Why do we technically need Phonon?
Phonon is needed to adequately scale cryptocurrency so it can be used by every person on the planet for every transaction. Although there are currently efforts to scale layer ones, some of which I personally like (eg Conflux, Kadena, Quai), there ultimately will exist a network bandwidth constrained limit somewhere around 10k TPS. Although this seems like a large number this will only be able to handle Swift, ACH, and some of Visa/Mastercard transaction volume. This will not be able to handle the volume contributed by credit cards, cash, coin, security exchanges, and micropayments. Therefore, in addition to on-chain transactions we need a system which scales linearly with the number of participants. Phonon is able to scale linearly with the number of participants in the network because the transactions only require the participation of the two transacting parties. This means that if there are 8 billion phonon cards that exist in the world the network will be able to support 4 billion TPS. The most interesting, although maybe not apparent, part is that Phonon effectively scales blockchains infinitely without necessitating the use of custodians thereby avoiding centralization. Although, early crypto adopters frequently talked about decentralization they are seemingly unaware of how lack of scaling will lead to centralization. Let history as a guide, if gold were sufficiently technically advance to avoid custodianship of banks, which in-turn issue notes as a mechanism of convenience, we would not find ourselves with the current fiat system.
Phonon is needed to add simple interoperability between blockchains. Currently, there are many different blockchains and each one of these implementations arguably has some technical contribution or merit. There is a market need for people to move assets easily between these chains to gain technical capabilities for certain applications or exposure to assets that exist only in a chain-specific context. Existing solutions to bridge between different chains include atomic swaps and centralized bridging. The majority of transaction volume transits a centralized or federated bridge. This introduces centralized services that must be trusted in order to go between the various blockchains. Additionally, any current cross-chain swap or bridge requires a technical implementation specific to the pair of blockchains that are being connected and it may only support a subset of assets. Phonon is a layer 0 scaling and interoperability solution for blockchains because it is independent of any protocol. While other solutions are built on top of the blockchain protocols and therefore must be specifically created for each one, Phonon lives below the protocols. The only thing that Phonon needs to be able to support a blockchain is support for its signing curve. Presently there are 3 signing curves in common use, secp256k1, secp256r1, and ed25519. I do not know of an example of a blockchain which does not support at least one of these curves. Presently, the Phonon alpha will have support for the secp256k1 curve. However, the Phonon beta will support all three of these curves enabling use with virtually every blockchain in existence.
Phonon is also needed to add an intrinsic privacy layer back into all blockchains. Cryptocurrency has the potential to be one of the most freeing technologies invented by man. Simultaneously, it could be one of the most effective tools to build a global totalitarian surveillance state. The difference between these two outcomes is razor thin and will be determined by our ability to build truly decentralized systems that cannot be co-opted by the state. Part of this is creating tools that enable users to have privacy. Although there currently exist blockchains (Monero, ZCash), wallets (Samurai), and dApps (Tornado) which can help users with privacy, the utilization of these services remains low. It is arguably the only reason to use these services is privacy. Unlike these services, Phonon’s main purpose is not privacy, it is just a happy consequence of the architecture. There are a plethora of reasons and use cases for Phonon which users will want to take advantage of. This will not only help them achieve privacy as a side benefit, but will also help improve privacy for everyone else using cryptocurrency.
How does Phonon privacy work? Lets go through an example. Phonon users will likely start to create Phonon’s in “standardized” increments, much like dollar bills, to easily facilitate trade. For example people may create and use 1, 0.5, 0.1, 0.05, and 0.01 ETH Phonons. These Phonons will then trade from zero to an infinite number of times between participants in the Phonon network. This trade activity is p2p and private which means that once traded Phonons are completely decoupled from their source. Anyone that then has an account on Ethereum which has one of these “standard” values will inherit the privacy intrinsic to actual Phonons as these accounts will be indistinguishable to an on-chain observer. Therefore, by simply using Phonon or keeping assets in these common amounts Phonon will create privacy that is as good or better than using physical cash.
How can Phonon be used?
I see three broad categories of uses for Phonon which I am not aware of any equivalently good technical alternatives. These are cross-protocol swaps, p2p payments, and micro-transactions. For each one of these categories I propose that the Phonon DAO take on and/or sponsor projects in these areas. I have several ideas for projects that could be done in each of these areas but here I will just list one briefly. In forthcoming blogs I will dive into each one of these specifically.
