Internet Computer Explained: The Road Towards A Decentralized Web?

The internet was meant to facilitate freedom of speech and open access to web services.

However, in reality, a small number of tech giants dominate the landscape. As part of their centralized platforms, they sell consumers’ data to advertisers for a profit, ban users who do not adhere to their rules, and censor content.

Formerly known as DFINITY, the cryptocurrency project Internet Computer has the ambitious goal to drastically change how the web works by implementing a unique version of blockchain technology to achieve true decentralization.

While Internet Computer is definitely one of the most complex solutions in the crypto industry, it is also among the most controversial ones. Despite the goal to decentralize the web, the project received heavy criticism regarding the utilization of unusual practices and centralized elements within its network.

In this article, we will take a look at Internet Computer, explain how it works, and discuss most, if not all unanswered questions around the project.

Let’s dive in!

What Is the Internet Computer?

Internet Computer is a crypto project that seeks to replace the traditional IT stack and challenge the rule of tech giants over the internet by decentralizing the web via an innovative blockchain network maintained by a collection of independent data centers worldwide.

What makes Internet Computer unique is its ambitious goal.

While other crypto projects seek to compete with traditional solutions on the application layer (e.g., via a decentralized social network, a DeFi lending platform, or a stablecoin-powered payment system), ICP seeks to entirely change how the web works.

Founded in October 2016, Internet Computer is managed by the Switzerland-based non-profit organization DFINITY Foundation in collaboration with its partners, such as the Internet Computer Association. Interestingly, the project features a huge team with 212 members.

However, taking into account that DFINITY managed to collect nearly $170 million of funding throughout multiple seed and venture rounds a few years ago, the above information shouldn’t come as a surprise.

Due to its beneficial financial background and extensive team, Internet Computer is right on track to reach its goals, especially considering how fast development has been going.

While Internet Computer only featured a Software Development Kit (SDK) and the unique programming language Motoko in late 2019, it only took one year for the project to launch its mainnet in Q4 2020.

How Does the Internet Computer Work?

Earlier in this article, we have mentioned that Internet Computer is maybe the most complex project in the whole cryptocurrency industry.

For that reason, we have broken down the most crucial elements of Internet Computer into smaller, individual sections to better understand how the project’s solution to decentralize the web works.

Internet Computer Protocol (ICP) Architecture

One of the first things to explore is the architecture of the Internet Computer Protocol (ICP), the decentralized system that powers all the applications within the project’s ecosystem.

ICP allows developers to deploy and run their decentralized applications (dApps) on Internet Computer without the need to utilize any third-party services, servers, or content delivery networks (CDNs). In other terms, ICP is a computer that powers an alternative version of the internet that hosts, runs, and maintains all the components and processes related to web applications.

Internet Computer achieves this by utilizing a unique network architecture constructed from a hierarchy of building blocks.

Source: DFINITY

Based in numerous locations worldwide, independent data centers are the backbone of the ICP. In each data center, multiple node providers supply the hardware necessary to operate dApps inside Internet Computer’s ecosystem. The machines utilized for running the nodes are customized devices, which operators have to source from the DFINITY Foundation and its partners.

Instead of featuring a dedicated server for each app, dApps move freely between nodes at multiple locations, with the ability to operate on any device found in data centers. As a result, the apps running on ICP are not controlled or owned by a single or a small group of entities but the community that governs Internet Computer (more on this later).

If we move up in ICP’s network hierarchy, we will find subnets right above nodes. Simply put, sub-networks refer to the combination of a certain number of node machines. In other terms, each subnet is a unique blockchain where nodes from multiple data centers run ICP’s software components and hold advanced smart contracts called canisters.

Most importantly, subnets can communicate and interact with each other through a novel technology called chain key cryptography. This way, they can share their computing resources to increase their capacity and throughput, enhancing the whole network’s efficiency.

You can find canisters on the top level of ICP’s architecture, which the project describes as “smart contracts that scale.” Basically, canisters are the components in the Internet Computer ecosystem that run dApps as well as store all their code and dependencies.

Furthermore, canisters are responsible for serving web content directly to end-users who can interact with blockchain services without holding or spending any tokens on transactions. Instead, app developers have to cover computation costs by purchasing cycles, a specific digital asset featuring functionalities similar to Ethereum’s gas.

Like subnets, canisters can work with others (even if they are located in separate subnets), significantly improving the scalability of dApps running on top of the protocol. According to the project, canisters are tamperproof by nature, which means there’s no need to operate firewalls to protect them from external threats.

