Yesterday, Andrew Levine revealed the consensus algorithm Koinos blockchain will be implementing in his Medium article titled The Next Evolution in Consensus. Andrew does great job articulating the story behind Koinos and the reasons why they decided to go with Proof of Burn algorithm. He also included a youtube video covering everything in the article. Feel free to visit the article to read, listen, or watch the contents of the article.
I am a Koinos investor and have decent amount of Koins. For this and other reasons I would like to see the Koinos project to succeed. I am neither a blockchain expert, nor am I a financial advisor. I am someone who is interested in innovations and experimentations in blockchain space. In this post I would like to share my thoughts on two topics: announcement of Proof of Burn algorithm for Koinos, and how to prepare to claim Koins when the mainnet launches.
Proof of Burn in Koinos
The article does a great job of explaining why they decided to go with Proof of Burn and give a little bit of information how they will be implementing Proof of Burn in Koinos. I wish they focused more on explaining details of Proof of Burn. Maybe we will learn more in the future. I also do not agree with some of the reasons provided that Proof of Burn is a better consensus algorithm. But I think I do understand what the overall message is and I like it.
Koinos from the very start set very ambitious goals for themselves to build a blockchain that is capable to do all the things current top blockchains do in a more efficient manner and with more features like modular upgradability, support for commonly used programming languages, etc. To me it seems like, they want to set themselves apart from other chains and do things differently while using all the available technologies.
Andrew himself mentions in the article that Prof of Brain is not a new thing. It was originally proposed by Iain Stewart in 2012. They would like to implement Proof of Burn algorithm to make participation in block production accessible to many regardless of how rich participants are or how sophisticated their machines are. In other words they would like to make it as decentralized as possible. This is not the first time Koinos is emphasizing efforts to make blockchain participation decentralized and fair for all.
If you remember how the Koin mining started last year, they built a beautiful UI to mine Koins and made it available for everybody. Their idea that time remained to make mining available to as many people as possible and distribute initial Koins to as many people as possible without giving any advantage to founders or any other participants. However, that didn't really work out as planned, did it? Very quickly some people figured out how to mine Koins more efficiently and were able to accumulate Koins and large amounts. Miners like me who used personal computers ended up giving up after few days of mining, because buying the Koins in the market would cost the same as mining if not less.
It wasn't anybody's fault. Things just don't always work out as planned regardless how great the ideas are and how thorough preparations are. In the end, I believe it worked out just fine. Those who wanted Koins did end up with some, either by mining or by buying. In retrospect, it turned out to be a great investment.
The reasons for choosing Proof of Burn are similar to how they wanted the initial mining distribution to be. The goal is still to implement best kind of decentralization. By removing a need for Proof of Work out of the equations, they are making it accessible for all to participate regardless of how sophisticated their computers are. At the same time not relying on Proof of Stake, the network doesn't necessarily favor the rich in reaching the consensus, but rather consensus is reached by those who are willing to take the risk of burning native Koins in hopes to earn back the Koins they burnt and more.
What is burning you may ask? Burning is an action of making Koins unusable by anybody and possibly removing from the circulation. Usually, it is done by sending the Koins to special account that nobody has access to and the Koins received in that account have no way of getting back out to the circulation and essentially get destroyed. In Hive we have @null. If you want to burn some Hive or HBD, send them to @null. Don't actually do it! lol. Unless you have a good reason to.
Koinos will be using NFT mining rigs (virtual miners).
To efficiently track virtual miners, the Koinos system will manufacture miner NFTs which are acquired by aspiring block producers who submit proofs of their burns to a system-owned automated market maker contract.
As Andrew explains, in Proof of Work miners are burning capital to build infrastructure and burning energy to mine to earn rewards. Instead of doing that, in Proof of Brain miner can just burn native Koins to acquire miner NFTs. More Koins miners burn more "hash-power" they have, and more rewards they receive. It is interesting.
My questions are how many miner NFTs will the system create, is there going to be a limit on miner NFT creations, can these NFT be destroyed too?
In essence, it seems like miners will be buying miner NFTs, and proceeds will be burnt decreasing the total supply of the native Koins. But miners aren't necessarily losing capital, because these miner NFTs are virtual assets too and be traded in the market.
Miners will be earning Koins based on blocks produced and will be receive these earning at various periods of time that change based on the demand for miner NFTs.
The more demand, the more the payback period gets pushed into the future. The less demand, the shorter the payback period becomes.
Andrew concludes the article saying that this system will be deflationary. I don't quite understand it yet. I can see how burning Koins will reduce the supply. But if the inflation has no cap limit, regardless of how many Koins you burn, there will always be more Koins produced. So, not really sure it will be deflationary. Perhaps we will find out more in the future. I would like to know more about how inflation will work and what annual percentage it will be of the total Koin supplies.
What are you thoughts about Proof of Burn? Does it sound interesting to you? Would this make you more interesting in getting involved in mining Koins? Let me know in the comments.
Claiming Koins When Mainnet Launches
Another piece of information Koinos recently has made available is how one can claim Koins in the mainnet when it launches. It seems like Koinos mainnet will launch sometime in Q1/Q2 of 2022 or maybe even later. In any case, if you have some ERC-20 Koins, it is always good to be prepared when the time comes to claim the real Koins.
Currently, Koins are only available in ERC-20 Koin form and are traded only on Uniswap. If you have these Koins, you need to make sure to keep private keys or 12/24 word recovery phrases secure. Depending on which wallet you used to store your Koins, you may want to double check you have all the private keys, and recover phrases available to you.
Sometime in the future Koinos Group will announce a date when the snapshot of the ERC-20 token contract will be taken. The Koinos main net will replicate this snap shot on a one to one (1:1) basis. Since Koinos mainnet will use Ethereum compatible addresses, we will be able to use same private keys to access funds in Koin wallets.
They highly recommend for Koin LPs to remove their tokens from Uniswap, after they announce the snapshot date. Not removing them may result in losing these funds. After the snapshot and mainnet launch, ERC-20 Koins will have no purpose and will/may end up losing all the value. So be prepared, if you are invested in Koins. Join Koinos discord server or sign up to their email newsletter to stay updated on the latest progress.
Thank you @bluerobo for always sharing the latest information on Koinos and sharing the article on Proof of Burn.