DECENT - a torrent blockchain presale

DECENT - a torrent blockchain presale

Decent escrow Peercoin Peershares presale tokens whitepaper

Recently, I was contacted by a fellow Bitcoiner and informed about some possible shady goings-on on the DECENT platform. Reportedly, the platform has raised 5352BTC (3.2M USD equivalent) in its token presale, but the product appears to be on some shaky grounds. Lets have a look at what we can find out about the platform, the presale and have a look at whether there is something shady going on...

The Whitepaper

Any self-respecting blockchain project styles itself after Bitcoin and releases a whitepaper early on. Decent is no exception (#liberateyourself on every page...).

The paper starts with criticising Bitcoin for BOTH its low transaction throughput, and its large blocksize. Wouldn't it be nice if one could have a higher transaction throughput with a lower data footprint? Unless you start pruning old data, it won't happen. But that's apparently "some childhood diseases" Bitcoin has.

"Unfortunately, in spite of more than 6 years of its existence [Bitcoin] did not reach a position it could have attained mainly due to the imperfections in its architecture and design."

In comes Decent. Saving freedom of speech, solving the issue of authors having to figure out how to monetise their content, drive traffic to their sites, deal with Amazon's pay cut, etc. You can use it to publish "any text, picture, video or music content" (and even software) and "no third parties can control or influence the content".

The platform is characterised by being:

• Independent - owned by the users and "will never be affiliated with any economic, media, or political party"
• Borderless
• Stable - not dependent on any single server
• Fair - everyone starts at the same level and build up their reputation
• Profitable - users can buy content directly from the authors and there is no cut taken by Decent
• Spam Free - content publishing is expensive for spammers
• Secure & Anonymous - authors can publish the content anonymously
• Recommendations-enabled - readers that purchased the content can embed their feedback into the blockchain

While describing how the protocol works, we also learn that the application will be using the bittorent protocol with a distributed tracker to distribute its content. The torrent is downloaded by the "publishers" that charge a fee for storage and bandwidth. For encrypted content, the decryption keys are also distributed to the publishers.

Upon hearing what kind of content the platform will support, the cynic in me instantly reached two conclusions - a lot of the content, especially the movies and music, will be pirated like on current torrent websites, and a lot of the software content will contain malware. I somehow doubt I will be proven wrong...

So all in all, it looks like the system will use a blockchain to keep track of who paid for what content, while the actual content will be distributed over torrents. All in all, it looks like a poor man's version of MaidSafe or Storj, also somewhat similar to the Alexandria project. While those platforms focused on creating their own storage solutions paired with the blockchain, Decent appears to just mash Bitcoin and torrent technologies and produce something that's less than a sum of its parts.

A somewhat more usable solution would just focus on augmenting the torrent architecture without burdening it with a proprietary blockchain. You could use Factom or Ethereum to publish the magnet links, have some proof-of-payment solution to request the torrent data for paid content, or even just rely on donations from people that consume your content. Building one's own blockchain just to manage new tokens proves once again, a solution looking for a problem.

The token presale

Like a lot of projects in the crypto space, Decent is raising money through a token presale. To buy the tokens, you need to register an account on Decent's portal and pay bitcoins into a provided address. The tokens are distributed into the account and will later be available for withdrawal on the network proper. At the moment there doesn't appear to be an option of transferring the balance between accounts, so one is unlikely to be able to trade or sell the tokens before the network goes live.

Since it looks like Decent is handling all of the balances and not acting as a client-side wallet provider like Blockchain.info (that is, Decent probably handles all of the balances themselves), this can get really hairy for them from the regulators' perspective. Were they located in the USA, I would stay away from the service after what happened to Ripple Labs. Since the service does not seem to gather KYC information, it might be in a legal grey zone. Not being able to send the tokens around might actually be a benefit for the company - the token appears as a less of a security this way.

At any rate, the gathered bitcoins end up in 2-of-3 escrow with Coinbase. The three people responsible for handling the funds are:

• Matej Michalko, the founder and director of Decent. Also, a co-founder of five different Bitcoin conferences (I suppose that is a new, fancy term for "organizer" nowadays), and a co-founder of two other crypto-related companies
• Tibor Tarabek, reported to be the "Founder of Microsoft Slovakia", although his LinkedIn profile lists him only as a General Manager in years 1995-2000 (and also a "General Manager" of some "bitcoin, s.r.o." company between years 1992-1994, 16 years before Bitcoin was released!)
• Vasylchenko Alexander, former director of Mycelium in years 2012-2014

It is a bit strange that the founder of Decent is a co-signer of the escrow if you want to show that you can deliver on the project's promises. Find a few reputable Bitcoin people and use them for the entire escrow to show the release of funds is unbiased. Currently, all you need is one of the two extra people to co-conspire and you have full access to the 3.2M USD. While I might not know the reputation of mr Tarabek in the Slovakian Bitcoin space, his apparent lack of involvement with Bitcoin-related projects doesn't speak well to his ability to objectively judge a project like this.