Network Nervous System (NNS)

As its name suggests, the Network Nervous System (NNS) is the component responsible for controlling all the aspects, processes, and (other) elements of the Internet Computer Protocol (in a similar way the mind connects with the body).

Examples of the NNS’ functionalities include:

  • Ensuring that a consensus is reached between the network’s participants
  • Securing the ecosystem by monitoring the ecosystem to identify malicious behavior and eliminate bad actors
  • Upgrading the protocol and the nodes’ software as well as creating new and splitting existing subnets to improve the network’s efficiency and scalability
  • Configuring economic parameters that determine the fees developers pay for computation
  • Reviewing the applications of node operators and data center providers and overseeing the permissions to participate in the network
  • Managing the project’s tokenomics and controlling cryptocurrency issuance
  • Rewarding data centers, node operators, and users actively participating in ICP’s governance

Most importantly, the NNS is an algorithmic mechanism that ensures that the network remains decentralized by facilitating community governance between participants and stakeholders.

To vote on governance matters via the NNS, users have to lock up their native ICP tokens for a period between six months to eight years. During the lock-up interval, ICP coins are automatically converted into neurons, non-liquid and non-transferable digital assets representing the voting power of holders.

Like with other cryptocurrency projects that require network participants to stake tokens to vote, the more coins you lock up, the more voting power you will have. However, in addition to that, you can maximize your impact on governance decisions by staking your ICP for more extended periods.

Interestingly, Internet Computer incentivizes the community by distributing token rewards to users for active participation in the NNS’ governance.

Another exciting feature of the NNS’ governance mechanism is that you don’t necessarily have to manually vote on each proposal submitted by the community to receive rewards. Instead, you can choose to (semi-)automate the process and delegate your voting power to others by configuring your neurons to follow other neurons during governance decisions.

So, to sum up, the NNS is the system that governs, maintains, and manages the whole Internet Computer ecosystem via community governance. While the NNS allows the project’s network to operate in a decentralized way, it also allows the ecosystem to become adaptive and autonomous.

Consensus

Internet Computer utilizes its own consensus mechanism based on the Practical Byzantine Fault Tolerance (PBFT) model. While this component of the project is super complex, we will only explore it from a high-level perspective to avoid any confusion.

As discussed in the previous sections, applications throughout the Internet Computer ecosystem are maintained by nodes operated from multiple independent data centers worldwide.

Like in other blockchain networks, these nodes have to reach a consensus over processing blocks and validating the records inside. While this data includes mostly transactions in other DLT networks (e.g., Bitcoin, Ethereum), ICP refers to this information as inputs. In addition to that, ICP nodes also have to reach an agreement over the order to process inputs in a way that they maintain a coherent state (so the network remains fully functional and organized).

It’s important to note that every piece of software inside the network is executed by numerous nodes. During the consensus process, the majority of these machines have to reach an agreement to define the true state of the software. A consensus among nodes is achieved on the subnet level, with each sub-network including multiple canisters and applications. This contrasts with “traditional” blockchains where the majority of validators have to reach a global consensus throughout the whole network.

As a result, validating blocks in parallel with other subnets significantly improves the speed of Internet Computer and the applications within the network. In fact, the project states that this allows ICP to achieve unlimited scalability as it can increase the capacity and throughput by upgrading data centers of creating new subnets.

Furthermore, according to the project, ICP’s consensus mechanism allows the network to process data and transactions rapidly, with finality taking less than a second in most cases. For comparison, confirming a Bitcoin transfer takes approximately 10 minutes.

Internet Identity

Internet Computer seeks to completely replace how identity and authentication work on the web.

Currently, you have to utilize a combination of a username and a password to log into each solution. After you provide this information, the service communicates with its servers to check them against its databases.

While this is the standard method to log into different services on the web, the centralized architecture of password databases poses security threats to users. Due to increased risks of a single point of failure, hackers can potentially acquire all the login details of a web solution’s users by breaching the database. While encrypting sensitive details offers some level of protection, there is a chance attackers can still bypass this measure to decrypt the information and gain access to user accounts.

Internet Computer seeks to solve the above issue by utilizing a single account, which allows a user to log into all services hosted on ICP. To achieve that, Internet Computer uses a standard called WebAuthn in combination with chain key cryptography.