Cross-protocol swaps could manifest as a mechanism by which Phonon users could trade assets cross-chain or trade assets cross-protocol. This could be from an L1 to an L2 or it could be trading ETH for Bitcoin. Fundamentally, Phonon can facilitate swaps between any pair of assets for which the Phonon supports the signing curve. This could also potentially be extended into more complex derivative use cases such as using Phonon to trade staked or locked assets. However, fundamentally this category is using Phonon to trade assets. One of the interesting aspects is that no matter the specific use, L1-L2, ETH-Bitcoin, or staked assets, the infrastructure for all of these is technically identical. The different uses are simply different liquidity pairs. Additionally, creating an “exchange” for doing such things is technically simple because the exchange is only a posting of bids and asks creating an order book whereas the trade engine is the Phonon network itself. I propose the name Project Kafka for solutions or implementations targeting the swap use case.
Peer-to-peer transactions are also an interesting use case. They differ from swaps because only one party is exchanging Phonons whereas the other party is providing a good or service. The reason that this is distinct from swaps, is that IRL mechanisms are used to enforce the completion of the exchange. This is fundamentally the simplest and potentially the most disruptive use of Phonon. These p2p transactions can fundamentally replace all transactions where cash is used or has been used in the past. From buying a $5 coffee at Starbucks to paying $0.50 for a parking meter. Phonon allows cryptocurrency to be used for every human to human transaction. I propose the name Project Mayhem for solutions or implementations targeting the p2p use case.
Micro-transactions are also an interesting use case. They differ from p2p transactions because they happen between two machines (m2m) without human intervention and each of the payments typically represent small amounts of value. Phonon micro-transactions can help build distributed analogues to any streaming utility or service. Some applications of this could include content providers such as Netflix or Amazon, utility providers such as Time Warner or electric utilities, telecommunications such as Verizon or Vodafone, and services such as VPNs or TOR. Micro-transactions can help decentralize these currently centralized systems allowing for greater access at a lower cost with increased privacy and fewer gate-keeping choke points. Of the three categories micro-transactions are very interesting, but also are potentially some of the most complex from both technical and business standpoints to successfully build and executed. I propose the name Project Firefly for solutions or implementations targeting the micro-transaction use case.
What is needed to use Phonon?
The only thing that is needed to use Phonon is a smart card/SIM card which contains a physically unclonable function (PUF) and a terminal which interfaces with the card. This can take the form a smart card connected to a computer or a point of sale terminal with a chip reader. This could be a card using NFC (touchless payment) with a cell phone or a point of sale terminal. This could be a Phonon SIM inserted into the SIM card slot on your phone. This could also potentially be an eSIM loaded with a Phonon applet which exists on most higher end phones sold in the last 3 years. I have recently had conversations with several companies that specialize in the deployment of applets to eSIMs and I have moderately high confidence that this can be done. This could be huge in that it would mean distribution of Phonon could be as simple as downloading an app on your compatible phone.
What uses of Phonon should be avoided?
Generally speaking I think that like fire, Phonon is technology that can be incredibly helpful but also can be incredibly destructive. Although I am typically not maximally prescriptive in what I believe something should be used for, there are a few things which I do think should be avoided. I have no aversion to partnering with large corporate entities or even governments. I have no problem with people making money by providing services to Phonons. I have no problem with incentives or even modifications to the protocol to enable more applications and grow the user base. The one thing that I think should be avoided however, is anything that enables broad non-optional tracking of Phonon transfers.
Final Thoughts
I hope this is helpful for people in the Phonon community as applications are developed and resources deployed. These are not meant to be overly prescriptive in the path that should taken, but can be used as a starting point for broader discussion and ideation. I will follow this up with several more blogs giving greater color to each one of the projects, Kafka, Mayhem, and Firefly, as well as diving into some of the potential economics surrounding the Phonon token and potential revenue generating uses.
Additional Resources
- Phonon Website
- Phonon Governance and Technical Discussion Forum
- Phonon DAO Twitter
- Phonon Token Contract
- Phonon Redeemer Contract (For Upgrading from GRID to PHONON)