Lastly, storing token presale funds in Coinbase, a company known for helping US authorities shut down torrent-related websites, doesn't bode well for the security of the funds. No KYC, token presales and US don't mix well...

All in all, I'm very dubious about how well the presale is handled. While it's not completely shady, I would not be surprised if the tokens get released before the project is finished or worse. To anyone that has purchased the tokens so far - hope for the best, prepare for the worst.

The Team

All in all, what makes or breaks a project is often the team. Let's look at who the Decent team is compromised of...

The Founders consist of:

• Matej Boda, who seems to be rather fresh out of university without much prior experience
• Matej Michalko, the aforementioned co-founder of a lot of crypto-related projects. He appears to be business-focused
• Wayman Kwan, a venture capitalist

So mostly business-focused founders. Let's look at the developers in the team:

• Josef Sevcik, with background in Business Administration, Informatics and telecommunication
• Bohdan Skriabin, a cryptographer still studying at a university
• Lubos Novotný, an UX / designer
• Stanislav Cherviakov, "a tech expert with a mathematical background" with experience in fintech, etc.
• Vladimir Dubinin, a mathematician with a computer science degree
• Anatoly Ressin, a programmer

And a lot of other advisers, ambassadors, etc. All in all, the development team is a bit mixed, having a few people that appear to have a lot of relevant experience, and some that are just starting out. The company also appears to be looking for a senior developer and a junior developer, both with a negotiable compensation payable in "other".

It looks like there are about 13 people making up the company proper. That can give the company a pretty high burn rate before any technical prototypes have been developed, but the costs may be rather low if the majority of the team is located in Slovakia.

Codebase

So far, Decent doesn't appear to be publicly owning up to any publicly available repositories on their website. However, the bitcoiner that prompted me to investigate the company pointed me in a direction of a github repository posted by Josef Sevcik, one of the developers on the Decent Team. It looks like a possible prototype of the Decent platform. The codebase appears to be based on Peershares with a small amount of changes (a few file diffs: 1, 2, 3).

Basing the codebase on proof-of-stakes based currency informs a lot of new things about the project that haven't really been mentioned on the project's website - the initial allocation of tokens (how much is being kept by the company and developers) can be really important when it comes to earning block rewards for example.

Conclusions

All in all, the Decent looks like an underwhelming solution looking for a problem. It is very unlikely the platform will solve all of the problems it sets out to fix - nobody will want to switch over to a new platform, use a new currency to get a glorified paywall. Focus on presaling the tokens doesn't seem to be improving the solution, as is often the case. Raising 3.2M USD before anyone has seen a prototype of the platform is similarly ludicrous. The tokens have little to no value during the presale - you can't trade them for speculation, you will only be able to use them once the platform launches, and there doesn't appear to be any special use for the tokens in the final system other than paying for things. I somehow doubt the platform will have 3.2M USD worth of content on it for years to come, so pre-purchasing a token now to be able to pay a movie for a few dollars or a blog article for a few cents a year down the line sounds like an awful proposition.

The escrow holing the coins doesn't appear to be following the industry's standards. It is not completely shady, but it could inspire more confidence.

The team behind the project looks fine - no "blockchain rockstar" stands out, but it seems to have everything needed. It is good that the company advertises its contact information, including physical addresses.

From the rumours I heard from a few fellow bitcoiners closer to the project, the company seems to be aggressively pushing for its presale with just a forked open source repo to back it up.

So in conclusion, the project doesn't look like it can live up to its own hype. The approach is rather naive, even if it can be fully realised. I see no reason to back it financially, and for anyone that has - I would like to know why? The token can't be traded, sold, speculated on until the project launches, which makes it a rather risky proposition.

The Bitcoin Bullshit List

Your Crypto Idea Will Not Work

Your post advocates a new:
(x) Altcoin
(x) Wallet
(x) Distributed data storage

Your idea will not work.  Here is why it won't work.

