Phonon Protocol Vision (part 3): Native Phonons

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. This particular blog post was unplanned when I started writing the Phonon Protocol Vision series. However, I think it is one of the most interesting additions to Phonon and I had to put it down in long form to share with the world. Here I am going to discuss native phonons. If you are not familiar with the Phonon Protocol yet, I would read part 1 before continuing.

What are Native Phonons?

Native phonons are tokens which are generated by Phonon cards via some mining or minting mechanism. These tokens will be natively understandable and verifiable on the cards themselves. They can be traded between cards and can be created in any unit of value lowering the economic threshold for phonon transactions far below that required by on-chain assets.

Why do we want Native Phonons?

One of the issues with Phonon is that the on-chain assets which phonons represent can not objectively be proven to be a certain asset of a certain value by the Phonon protocol. This issue is solved in the Phonon Network by having the recipients, or their client software, verify the on-chain asset associated with a phonon prior to accepting it. Since native phonons originate from the cards themselves they can be objectively verified to be a genuine asset with a specific value in the phonon applet. There is no need to either trust your counter party or verify by looking up an asset on-chain. Native phonons introduce an objectively verifiable self contained asset to the phonon network.

In addition to being verifiable, there is no gas fee required to mint or redeem a native phonon. It was simply mined by a card and trades within the network. This means that for applications like p2p cash or micro transactions native phonons can be created of much smaller values than possible using an on-chain minting. This would allow people to use a blend of both on-chain phonons as well as native phonons to achieve precision in transactions or make transactions of very small values.

How do Native Phonons work?

Native phonons need to be created by the phonon cards in a verifiable way. This means that they could hypothetically be created programmatically over-time (analogous to proof-of-stake), or they could be created by solving some computationally hard problem (analogous to proof-of-work). The design space of possible mechanisms for creating Phonons is almost as large as the design space for creating various consensus mechanisms for traditional blockchains. Here I will focus the conversation on mining or PoW creation mechanism.

The basic form of an on-chain phonon is currently metadata and a key-pair. A form that a native phonon could take is a card certificate, a random number and a signature of the hash of the pubkey and random number.

type NativeToken struct {
	originCert cert.CardCertificate
	originSig  *util.ECDSASignature
	nonce      int
}

The native phonon would have value if when the random number is hashed with the pubkey of the card certificate it creates a mathematically unlikely result, say a hash with a number of leading zeros. This hash could then be represented in the binary form and said to have the value of n-bits corresponding to the number of leading zeros found in the hash. For example if we work in binary this would be an example of a native phonon with 5-bits (0x07 -> 0000 0111).

[Certificate:
	PubKey:         045e459f1c90e8dd5693bcdb730d1d9e66f36236bf31e701157f4d7222ba9da674b47a69205beb93f2743fa90ed3cfacd03a7669a6e8bde91d854533b1f5db9874
	Permissions: { 30  90  2  2 00 00  80  41}
	Signature: 3045022100e96ebe45845b93763d506d8083ca7f97455655967b4f47b9ace344e485f726b602207892c56e32c694d0f88e11118c4e9807f1855c1660092bba7afdb8cb4018488b
Signature: 3045022100c212adcbf2598244c6dab689c17545b0c3cd6f9cdac641355175df49fce9f94502207495bc504aacfe9fadf32a8786e3dbb81b97c8678f665db695bea1cc30e22a98
Hash 07e4839b906bcdd751a34c7bb397424d28533c61a7d969fda87a02982150d808
Rarity: 5]

When mining, the mining card can arbitrarily pick the desired number of phonon bits that it wants to keep based on the market determined value and desired use case. Mathematically a native phonon with one additional bit will be twice as hard to find as a phonon with one less bit. This means that a 6-bit phonon should be twice as valuable as a 5-bit phonon.

Proof-of-work mining on cards is most analogous to mining PoW shares in a mining pool. The only difference is that in a PoW blockchain the protocol aggregates all of these shares together at a determined difficulty and then issues out a block reward. This is only necessary if there is a common ledger because the node operators and miners need incentive to perform work on the chain. However, the uniqueness and rareness of each contributing share is mathematically determined and independent of the protocol or its monetary policy. Therefore, the shares can be traded strictly based on their rarity relative to market demand rather than having to get a value centrally applied. The only other property that must be true is that the shares are traded uniquely and atomically which is already the main purpose of the Phonon network.

Implications on Proof-of-Work

There are some very interesting implications of having native phonon tokens based on PoW mining. First the value of the tokens themselves can be derived strictly on supply and demand of the tokens in the network. There doesn’t have to be centralized authority dictating a monetary policy, the rarity of the phonons just exist. If the performance of the cards does not change with time, the cost of mining a 6-bit native phonon today would be roughly the same as mining a 6-bit phonon 10 years from now. This means mining will take place to accomodate greater demand due to more participants in the network. However, when the network stops growing or demand is met mining will stop. In this construct mining is strictly a mechanism of distribution but is not needed in the long term because there are no centralizing nodes that need to come to consensus on a single ledger. (Yes I know, when talking about Phonon it gets super weird calling blockchain nodes centralized but compared to Phonon they are).

Why Proof-of-Work?

So there are technically a plethora of design choices that could be made when building a native phonon token. PoS vs PoW vs PoA, Account vs UTXO, et cetera. I think that keeping a UTXO set with a work based mining mechanism is a good design from both a network security as well as a regulatory standpoint. However, this is an open design space which I am interested to discuss more. This is just were I have landed based on the trade-offs I understand so far.

How can Native Phonons integrate with the Phonon DAO token?

Although the native phonon tokens can be created in such a way as to not have a monetary policy doing so may be a detriment to network adoption. Conceivably, card manufacturers in conjunction with the Phonon DAO could create cards overtime which have different mining lifetimes and/or mining efficiencies. In aggregate this would create a monetary emissions policy that could be similar to an exponentially decreasing curve such as Bitcoin. This could be coupled with the sale of “mining” Phonon cards via a Phonon DAO token based price curve or via a reverse dutch auction. This coupled with the other previously discussed uses of the Phonon DAO token would add another mechanism by which the DAO would generate revenue or burn tokens through increased Phonon Network participation and use.

What development is needed for Native Phonons?

Native phonons are built on top of the characteristic of the Phonon Network that guarantees singular physical representations of assets and atomic swaps of those assets. Therefore, the only thing that needs to be added to make native phonons work is a mining function and a validation function. We believe that this can be done with <100 of new phonon applet code.

Wait, WTF did I just read?

Native Phonons are adding the other functions of a blockchain to the Phonon Network. Namely mining. This makes the Phonon Network a new cryptographic system all together. The terminology to fully describe it have not yet been coined so its description is most concisely made through negation.

It is a “blockchain” with no blocks, does not contain a hash linked list, does not have a ledger, requires no monetary policy, has no nodes, doesn’t need the internet to function, and each token is atomically verifiable.

When I shared this with Nate, one of the Phonon engineers he said: “It will be funny when 5000 years from now we arrive at planet 73618 only to discover the civilization there has already mined 99% of circulating supply.”

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 realize that this is a very new and potentially controversial idea. I think it can be a large part of Phonon or it could simply be an easter egg added to the Phonon cards. I look forward to discussing more with everyone!

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)