The Justification for Skywire: A Technical Explanation

The work on the Skycoin project began in 2011 with the merging of three separate projects and the aim to improve on the design of Bitcoin. The Skycoin developers identified several major design issues they saw as obstacles to the global use of cryptocurrency as a censorship-resistant payment system. Skywire, the decentralized internet protocol and mesh network, was created as a solution to answer many of these problems. Unlike TOR and other privacy networks, Skywire incentivizes participation by providing payment for bandwidth and network services.

Protocol-level solutions

Secure transactions

Contrary to popular belief, Bitcoin transactions are not ‘encrypted.’ Cryptography is used for signing digital transactions that mark coin transactions, but the actual Bitcoin protocol itself runs over the internet, which is not encrypted. Anyone can see the IP address of Bitcoin nodes. This is a problem for a number of reasons:

  • An attack on Bitcoin can involve the feeding of fake blocks, such that you would be unable to ensure that you’re connected to the real Bitcoin network.
  • Internet service providers would know you are running a full node, so certain IP addresses could be throttled, blocked or censored, especially if it is linked to a payment processor or receiving coins.
  • Without decentralization at the hardware level, no cryptocurrency is truly censorship resistant if the infrastructure on which cryptocurrency networks can be shut down.

With these characteristics in mind, the need becomes apparent for a new internet that can serve as an unstoppable, highly resilient network, removing any possibility of censorship.

Coin distribution without Proof-of-Work

In Bitcoin, Proof-of-Work serves multiple purposes — it is responsible for creation of new coins and the security of the blockchain, as well as block minting and block consensus. Skycoin saw the need to remove Proof-of-Work because of the tendency to default towards PoW mining centralization. Bitcoin also has a perverse game theory incentive that’s enabled by a competitive fee market when miners artificially inflate transaction fees.

The solution with Skycoin is to separate coin creation from chain security by creating all the coins in the genesis block and time-locking them according to a tapered distribution model. The job of block minting (gathering all transactions and creating a new block to add to the chain) was separated from block consensus (achieving agreement across all the nodes in the network of the correct state of the blockchain).

This new design prevents any malicious nodes from being able to attack the blockchain with overwhelming hashing power and double-spend coins, as is possible with Bitcoin and other Proof-of-Work coins. It does, however, raise new problems as to distributing the coins in a fair and equitable way.

There was a need to create a method by which coins could be distributed according to some useful activity. The most useful activity was found by building hardware for a new internet using low-cost computing boards and wireless antennas. Coins are distributed to those who provide value to the network through bandwidth.

Monetary solutions

Economic activity

Skycoin developers saw the need to tie the value of a digital currency to an underlying real-world value creation mechanism. Creating real economic activity that transacts in Skycoins would insulate the coin economy from the wild speculative fiat price swings that occur with the adoption of new currencies. This also gives the coin tangible and quantifiable metrics by which it is valued. Skycoin is the first step for creating a ‘closed-loop’ economy.

Skywire is the solution

Skywire provides the solution to several distinct problems related to coin protocol design and monetary incentives:

I ) Distribution mechanism:

Skywire acts as a means to distribute Skycoins by incentivizing the rollout of the Skywire mesh network. Skycoin rewards users for providing bandwidth to the network, which creates an incentive for Skycoin enthusiasts eager to facilitate the construction and adoption of this new internet.

II) Encrypted connection:

The Skywire protocol provides an encrypted connection for Skycoin and other network traffic to be relayed.

III) Distributed and decentralized network:

The mesh network provides a highly robust, resilient decentralized hardware network that can withstand disruptions and attacks, unlike traditional point-to-point networking systems.

IV) Generator of economic activity:

Skywire creates a closed loop economy that requires users of the network to own and purchase Skycoin. This removal of circulating supply is one of the chief reasonings for coin price appreciation.

V) User adoption:

With a routing system similar to MPLS routing and multi-homing, Skywire’s bandwidth and latency performance will exceed the existing alternatives by an order of magnitude by design, and will be an attractive alternative that will drive user adoption.

VI) Cyberbalkanization:

Skywire acts as an alternative internet protocol that can serve as the digital bridge between growing nations that are heading toward a division of networking.

NOTE: We are also going to use Skywire for running different Skycoin internal projects over it such as CXO, which in turn is used for Obelisk eventually. The nodes in the miner can become different node, like one CXO, one Skywire networking, etc.

Skycoin and Skywire is an immense project that can reshape the landscape of how people around the globe communicate and transact with each other. Skycoin is still in its infancy, and as progress continues, so will adoption and useability. The implications of a new networking protocol that incentivizes innovation and pays users for its own construction is the first step toward a censorless world of truly free and open communication. Join the rest of the Skycoin team’s progress by buying your own official Skyminer from Skycoin, or by building your own DIY Skyminer.