(x) Your target audience is too small to support the project
(x) There is already a product on the market that does exactly what you’re doing, but ( ) faster / (x) cheaper / (x) better / (x) is more established / ( ) ______________
(x) Your project will not be compliant with the current (x) KYC / ( ) AML / ( ) gambling / (x) DMCA regulations
(x) Your solution is worse than general-purpose computing hardware / software
(x) Your presale tokens have no economic value

Specifically, your plan fails to account for:
(x) The existing regulations
(x) Public reluctance to accept weird new forms of money
(x) The known security exploits of the existing Internet services
(x) The human factor
(x) The problem of distinguishing between a human and a bot

and the following philosophical objections may also apply:
(x) Nobody likes DRM
(x) Ideas similar to yours are easy to come up with, yet none have ever been shown practical
(x) Feel-good measures do nothing to solve the problem
(x) I don’t trust YOU with the money

Furthermore, this is what I think about you:
(x) Sorry dude, but I don't think it would work.

Bitcoin Bullshit Tier

You are advertising a new Bitcoin / crypto related project. Based on the information provided, you have reached the Bullshit Tier of 3 for the following reasons:

Bitcoin Bullshit Tier 1 - marketing babble, technology misunderstanding
(x) “Blockchain”
(x) “As good as / better than Bitcoin”

Bitcoin Bullshit Tier 2 - willful misinformation, bait and switch
(x) Claiming your project can accomplish something hard without a clear explanation of how to do so

Bitcoin Bullshit Tier 3 - Many red flags
(x) Token IPO

Pervasive banking

Pervasive banking

Bitcoin Crypto 2.0 Ripple Singularity of Money tokens value

In computer science, there is a concept of "pervasive computing" - an idea that instead of using a specific device to perform computation, it would instead be distributed "everywhere" and we would instead just use our devices as interfaces to access this ubiquitous computing environment. So instead of having say, a laptop or a PC where we run our programs, we could have a local cloud of computing devices to provide us with their resources at our disposal. Just as computing appears to be moving to this model with say, home game streaming, perhaps it's time for the banking services to take a clue as well?

What would constitute a pervasive banking experience?

1. The ability for anyone to access the banking network
2. The ability to cash in and cash out at any location, not just the banks and ATMs
3. The freedom to pay conveniently in any fashion

Number 1 we've discussed before. It would be really good if banks were considered to be a common carrier, and thus unable to refuse the service to anyone that pays the fees and follows the rules.

Number 2 is interesting. There are a few examples of some convenient cash in / out cropping up here and there. I've seen a few banks offering cash out services during checkouts at stores, Apple Pay looks like it will be offering P2P payments to allow people to pay for other people's purchases and what not, and Abra is looking into offering P2P remittance services.

Perhaps in the future we will see more companies embracing the "anywhere-in, anywhere-out" nature of banking and we might see say, self-checkout kiosks or even vending machines acting as our convenient ATMs? After all, if they can already accept deposits, make change and accept credit cards, they have all the functionality needed.

Number 3 appears to be also already in the works. We've got Google Wallet allowing you to pay wirelessly (although at the time, only in US, which still appears to be too focused on magswipes...), or a poorly named "Coin" card that replaces your multiple card with a single programmable card (unfortunately, with the outdated magswipes...). We also have some people developing Bitcoin applications that use MasterCard's PayPass technology.

Perhaps this step will become easier once everyone is talking on a common standard. Luckily, we have a W3C Web Payment Interest Group hoping to create a standard protocol for payments (list of participants includes Ripple Labs, although I don't see any other cryptocurrency expert representing). It is possible that with the standard being established it would be easier for companies to build gateways in and out of the old banking systems and allow for everyone to be able to pay in a way that is the most convenient for them - cash, credit, mobile or crypto.

Conclusions

All in all, it seems that we are heading towards the pervasive banking / Singularity of Money concept on a few fronts, although it might still be years before the idea is fully realized.


Relevant links:

• The Singularity of Money
• The rise of fiat-denominated cryptos

A legitimate reason for premining tokens

A legitimate reason for premining tokens

Crypto 2.0 premining Ripple tokens

In the Bitcoin world, the term "premining" is a dirty word and for a good reason. There have been numerous preminted altcoins out there created with the sole purpose of being pumped and then dumped. Some other premined coins gain slightly more credibility by premining their tokens in order to create fiat-denominated cryptos. Then again, we had some big scams in that realm as well.

Over the last few years we also had a few token presales for various app-coins (Augur, MaidSafe, etc.) and platform tokens (Ethereum, Mastercoin, etc.). While the tokens have mostly been advertised as being sold to give you access to the platform / application (possibly to avoid securities regulations), it is clear that a lot of people purchase those tokens in hopes of speculating on their future price.