While ICP generates a new identity for each dApp you sign into to provide increased privacy, you don’t have to store separate login information for each service. Instead, Internet Computer ties your web identity to your device, which you have to utilize to sign into different services via its built-in authentication methods, such as:

  • Biometrics, such as fingerprint scanner, Face ID, or Touch ID
  • The password or PIN utilized for unlocking your device
  • A security key plugged into your device (e.g., YubiKey)

It’s important to note that, even though your ICP internet identity is tied to your device, you are not limited to utilizing a single machine for accessing your account. Instead, you can register a new device by using its built-in authentication methods in combination with a machine you have already added to your identity.

Furthermore, to preserve the privacy of users, Internet Computer doesn’t require users to provide any personal details (e.g., name, email, phone number, etc.) to create a web identity on top of the protocol.

Chain Key Cryptography

Chain key cryptography (CHC) is a unique cryptographic model Internet Computer utilizes to orchestrate nodes so that millions of them can run at scale to achieve much better network throughput than other blockchains.

One of the major differences between CHC and the public-key cryptography utilized by most blockchain networks is that the prior features a single public key for data verification within the ecosystem. In contrast, in a DLT network like Bitcoin or Ethereum, each participant has individual public keys, which they can use in combination with their private keys to sign transactions (e.g., for sending and receiving transfers as well as interacting with blockchain-based solutions and apps).

Since nodes only need a single public key, everyone can easily verify the authenticity of inputs and other elements within the Internet Computer ecosystem without using too much data unnecessarily.

Verification of blocks within ICP works as follows. Each subnet features a single public key, which is utilized to authenticate messages. At the same time, all nodes within this sub-network receive a share of the private key corresponding to the public key.

Here, the nodes utilize a threshold signature scheme for validation. Simply put, this means that if a sufficient number of nodes above a certain threshold reach an agreement, they can combine their private key parts to jointly sign a message.

After that, the public key of the subnet is utilized to verify the authenticity of this new signature. And, as the last step, the public key of the whole Internet Computer Protocol signs the subnet’s public key (and the keys of other subnets’ as well).

Without deep-diving into the technical details, this process means that ICP can save tons of space compared to blockchains utilizing the traditional form of public-key cryptography, which significantly increases the scalability of the network.

Interestingly, the project states that the knowledge of a 48-byte public key is enough for ICP nodes to validate data and perform the necessary computations.

Beacon Fund and Internet Computer Fellowship

Internet Computer features multiple initiatives to kickstart developer activity around the project and expand the ICP ecosystem with new dApps.

One of them is the Beacon Fund, which is dedicated to investing early in startups with the goal to source, evaluate, and support high-quality applications and services built on top of Internet Computer.

DFINITY also has an initiative called Internet Computer Fellowship, a 12-month program focused on spreading awareness about ICP, sharing knowledge, and network building on a local level.

What Is the ICP Token and What Happened to its Price?

Formerly known as DFN, ICP is the native utility token of Internet Computer.

As mentioned earlier, Internet Computer requires developers to pay the fees of transactions and computations related to their apps. This means that end-users don’t need to hold or spend any ICP (unless there are in-app purchases or subscriptions) to utilize dApps.

This comes into contrast with most decentralized crypto services, where users usually need to utilize the native tokens of the projects to access the solutions (e.g., by staking, holding, or using the coin to cover transaction fees).

For that reason, the main utility of ICP is centered around developers as well as stakeholders that participate in governance. At the same time, the token is used to compensate node operators and data center providers for supporting the ecosystem.

As discussed earlier, users have to lock up their ICP to participate in governance for at least six months. Their coins automatically get converted into non-transferable and non-exchangeable neurons representing their voting power.

Most importantly, ICP can be converted into cycles, which developers can utilize to run their apps. According to the project, cycles reflect the true costs of computation within the Internet Computer ecosystem.

Interestingly, while ICP has a dynamic supply with no maximum cap, cycles get burned with computation in the network. Since developers can only acquire cycles by converting their ICP, burning cycles practically reduces ICP’s circulating supply, which can be considered a deflationary mechanism.

Although, we should note that this doesn’t make the token deflationary as the protocol compensates data centers, nodes, and active participants of the governance mechanism by minting ICP, which is an inflationary mechanism.

Now, as you know the basics about ICP, let’s see how the token’s price has been performing lately.

Since its official launch in May 2021, ICP has been quite volatile, experiencing a steady value depreciation during this period.

However, this shouldn’t come as a surprise, especially if we consider that most new cryptocurrencies are subject to sudden, excessive price changes as well as short- to mid-term downward movements after hitting the market.

That said, ICP’s price movements were even more extreme than most newly launched coins’, with the digital asset suddenly jumping from $280 up to $580 between May 10 and May 11 just to fall down to $45.50 as of July 5.

