Giovanni Vanini
Giovanni Vanini

Dfinity & Internet Computer: The New Internet Paradigm Shift

Introduction

Dfinity is a well-established and well-capitalized platform for smart contracts. This is owing to the technical intricacy and abstract vision inherent in Dfinity. Along with establishing their coin, they decided to open source their code, which generated more interest. Dfinity is seeking to alleviate typical internet issues. The majority of content, functionality and user data are encapsulated inside large-scale technological ecosystems. Dfinity’s Internet Computer uses a reinvented IT stack that enables developers to construct and host apps independent of the big-tech monopolies that now control user data.

Since 2016, Dfinity has been developing the “Internet Computer,” a decentralized blockchain network aimed at improving the internet. Beyond blockchain technology, Dfinity’s solution is comprehensive. The objective is to create a decentralized, scalable, cloud-based infrastructure for data storage, processing, and community governance. It solves issues such as data security and the oligopoly of large technology companies that afflict the traditional internet.

Dfinity Logo

Crypto natives may conceive of Ethereum’s “world computer” or Polkadot’s “meta-protocol” in comparison to the Internet computer. However, Dfinity wishes to reimagine the blockchain. However, Dfinity’s first version was similar to Ethereum 2.0; however, it has now expanded beyond Ethereum’s core functionalities. Dfinity envisions the internet as a platform for software applications and data, not only peer-to-peer connections and exclusive cloud hosting services.

The Internet Computer (IC) is more concerned with establishing an open internet than creating an immutable ledger. TCP/IP connects billions of people over the internet. Through the Internet Computer Protocol, developers, corporations, and government entities may now provide software and services directly to the public internet (ICP). This platform, like Ethereum, would enable developers to create decentralized computing applications. It will be more efficient than Ethereum in scaling these services and more adaptable to the needs of a specific user base (e.g. privacy).

The largest internet corporations now own the majority of user-generated content and data. The techniques and technology behind these systems are proprietary. Twitter and Google have a great deal of control over how users interact with one another and with third-party services.

Restricting third-party developer access may hinder innovation as a result of “platform risk.” The IC intends to respond by developing new open-source software and services. It aims to reduce platform risk while increasing and maintaining system complexity. This would also shorten the time required for product development. Dfinity promises to be the first blockchain capable of handling unlimited amounts of smart contract computations and data.

Additional hardware will be required to support the new IT stack. In comparison to Ethereum, the IC will need the use of massive data centers and high-end node computers (validators). However, its advantages may result in the development of other, less data-intensive use cases. Examples include interoperability, privacy, security, and openness. Peer-to-peer interactions on the internet and on social media are two examples of use cases. If the IC replaces legacy IT, there is no need for centralized DNS, anti-virus, firewalls, database systems, cloud services, or VPNs.

Dfinity seeks to redefine the internet. It even wants to run ETH 2.0 on the IC. IC’s data centers now control nodes that process network communications or canisters, similar to Solana. This is comparable to Ethereum 2.0, except that it has lately concentrated on DeFi and high-value transactions. Overall, programmable Layer 1s are intensely competitive. Dfinity is the newcomer, bringing a fresh technology and concept to the table.

Dfinity — The Internet Comptuer (IC)

Let’s discover togethher the main points below:

The mainnet has been launched on May 7, followed by the token on May 10. Prior to the ICO boom, the project solicited money under the $DFN ticker, but has now changed its name to $ICP.

The media has covered Dfinity’s fundraising efforts in a variety of ways. Dfinity said that they would be doing three main rounds and one airdrop:

  • The 2019 Seed Round was announced on Twitter and made available using a browser extension. Dfinity raised CHF3.9 million ($16 million, or $0.03 per token) from 370 investors. It held ETH and BTC throughout the 2017 crypto bull run. According to reports, Dfinity turned the already allocated ETH and BTC into $40 million in cash. Dfinity has guaranteed these seed investors that the next round will be a CHF 20 million initial coin offering (ICO). A year later, it was revealed that the project’s value objective was too low. Additionally, Dfinity said that the firm had no pressing financial demands, leaving the corporation in legal limbo under securities law. At genesis, the creators gave seed investors a 24.72 percent stake in the currency as compensation.

  • The strategic round raised $20.54 million, or about 7.0% of the initial supply (the number has been revised from the previously cited 6.84 percent ). It vests monthly for three years, beginning with the activation of the mainnet (May 2021). Among the participants are Polychain Capital, CoinFund, Multicoin Capital, and Greycroft Partners. This is a16z’s first investment in a token. Polychain and Dfinity subsequently merged to establish the mysterious “DFINITY Ecosystem Venture Fund.” The objective is to fund innovative uses for the integrated circuit. According to the media, Dfinity raised $61 million. The modified sum is very certainly included of monies for the Ecosystem Venture Fund.