And lastly, we have the case of Ripple, a Crypto 2.0 platform that was completely premined and whose parent company still owns a vast majority of the XRP tokens. Some have been sold, some have been given away, but the fact still remains - Ripple Labs owns most of those tokens. Some maintain that it can be a long-term business strategy for the company - to hold onto the XRPs for a long time while building up the network to earn money from the appreciated value of the tokens. While this might be a useful stream of revenue, I think there might be a better use for such tokens for both Ripple and similar systems that might come along.

As we have seen recently, a lot of big institutions are waking up to the idea of "a blockchain" and its usefulness for accountability and so on. Ripple is among one of such blockchains pushing for being adopted by big companies like banks or Western Union.

However, from what I heard chatting with some people in the industry talking to such institutions, the hard sell in a lot of cases is the token / coin. Perhaps this is why we see banks not wanting to adopt Bitcoin but being enamoured with a more bland and generic "blockchain" - you need bitcoins to use Bitcoin, and the price of bitcoins fluctuates wildly. The institutions don't want to get exposed to the price swings, so they opt away from such platform. However, what if we could remove that uncertainty altogether? Well, in some cases we might just be able to...

Imagine we have a company that wants to get onto a blockchain and is weighing its options. One of their concerns would be whether a system they build today will hold up in a few years time, both in therms of technical capabilities (will the system be able to expand to meet the growing needs of the network, or will we have another block size debate) and pricing (will the costs stay the same or go up). While the earlier is always up in the air since you can't predict everything, the latter might have a more concrete solution.

If we took a company like Ripple Labs with their big supply of XRPs, they could possibly offer a good solution to the pricing problem for an important enough customer. All they would simply need to do is offer that company a long-term option to buy the tokens at some fixed price. This way, the company could be certain they won't pay more than X to use the system in the future, no matter where the price of XRPs might go in the future. Whatever Ripple Labs might be losing by entering the option contract and possibly selling a fair amount of tokens at a low price years down the line, it could make up in other areas - either integration fees or the rest of their XRPs appreciating in value due to the high profile of customer they brought on.

So all in all, while there are many reasons why premining is a bad practice and should generally be avoided, there are a few reasons why it might be useful for the growth of the system.

Shipping without incentives and features

Shipping without incentives and features

Bitcoin Factom incentives Mastercoin Omni Ripple tokens

Recently I was doing some research into Factom, a new project that aims to embed a lot of data into the Bitcoin blockchain and create a "proof of existence as a service", among other things. I stumbled upon some criticisms of the software (Google Cache link, as the original was taken down). One of the crucial features missing from the Factom code at the current time appears to be the lack of incentive for nodes to store any data after it is embedded into the Bitcoin blockchain. Pondering this for awhile, a few similar issues with other systems came to mind, and thus I'm writing this blog entry on various Bitcoin-related software that launched without some important features or incentives.

"Convenient bugs and arbitrary features" is also a recommended reading related to this topic.

Red balloons - Bitcoin is not without its flaws

When I was doing research for my master thesis on Bitcoin, some researchers from Microsoft and Cornell University released a paper called On Bitcoin and Red Balloons, where they pointed out the Bitcoin nodes have no incentive to propagate transaction information through the network, and miners have all the incentive to actively withhold that information.

The gist of the research is that while anyone creating a transaction has the incentive to propagate it through the network (they want the transaction to be put in a block, so they spread it to everyone), miners have the incentive to include paid transactions into blocks (to earn fees), Bitcoin nodes have no incentive to relay the transaction information. They are not getting paid to do so, nor do they benefit from the transactions they transmit directly. Moreover, if a miner knows of a transaction with a fee, they benefit from not broadcasting it - this way it is less likely to be mined by their competitors and they are more likely to earn that particular transaction fee.

One can argue, however, that every business built on top of Bitcoin has the incentive to run a full node that relays all the information. While they don't benefit directly, the abundance of full nodes makes the network more resilient to attacks and more distributed. What benefits the community at large is also beneficial to the individuals in some way.

Mastercoin - a token without a purpose

Back in the day when Mastercoin launched (and has since re-branded into Omni), my biggest question surrounding this technology was - "what are mastercoins used for?". In the Bitcoin space, you would use bitcoins to pay the transaction fees. In the Mastercoin space, well, there wasn't a clear use for mastercoins. Sure, the project itself benefited from the crowdsale to fund the development of the protocol, and some people earned some pretty penny speculating on the price of the coins, but there was no immediate use for the tokens themselves. There were no mastercoin-denominated fees in the system, the transactions instead paid the standard Bitcoin transaction fees. Only much later did the developers include a clear use case for the tokens - to burn them for crowdsales. A little bit of an arbitrary feature in my opinion, but at least it is some feature.