Interestingly, Internet Computer’s native token managed to rank among the top 10 cryptocurrencies by market capitalization right after its launch. And, even after a nearly 84% fall from its initial price, CoinMarketCap ranks ICP as the digital asset with the 19th largest market cap.

Controversies and Unanswered Questions Around ICP

It’s no question that Internet Computer is a super exciting and unique cryptocurrency project that has great potential to change how the internet works by leveraging innovative technology and concepts.

However, there are many unanswered questions around ICP that have sparked quite some controversy and made many in the crypto community skeptical about the true goals and the future of Internet Computer.

And, sometimes, for good reason.

Internet Computer is very different from other digital asset projects. It has more ambitious goals, most of its technology is unique, and utilizes distinct approaches towards operating a blockchain network, which includes governance, reaching a consensus, and validating transactions.

As a result, DFINITY took a different approach in some areas that have been considered the standard within the industry.

To start, while Internet Computer has been under active development for at least four years, the project hasn’t made its solution’s source code public until about a month ago (right after receiving heavy criticism from the community). However, critics argue that some of the protocol’s elements still remain closed-source. At the same time, DFINITY utilized a more restrictive license for some of its public code. This means developers can’t freely use it for building apps like in the case of most crypto solutions (think about the DeFi industry and how SushiSwap and other projects re-used most of Uniswap‘s code to build competitor AMMs).

Critics have also pointed out the potential caveats of ICP’s internet identity system. As mentioned earlier, the protocol seeks to replace individual accounts for different online services with a single identity that is tied to users’ devices.

According to some members of the crypto community, this increases the risks of censorship and can also lead to privacy issues. For example, if a single entity gains control over the majority of the network, it can effectively lock out the devices of users who don’t comply with its rules. And, as ICP is seeking to replace the whole internet stack in the long run, that means people can be potentially banned from the entire web.

And, critics are worried that the above (otherwise highly unlikely) scenario can potentially become a reality in the near future due to the distribution of ICP tokens and how voting power works within the network.

While the project pledged that its non-profit organizations won’t hold more than 50% of the total voting power, critics argue that both the DFINITY Foundation and the Internet Computer Association could technically gain control over the NNS by maximizing their voting power via staking ICP tokens for longer periods (e.g., eight years).

As a side note, the two non-profits had a combined voting power of 40% at ICP’s Genesis launch, with the community controlling nearly 60% of the network. However, the latter includes early contributors (less than 50) and seed donors (212) who possess 34.22% of the token’s supply. Also, 10.79% of the coins were distributed to strategic partners (less than 50-50 holders). By contrast, only 0.8% of the ICP supply was transferred to over 50,000 users as part of a community airdrop.

Based on the above data, it seems that the project’s token distribution is somewhat overly centralized. However, this isn’t necessarily out of the ordinary, as the distribution of many other projects within the crypto industry is rather concentrated. For example, over 65% of Dogecoin‘s supply is held by 91 addresses, and nearly 49% of all the LTCs on the Litecoin blockchain are owned by 106 addresses.

That said, critics have expressed their concerns over how the network is maintained. As we have already discussed, ICP is hosted by nodes that are deployed by operators at multiple independent data centers worldwide.

However, unlike most decentralized blockchain networks, the Internet Computer Protocol is permissioned, which means that validators must be pre-approved to operate nodes. According to the project’s website, node operators have to fill out a form with their details to request access, which the NNS will evaluate after.

Upon successful application, the operators’ nodes will get purchased from one of the project’s manufacturing partners and deployed later at an independent data center.

Internet Computer: the Ambitious Project Seeking to Change How the Web Works

Internet Computer is one of the most complex, exciting, innovative, and controversial projects within the cryptocurrency industry.

Featuring unique technology and concepts as well as a large, well-funded team, Internet Computer is also very ambitious as it seeks to completely replace the current internet stack in 20 years. As the ultimate goal, ICP wants to end the monopoly of tech giants by leveraging blockchain technology to decentralize the internet.

However, members of the crypto community have voiced their concerns over the potential caveats in multiple aspects of the project, such as its concentrated token distribution, increasingly centralized internet identity system, permissioned node operation, and the share of voting power in governance.

That said, while Internet Computer and the non-profit DFINITY Foundation received quite some criticism from crypto enthusiasts, it doesn’t change the fact that ICP is a unique project with great potential, featuring a team that is determined to reach its ambitious goals.

As Internet Computer’s development has been progressing rapidly, it will be interesting to see what the project can accomplish in the next few years and whether it can prove its dedication to the true decentralization of the internet to the crypto community.

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