One of the more sensitive aspects of a cryptocurrency is how it is distributed to the users. An important reason for the building of a decentralized network is that you want to avoid the buildup of power in a limited group of people as much as possible; you want to avoid situations like this or, more recently, this at all costs. Keeping that in mind, it is easy to see that Initial Coin Offerings (ICO) or Initial Exchange Offerings (IEO) leave the retail investor (or gambler) in cryptocurrencies in a precarious position, at the mercy of the token teams, advisors and presale investors. While it started out as a novel way to finance new ventures -the next evolution of a kickstarter- it is no surprise that the whole scene rapidly devolved into a complete zero sum >@!✴#fest to the point where the U.S. Securities and Exchange Commission felt the need to step in to protect investors. Who would have imagined that a mixture of greed, unrealistic investor expectations and the availability of dumb money willing to invest without having seen even a minimum viable product would end up so badly? Amidst the fallout, legal frameworks are being developed and it is only a matter of time before this beast will rear its head again. Considering all that we can easily agree that the ICO/IEO model is the furthest from fairness and should never even be considered for the distribution of a cryptocurrency that wants to be used as money.
A second method of distribution is the airdrop. Airdropping a token or coin means you simply hand it out to people based on a simple metric. The problem here is that you have to find a way to share the coins equitably. Usually, what will happen is that people airdrop a token to the owners of another token or send the airdropped coins after receiving personal data such as an e-mail address and an Ethereum address. These practices result in very poor distribution. What’s worse: airdropping is often used to create hype around a token while the developers keep a large percentage of the total supply for themselves.
Another, fairly experimental, way of distributing digital money to its future users is the game-based approach. Nano’s initial 18-month-long distribution (then known as Raiblocks) let people earn coins by solving simple puzzles that only humans are supposed to be able to solve: captchas. This method of distribution is as accessible as it gets but it does require that the receiver spends time and effort on it, greatly favouring several types of people like students, the unemployed and click farms. Banano, a meme coin that forked Nano’s codebase, takes the same game-based distribution to the extreme. They aim to distribute all of the coins by (+-) 2024, making it a slow and steady progress. Banano’s developers, known as the jungle junta, organize recurring mini games, giveaways and even dance contests and the likes where you upload a video of your dance moves to the internet. Since early 2019 people can lend their CPU and GPU power to Banano’s Folding@Home team to help scientists work on cures for cancer, Alzheimer’s, Huntington’s and Parkinson All of this is coordinated in the Banano discord server which is very welcoming to anyone who wants to participate. The Banano methodology promotes fairness to a large extent and seems to be the ideal way to distribute a self designated meme coin. Due to the nature of block lattice, Nano and Banano are often used as tip coins on the internet: Reddit, Twitter, Telegram, Twitch and other platforms already have tip bots that are used extensively.
One CPU, One Vote
Now, after that long introduction, let’s look at the elephant in the distribution room. The most well known alternative coin distribution method, which also happens to be the most battle hardened and secure method is mining. In a cryptocurrency network where Proof of Work (PoW) is the consensus method, you have verifying nodes and mining nodes. Miners solve cryptographic puzzles through brute force calculation of possible solutions. Doing so they can add transactions to the ledger and win the right to print a predefined amount of money for themselves, the coinbase transaction. This whole idea of Proof of Work was originally thought up by Cynthia Dwork and Moni Noar in 1992. It was later suggested by Adam Back to be used against email spam (1997, HashCash) and was first used in experimental software by Hal Finney (2004, RPOW). Eventually it inspired Satoshi Nakamoto to make Bitcoin digitally scarce money. In the Bitcoin network anyone was able to participate and obtain some Bitcoin. The rationale was “One CPU, One Vote” which represented the closest approximation of fairness on the internet they could think of. At that point in time anyone with a half decent CPU could be a miner and earn some Bitcoin. Alas, it did not take long for someone to develop GPU miners which were better at these calculations by an order of magnitude. After the time of the GPUs came the ASICs: chips specifically developed to solve these cryptographic puzzles. ASICs pushed GPUs out of the market for Bitcoin. The whole evolution from CPU to GPU to ASIC made it so that less and less people could participate in the mining of new Bitcoin, allowing for pockets of centralization to appear.
In October 2013 a paper by Nicolas van Saberhagen appeared that identified this weakness in the Bitcoin network and proposed an alternative. The main idea was that it should be as unprofitable as possible to create custom mining hardware (ASICs). In the end, his proposed CryptoNote-based algorithm did not achieve this goal: nowadays the leading CryptoNote implementation (Monero) has to change its algorithm every six months to prevent privately created ASICs from wreaking too much havoc on the network. A new and upcoming algorithm, RandomX, may prove to be a better solution but that remains to be seen.
…This permits us to conjecture the properties that must be satisfied by the proof-of-work
pricing function. Such function must not enable a network participant to have a significant
advantage over another participant; it requires a parity between common hardware and high
cost of custom devices. From recent examples , we can see that the SHA-256 function used
in the Bitcoin architecture does not posses this property as mining becomes more efficient on
GPUs and ASIC devices when compared to high-end CPUs. …
Bowing to the ASIC manufacturers introduces several challenges:
- requiring custom hardware to be able to mine competitively makes mining the coin a lot less accessible, resulting in only the happy few being able to mine
- custom mining hardware may be made redundant when the next iteration of the hardware enters the market, which introduces more risk and will deter even more potential miners
- the high-tech nature of ASIC manufacturing will never result in more than a handful of manufacturers who will hold a lot of power over the network, which has to be avoided at all costs
Rather than spending millions of dollars worth of research on developing ASIC chips, trying to develop a mining algorithm that does not favour a GPU or an ASIC over a CPU too much seems like a worthwhile endeavour. This is exactly what Nerva developer Angrywasp thought in early 2018. With “Advanced Ideas, Simple Hardware” as his motto, Angrywasp began developing his CryptoNight-Adaptive algorithm that is developed in such a way that it constantly changes based on blockchain data. Due to the constant changes no GPU miner was written so far. By allowing standard household CPUs to mine competitively, Nerva has managed to attract many users that run a full node. Testament to this is the Live Node Map created by Syzygy.
Being able to mine on a CPU has several advantages:
- people already have the necessary hardware to participate, lowering the threshold considerably
- a CPU doesn’t use anywhere near as much power as a GPU or ASIC
- computers are such general purpose everyday tools that mining can be done while the computer is idling
- the gap in yield between the worst and the best CPU are not that enormous when looking at the yield per invested dollar or the yield per invested Watt (citation needed)
There is more to the fairness of distribution when it comes to cryptocurrencies. So far, what was presented here should support the argument that CPU mining is a good way to ensure a fair distribution. In coming articles different aspects of the distribution will be considered.