  • 110 individuals contributed $97 million at a cost of $4 per ICP token, accounting for 4.96 percent of the original supply. Prior to that, the estimate was 4.75 percent. This allocation was subject to a year of monthly vesting beginning with the introduction of the mainnet. Vesting will begin on May 10, 2021. Among the investors in this round are Aspect Ventures, Electric Capital, ZeroEx, Scalar Capital, and Multicoin Capital.

May 2018 AirDrop: ICP tokens (formerly DFN) worth $35 million were airdropped to early supporters through their mailing list, forums, slack, and community. The company was valued at $1.89 billion. ICP tokens will be delivered in IOU form in September 2020.

At genesis, 469,213,710 ICP tokens has been allocated in the following way:

  • Early contributors: 9.50%

  • Seed donations: 24.72%

  • Strategic: 7.00%

  • Presale: 4.96%

  • Strategic partnerships: 3.79%

  • Community airdrop: 0.80%

  • Initial community and developer grants: 0.48%

  • Node operators: 0.22%

  • Internet Computer Association: 4.26%

  • Team members: 18.00%

  • Advisors and other third-party token holders: 2.40%

  • DFINITY Foundation: 23.86%

Core team

The Dfinity Foundation’s main workforce counts about 200 people. Those credited by the team and the media include the following:

  • Dominic Williams, CS: Williams is a serial entrepreneur who developed a file storage company and a monster-themed children’s online game. Distributed computing was required to connect the games’ lists of monster fights and gold nugget rewards.

  • Jan Camenisch, VP of Research: Jan formerly headed IBM Research’s Privacy and Cryptography research team and was a member of the IBM Academy of Technology. He has authored 130 publications and received 140 patents.

  • Johan Georg Granström, a former YouTube technology lead manager, comes on board as Director of Engineering.

  • Andreas Rossberg, Engineer: Rossberg formerly headed Google’s Chrome V8’s JavaScript language effort. He co-created assembly, a revolutionary sort of code that can be run in modern web browsers. Motoko is the programming language used by Internet Computers

  • Timo Hanke, PI: Hanke was a math and cryptography instructor. He joined CoinTerra, a manufacturer of Bitcoin mining ASICs and systems, in 2014 as Head of Research, later becoming Chief Technology Officer. Hanke has filed many patents relating to the optimization of Bitcoin ASICs.

Technology

The Internet Computer’s mission is to transform the public internet into a worldwide platform for computing. On May 10, 2021, Dfinity made the source code accessible. The ICP’s technical specs and the cryptographic puzzle that enabled it to function were previously undisclosed. However, the public realized that the company and technology had progressed, with some formerly held beliefs being abandoned or updated. Dfinity and its community have made the following information publicly available: The Internet Computer is a block-based computer protocol. At the base of the pyramid are self-contained data centers. They have ICP-specific node circuitry that interacts in order to agree on the state of the integrated circuit. A subnet is a collection of connected nodes that ensures decentralization.

Subnets are the Internet Corporation’s blockchains, the fundamental building blocks of the bigger network. They serve as a repository for a subset of software canisters. A canister is a group of code that developers may use to build apps in high-level languages such as Rust or Dfinity’s own Motoko. This includes simple websites, distributed applications, and even corporate software. For example, canisters might hold an open version of Facebook. The status of the canisters is replicated across all nodes.

ICP Protocol

Canisters are computer units that hold both code and data, similar to complex Ethereum smart contracts or Windows operating systems. An operating system may automate operations such as file manipulation and device connectivity. The IC provides public APIs to canisters so they may connect with one another, make payments, create and manage others, manage permissions, and get system time. In contrast to an operating system, a canister is replicated among all the nodes in a subnetwork.

This enables the IC to expand safely, add new features, and even withstand unforeseeable events like natural disasters. For example, subnets and nodes may be formed, terminated, or moved. As a result, the IC must be capable of evolving the protocol. As a result, the protocol has a NNS (NNS).

