Iāve been mulling over the question of how to setup the token economy for an incentivized mesh network.
While thinking about it, I keep coming back to the funny and informative lemoncoin video.
It seems the consensus is that the best utility token would not be a new token, but just using some preexisting widely used money.
Using normal fiat currency is not possible because you canāt digitally exchange dollars or yen without relying on centralized online banking infrastructure. That would defeat the purpose of having a decentralized off-grid communication system. Also, which would you choose? Dollars? Yen? The ideal unit of value should be some sort of international currency.
Fortunately, there exists an international and decentralized unit of value: bitcoin. However, using bitcoin as tokens is not technically possible at this point because of bandwidth constraints when using long range low power radios like the goTenna Mesh.
Making a bitcoin transaction requires at minimum transmitting a 64-byte ECDSA signature, and often more than one. Sending a message over three relay hops would require 3 x 64 or 192 bytes just for the signature information - minimum. More hops or more complex smart contracts require transmitting more signatures. Using a second layer system like the Lightning network would help, but you canāt avoid the need to eventually transmit a lot of signature information over the network. The Lightning network is also not optimized for reduced bandwidth communication and assumes relatively high bandwidth connections between all nodes.
Signature aggregation can reduce the need to transmit a large amount of signature data, but would require creating a different blockchain because the Bitcoin network only supports ECDSA signatures which can not be non-interactively aggregated. A new blockchain that supports signature aggregation seems to me to be the best approach, even if it introduces the friction points mentioned in the lemoncoin video. But creating a new blockchain means making important economic and security trade-offs. What technology secures the value of the chain? How are new tokens issued or destroyed? Can you prevent people acquiring tokens to speculate on their future value instead of their utility for decentralized communication?
Only the top proof-of-work (PoW) blockchain has any substantial guarantee of security. Attacks on low value chains show what can happen. The next most popular alternative solution is a proof-of-stake (PoS) system, but this mechanism is as yet unproven to work for high-value networks. There are also questions about the fairness of a system that indefinitely rewards the original owners of a currency.
So how how can a new blockchain use PoW security if only the most economically valuable chain (currently Bitcoin) can be truly secured by PoW?
I propose using something like the Liquid Sidechain with a nominal peg to bitcoin. If the value of an incentive token increases too high, people will increase token supply by converting bitcoin to incentive tokens. If the utility tokens fall in value, people can redeem them for bitcoin. If bitcoin increases in value faster than the incentive tokens increase in value, tokens will be redeemed for bitcoin and the remaining tokens will increase in value. This solves the problem of issuance and makes transparent the security trade-offs inherent to a minority chain. There would be no advantage to speculatively acquiring tokens over just acquiring the underlying bitcoin that the tokens are pegged to. There is also no new decentralized consensus system to attack, except the Bitcoin network itself.
A federated sidechain can be managed like the Liquid network, but instead of a federation of exchanges, it could be a federation of mesh device makers. Device makers would inject liquidity by pegging bitcoin to jump start the process and issue tokens to their customers. Users need to trust the manufacturers to honor valid transfers between the bitcoin and token networks, but as long as the majority (or super majority) are honest the system works. This is an improvement over something like mPesa air time tokens which are 100% controlled by a single company. With a federation of competing companies there is an incentive to follow the rules and not act unilaterally. Unlike a non-dominate PoW or any untested alternative consensus system, the trust trade-offs and incentives are transparent to everyone involved.
Iām really curious to hear what other people think about this problem and my proposed solution. Itās not really just a problem with mesh network incentive tokens, but this is a concrete example for thinking about the problems of utility tokens generally.