Ripple validators - a big burden with no reward

In a similar vein to Bitcoin's lack of incentives for running full nodes, the Ripple network provides no incentive for network validators. A validator is similar to a miner on the Bitcoin network - they process all the transactions taking place on the network and create new ledgers. While mining bitcoins is a computationally-intensive task due to proof of work, the Ripple network is more heavy on the disk space (full network history taking up 100-500GB of data at the moment).

Unlike Bitcoin however, Ripple fees are not paid to the miners / validators, they are instead burned. Similarly, Ripple has no coin distribution schedule - all the XRPs have been created in the genesis ledger. This leaves validators with no incentive for a potentially burdensome effort (most of them are currently run by Ripple Labs last I heard).

There are two approaches to solving this issue however. One is the idea that the Ripple gateways should also run validators, as they are the ones earning the most money from the network operating. The second approach could build on top of Stellar's token creation - the validators can be compensated by the users of the networks for their contributions with newly minted stellars.

Factom - pay to save, never load

As mentioned in the opening paragraph, it appears that the Factom network allows its users to save any pieces of information into the network for a fee, but fetching the data in the future carries no cost and thus no reward for the nodes to carry out that request. If someone decided to abuse the network, they could try flooding it with a lot of requests similar to a denial of service attack - honest nodes would be overburdened with having to provide a lot of data, while lazy nodes that wouldn't even attempt to provide the information would be better off.

As such, it appears that the Factom network will need to expand its fee and reward structure to provide incentives for nodes to store information as long as it is useful, similar to how MaidSafe is supposed to work.

Branded coins - start with a purpose

I heard a few similar pitches - a company wants to release a new, branded coin and tie it to their service. They usually have some grand vision of how everyone will want to use their coin since they will be able to spend it in their system and pay anyone just as easily as they do with Bitcoin. Sometimes it's customer rewards for shopping, sometimes it's some coin to raise brand awareness. However, quite often such pitches lack one crucial thing - why would anyone want to use the branded coin over Bitcoin? If you say, have a payment processor that accepts Bitcoin and their branded coin, I personally see no reason to use the branded coin over Bitcoin, nor to hold it any longer than it takes to convert it back into BTC. Even the usefulness of presale tokens can sometimes be dubious.

In the end, a branded coin needs to serve some purpose other than just existing for the sake of it.

Conclusions

There have been a lot of projects in the past that have launched without all the necessary features or without proper incentives to support all of the functionality. While we can expect some level of altruistic behaviour from the people running the software, a well-run system shouldn't rely on altruism alone - either you pay to use the resource, or you lose it.

The paradox of presales - pondering Gems

The paradox of presales - pondering Gems

Gems presale tokens

A few weeks ago during one of the Vancouver Bitcoin Meetups, we were introduced to the Gems platform. Gems is a social messaging app that allows the users to talk with other people securely and send them crypto tokens easily. Another big feature of the platform is that people can get paid to receive ads in the application straight from the advertisers, creating a new kind of relation between them and the consumer. The topic that sparked the most interest and a heated discussion, was the token presale and a small paradox it created.

Gems platform is issuing its own currency in a form of 100 million gems. Some of those tokens will be airdropped over the course of a few years, some will come in form of bounties, and a number of them will be sold during the presale to fund the project. The gems will have value on the platform because they will be used to create and pay for ads that will be displayed on the Gems network. In other words, advertisers will have to buy gems so they can pay people to view their ads. Seems simple enough.

However, as is usually the case with token presales, the first thing people ask is "why would I want to use gems if I can just use bitcoins?". The change would be simple enough from a development perspective - if a network can handle payments in gems, it should also be able to handle payments in bitcoins. Starting from this assumption, gems are an unnecessary level of abstraction - most people will prefer to be paid in Bitcoin, and most advertisers will be able to pay them in Bitcoin, so going in and out of gems just to display the ads seems unnecessary.

However! There is a third side to this coin. The most basic function of any presale is to earn money for the developers to be able to actually create the product. As such, if the Gems platform did not use gems instead of bitcoins, the developers wouldn't be able to keep the current platform design and still have money to build it. By introducing the gems, the developers can sell the tokens to raise the money to build the Gems platform.

And here lies the paradox of (a lot of) presales. In order to create a compelling product through a presale model, a developer needs to create a new token and integrate it with the platform. However, by the simple fact that the platform uses a new token rather than Bitcoin, it becomes less desirable to the end users. Without the token, there can't be a presale and thus the end product might not be made.