Network nervous system

The nervous system is in charge of all network components with some features such as, split and combine subnets to manage the strain on the network. If a subnet has a dozen canisters and the NNS splits it, some of the canisters stay in the old subnet while the others are transferred to the new subnet. The NNS serves also to combine nodes from several data centers. This might be due to network requirements, a required degree of security, data center capacity, or the unpredictable nature of hardware failures. It imposes economic constraints on the price that consumers must pay for computational capabilities. Subnets may be strengthened by progressively adding nodes. These nodes use the ICP blockchain computer protocols to replicate data and computations associated with the software packages they host. The protocol may potentially resuscitate whole subnets if a sufficient number of their nodes fail. The ICP uses this strategy to solve network faults and offer new features. There are two canisters in the NNS: a registry canister, which includes the configuration of the whole IC, and a governance canister, which contains proposals and neurons that determine who may participate in governance.

The Internet Computer is envisioned by Dfinity as a digital state. Voting, tokenomics, and data centers are all managed by the NNS governance system. Statistical aberrations in the node machines are used to identify defective behavior. The NNS is an open governance structure that encourages participation. Prospective node suppliers are assigned NNS Data Center IDs. The provider of the nodes may then purchase individual machine nodes, install ICP, and link to the IC network. This enables anybody in the network to create a neuron and submit it to the NNS, which operates similarly to a decentralized autonomous organization (DAO): network members vote, and the network ultimately decides. If the whole population of neurons votes yes, the proposition is instantaneously approved or rejected. The NNS charges the neuron that submits a rejected proposal in order to deter proposal spamming. As a result, the user’s neuron (locked ICP tokens) will suffer a penalty.

The NNS enables participants to specify their preferences before voting on a proposal, so avoiding manual voting. As mentioned above, individuals may vote using “neurons” or delegate voting to trustworthy third parties.

Block rate speed

The IC’s block rate begins at 1bps with the objective to reach 1,000bps during the next years. At the time of writing, the speed is about 30 bps. Williams asserts that there is no possible limit to the number of blocks per second. This is difficult to understand with traditional blockchain technology but is achievable with Chain Key Technology (CKT).

The CKT allows the IC to efficiently perform transactions and update data. These cryptographic methods coordinate the nodes, enabling the IC to have a single public key. This means that any device may rapidly verify the IC’s data. To any canisters employing Chain Key Technology that are housed on any subnet (likened to a blockchain). The IC is concerned with service compliance and data is completely on-chain. To address concerns about scalability, the ICP operates many canisters concurrently. As a result, the blockchain is sharded by default. However, sharded blockchains do not communicate in real-time.

Canisters may be used to process update requests, which are limited by the blockchain’s throughput but should be fast. In contrast to queries, which do not preserve alterations and are discarded immediately upon execution, a canister is capable of processing hundreds of requests. These are inexpensive and should be completed within milliseconds, providing users with the standard internet experience.

Consensus

To ensure that the ICP functions properly, each machine (or copy) must agree on which inputs to include and in what sequence. This ensures the coherence of the system. Finally, the true state of a piece of software is defined by the number of computers that execute and duplicate it worldwide. Outliers, or machines that report a manipulated state, have no influence on the consensus.

Each subnet is uniquely identified by a permanent public verification key. The subnet’s nodes must agree in order to produce a signature on behalf of its members (by a specific threshold). To achieve this threshold, a sufficient number of nodes must agree, but not all nodes must agree.

ICP Tokens & Tokenomics

Two native tokens are involved in the project: ICP is the governance token, whereas Cycles is a stablecoin that enables computing.

ICP does not have a limit supply and has a decreasing yearly inflation rate that begins at 10 percent and gradually decreases to 5 percent as time passes.

Two of the three functionalities of ICP tokens are inflationary.

Network Governance — an inflationary toolkit:
It is possible to use ICP tokens to establish neurons that may vote on ideas inside the NNS algorithmic protocol governance system. By participating in network governance, a neuron’s owner may receive voting incentives. They are also compensated in ICP. Each month, the NNS monitors a neuron’s participation in voting to determine its reward share. Users may delegate votes to other trusted neurons to increase participation and reward opportunities.

It takes time for ICP to breakdown from neurons. The separation delay may be chosen by the end user. The longer the dissolution delay, the more power and vote rewards neuron. You may increase but not reduce dissolve delays. The neuron may be placed into dissolve mode to start the unlock countdown. Currently, the dissolve delay must be set between six months and eight years to participate in voting.

Rewarding Participation (Inflationary)
The network mints ICP tokens to recompensate netwrok participants. Aside from voting incentives, the node computers hosting the network get “compute rewards”. In order to reward nodes operated by data centers and neurons, the NNS issues ICP tokens. This incentive approach increases supply.

Production of cycles for computer (Deflationary)

Canisters may turn ICP into Cycles for computing. A trillion ICP-Cycles are generated by burning 1 SDR (an asset established by the IMF containing the USD, EUR, RMB, JPY and GBP). Cycles must be added to software canisters during calculation or memory management. As the network’s computation rises, so does the need for Cycles, and therefore ICP.

In contrast to Ethereum, there are no fees for users. The canisters are pre-charged with Cycles equal to a certain number of execution units by the developers. Consequently, users do not need to own ICP tokens or even be aware that they are running on a blockchain in order to execute business applications.

To convert ICP tokens to Cycles, the tokens must be burned. Canister owners and canister managers trade ICP tokens with data center owners and neurons. To power their canisters, these owners and managers transform ICP into Cycles.

Cycles is a stablecoin that ensures the cost of computing does not change with ICP. First, the exchange of 1T cycles for 1 SDR of ICP. Second, if there is an excess of Cycles, users may use their ICP to acquire the undervalued Cycles and utilize them as computation fuel. When all the extra Cycles are burnt, the value returns to zero. Users will only burn ICP for Cycles once the equilibrium is restored. A novel approach to generating a steady value after algorithmic and collateralized stablecoins.

CKT is used to keep gas costs low and scale endlessly. With proper security and reliability, the IC may duplicate computation and data (not relevant to governance) across as few as seven node computers from seven different data centers. Even if the IC’s canister memory costs $5 per GB per year, the architecture assures its effective use. Compared to other blockchains, this is a worthwhile investment.

Cycles are used at the application layer. Those interested in network governance and developers needing to transform ICP into Cycles to charge for computation are logical purchasers for ICP. Open web solutions will eventually be constructed from autonomous code regulated by public tokenized governance mechanisms, like the NNS. Also, each canister may produce its own token, store it, and transfer it to other canisters through program execution (queries or updates). This will allow each internet service to vote and perhaps get a share of the value produced by the autonomous system. Everyone can have their own decentralized financial exchange with their own governance token for trading.

Example of applications

You may make new things with the IC. Tokenized internet services, DeFi, corporate systems, and webpages are all examples of this. A new “Internet Identity” replaces usernames, passwords, and cryptographic keys. The online ID may be used to access programs that support Chain Key Technology’s encryption. This eliminates the need for users to be followed across websites and services and makes privacy simple to maintain.

Dfinity, for example, anticipates open versions of Whatsapp and TikTok capable of supporting millions of users. Currently, the IC ecosystem includes the following applications:

Social:

Distrikt is a unified professional social media network. DFINITY’s Open LinkedIn application, which was shown at the World Economic Forum in Davos in 2020, is presently being marketed. Their initial financial investment was $500,000. Users have power over self-governing identities.

OpenChat is the IC’s answer to Whatsapp — a free, open-source messaging application. It is a decentralized chat application that utilizes encrypted communication tools.

CanCan is a unified video sharing program. It’s essentially an open, tokenized TikTok that’s accessible through any browser or mobile device. Scalability and Power of Internet Computers

Capsule Social is a decentralized social media network that is immune to censorship. The company was valued at $10 million by Polychain Capital’s Beacon Fund. Balaji Srinivasan, the former Chief Technology Officer of Coinbase, also endorsed it early on.

Canistore is a decentralized service provider for video, audio, and text. A next-generation social commerce platform, it enables users to create and share content without fear of platform risks such as algorithm changes that affect ratings and followings. Additionally, people may participate in governance and earn rewards for their efforts.

Dscvr.one, like Reddit, has a custom governance tool that manages future development and content review.

Infrastructure:

  • Fleek: makes it simple to build websites and apps on the internet. Their products are based on Web3 protocols including the Internet Computer, IPFS, Filecoin, and Ethereum.

  • Dfinity Explorer is an IC dashboard made by the community.

DApps:

  • Origyn is a cross-industry network for tracing luxury and arts items.

Decentralized Finance

  • DfiStarter is the first IDO platform on ICP, offering fundraising, PR, and marketing services, as well as technical assistance for IC initiatives.
    SailFish is a financial services gateway. It’s a decentralized social exchange.

Conclusions

There is considerable competition amongst programmable Layer 1s and Dfinity’s mission is to fundamentally transform the internet. IC’s data centers are similar to Solana’s in that they control nodes that manage network communications or canisters.

Dfinity went public in the midst of the bull run, which may have provided them with a competitive edge, but looking just at the ICP token price today, the financial appraisal does not represent the project’s entire potential.

Disclaimer

This study expresses the authors’ own views and the report is intended only as a source of information. This is not in any case financial advice. Please always do your own research before investing into anything.

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